Tariffs are back in focus following the recent Supreme Court ruling. In this Supply Chain Byte, Lisa Anderson explains what the ruling means, provides historical context on tariffs and outlines what manufacturers should be thinking about now to protect profitability and remain competitive.
The tariffs from IEEPA (the International Emergency Economic Powers Act) were ruled unconstitutional and are no longer in effect. Trump used IEEPA for the reciprocal tariffs. The tariffs related to national security for steel, aluminum and automobiles from Section 232 of the Trade Expansion Act of 1962 are still in effect. Since the administration wanted to keep the same tariffs in place to meet their objectives, they immediately put a 15% global tariff in effect from Section 122 from the Trade Act of 1974. Since the reciprocal tariffs averaged just over 15%, this new temporary tariff largely replaces the IEEPA tariffs. During this 150-day period, the administration will perform studies of unfair trade practices so that they can largely replace the IEEPA tariffs with similar, court-tested tariffs. Thus, the bottom line is that tariffs will remain intact.
What is the reasoning behind the tariffs? Although there is a lot of reasons out there, we see two key drivers:
- Unfavorable trade past its due date: After World War II, the U.S. agreed to give other countries favorable trade so that they could recover from the war. Although these countries recovered a long time ago, the U.S. continued to provide favorable terms even though it didn’t go in both directions. Tariffs was a step in that direction to offset tariffs and non-trade barriers.
- China entering the WTO: In 2001, China entered the World Trade Organization and received preferential trade treatment as they didn’t have to follow the same rules (labor, environmental, financial, etc.). Since then, China’s manufacturing has gone up and the U.S. went down. In addition, China is able to subsidize manufacturing as needed to support governmental goals.
What Should We Be Thinking?
Forward-thinking executives are assessing their end-to-end supply chain networks. They are looking for opportunities, preparing to scale, and mitigating risks and bottlenecks. As trade deals evolve around the globe, opportunities will emerge. The best companies are utilizing a SIOP (Sales Inventory Operations Planning) process to gain predictability, visibility, scalability, serviceability and profitability. In essence, the process provides predictive insights, a view into changing conditions, and it highlights key decisions with trade-offs and simulations so that you can evolve your supply chain proactively to support your customers’ needs while mitigating risk and improving performance.
If you are interested in reading more on this topic:
Your Tariffs Playbook & Path Forward in Supply Chain