Expansive tariffs give companies expensive choices: Move or pay up

WASHINGTON (TNND) — Companies are scrambling to figure out what moves to make after President Donald Trump unveiled sweeping tariffs on trillions of dollars in imports that has spurred a massive sell-off in the stock market and escalated fears of spiking inflation and a recession as everyone braces for how countries will respond.

Trump’s “Liberation Day” is a clear overhaul of how global trade has operated for decades and a direct challenge to companies to move their production for goods sold to Americans to within U.S. borders.

The president is hoping his high tariffs will force companies based in and outside of the U.S. to bring manufacturing jobs that have been shipped overseas to keep costs down over the years back home.

“Jobs and factories will come roaring back into our country, and you see it happening already,” Trump said on Wednesday. “If you want your tariff rate to be zero, then you build your product right here in America.”

Some major companies have announced plans to increase the amount of manufacturing done in the U.S. with expansions in the works from Apple, Johnson & Johnson and Hyundai. But whether other major companies and industries will follow suit remains an open question as some may opt to sit on the sidelines while they await expected retaliatory tariffs and for trade wars to resolve themselves.

The whiplash of tariff rollouts has already slowed business investment and caused consumer sentiment to plummet as both have opted to take a wait-and-see approach to making investments and spending money on goods and services that power the economy.

Manufacturing activity contracted in March amid concerns about increased costs and uncertainty surrounding the rollout of the reciprocal tariffs, the Institute for Supply Management said on Tuesday. Both highly-watched measures of consumer sentiment have dropped rapidly this year as Americans have become increasingly wary of tariffs and inflation spiking back out of control.

There have also been warnings about layoffs, particularly in the auto industry that is now facing a 25% tariff on foreign vehicles and parts in addition to Trump’s reciprocal tariffs. Ford’s CEO said earlier this year that the administration’s tariff policy would increase costs and force it to cut jobs. Stellantis moved forward with temporary layoffs of 900 U.S. workers on Thursday as it idles plants in Canada and Mexico due to the tariffs.

It is a tremendously difficult and expensive task for manufacturers to unwind and totally remake supply chains that have developed in a global marketplace for decades. Companies and economists have warned that it takes years to identify, purchase and develop a site to become a factory, meaning that even for businesses willing to move manufacturing to within U.S. borders, there will be a lengthy and costly delay.

“If it was announced well in advance and we knew it was going to be a stable plan, companies could take the hit, adapt and plan around that. It's not ideal, but they can deal with it,” said Ryan Young, a senior fellow at the Competitive Enterprise Institute. “This kind of implementation where it was announced and companies had eight hours’ notice for something that'll take years to adapt to. We don't know if Trump is going to change his mind on anything, and if he does, that might be again on eight hours’ notice. You can't plan around that. This is a dark day in American economic history.”

Other industries are also bracing for the impacts of the tariffs after several countries that are their main suppliers were targeted in the reciprocal rollout like 46% on Vietnam, 36% on Thailand and another 34% on China. Many clothing and shoe companies’ supply chains are primarily focused overseas and are now faced with billions in new costs unless they move production to the U.S.

Economists and the Federal Reserve are also highly concerned about the inflationary impact the tariffs will have after several years of elevated inflation that still has not returned to the central bank’s target of 2%. Stark increases to taxes paid to import products, all of which are in the double-digit percentages and stretch to nearly 50% for some countries, are likely to be too expensive for companies to absorb and are expected to be passed onto consumers.

“It'll be quick, and companies are going to do what they can to avoid passing on costs, but ultimately it is going to be consumers who pay,” Young said. “If companies report lower profits, there will be less hiring, there will be some layoffs.”

The labor market has been resilient since the end of the COVID-induced recession, frequently beating expectations and maintaining strong hiring figures, low unemployment and minimal layoffs despite higher interest rates. But there are some bubbling trouble spots and concerns that higher prices as a result of the tariffs could lead to reduced spending by consumers and businesses, weakening the economy and potentially inducing cuts to the workforce.