US Tariffs and how it affects the US and offshore Manufacturers
If you have been watching the news lately, you may have noticed that The United States and China have engaged in a trade war. The trade relationship between China and the United States is the largest in the world with an estimated value of goods and services of about $650 billion. In July, the United States placed a 25% tariff on $34 billion worth of Chinese imports and products. The Chinese government countered with the same amount on American goods. In early August, the Trump administration put together another list of about $16 billion worth of imports from China that will be hit with 25% tariff. Some of these products include antennas, speedometers, and motorcycles. China is retaliating with equal tariffs, but they export more products and services to the United States than the other way around which makes it difficult for the US to lower the trade deficit.
The U.S President’s new tariffs on $50bn of Chinese imports have given birth to several controversies from US business leaders as well. Also, there are speculations that the rising tariffs on intermediate inputs may have a noticeable negative impact on the U.S. manufacturers. As the price of intermediates has now been raised, the tariff hike might be a steep reason for the U.S. manufacturers to increase prices, thus giving the consumers a tough time.
How important it is for your business:
Many manufacturing companies in the United States rely on offshore manufacturers in China for most of their sub-assemblies. Labor and machining rates in China are much lower than they are in the United States. If tariffs on imports keep rising, costs for US companies will increase accordingly. Material tariffs will boost prices, which in turn affects your supply chain and disrupt your orders. These higher costs will be passed to the consumer or if the manufacturer decides to take on the extra charge, it leaves them with less cash flow to reinvest and expand. At worst, these additional costs may severely reduce output to the point where wages would be lowered, and jobs may be cut.
Katalyst Impact
Katalyst has a large Engineering practice located in India that can help you recover from some of these extra costs that you may be incurred due to the increased tariffs. Our highly-skilled manufacturing and design engineers come at a low-rate. We have a blended on-shore and Offshore Manufacturing delivery service that allows your team the further communication it needs when working with off-shore resources. Our global reach to clients in various segments includes heavy construction and agricultural machinery, mobile and tower cranes, mining machinery, automobiles, and the defense and aerospace sector. Our Manufacturing Engineering group can help take the lower-level work off your hands to keep your engineers engaged in their projects, or our Design Engineering group can take on full engineering projects that you currently do not have the capacity for.
