The Impact of Tariffs on Manufacturing

The trade war between China and the US has been constantly escalating, which draws opposing opinions from experts in all fields. On one side, many think tariffs limit the benefits of free trade, raising the cost of living, and failing to bring positive effects to manufacturing in the US. On the contrary, the others believe the trade war is beneficial for the US economy, as it brings more manufacturing job opportunities back to the US. No matter what the future will be like, we have to put the emphasis on currently the two most impactful tariffs: a 25 percent tax on steel and 10 percent tax on aluminum. The impacts of them could be everywhere, from Coke and vehicles to industrial equipment and other high-end manufacturing.

Tariff Avoidance Strategies

In Taiwan's manufacturing industry, the trade war leads to the rise of all kinds of costs. For example, materials, manufacturing, and sales are all influenced, directly or indirectly. Here are the strategies most corporations adopt:

1. ) Reduce the cost of supply chain
2. )Switch to another supplier with lower cost
3. ) Revise design and change manufacturing way to cut down manufacturing cost, and adopt Industry 4.0 with automation (and unmanned factory)
4. ) Stand still and stick to the current operating strategy, while bearing the enormous pressure of continually rising costs during the trade war.

As the trade war continues, although it does not force corporations to shift back their massive production to the US, due to the fact that the labor cost in the US is still higher than that in China or other countries overseas. Gradually, it apparently accelerates the speed at which corporations move their production out of China. Since 2019, many CNC manufacturers in Taiwan have indeed received orders from China, most of which are from the purchasing offices in China. These purchasing offices are assigned by their parent companies in the US to purchase from Taiwan or Southeast Asian countries. Although in the first half of the year the accumulated exports of Taiwan slightly dropped, in certain industries such as IT industry the accumulated exports are constantly growing.

Taiwan's exports highly rely on China market but also influenced by tariffs.

(Ref: https://cus93.trade.gov.tw/)

In the trading storm between these two great and conflicting countries, CNC manufacturers in Taiwan might benefit from the transferred order temporarily, in the meantime, we should also figure out how to prevent ourselves from being dragged into the storm next time.