Business executives are increasingly planning to modify their supply chains, citing the risk of disruption and cost concerns ahead of wide-ranging tariffs expected from the incoming Trump administration.
Seventy-one percent of US CEOs are either planning to alter their supply chains in the next three to five years or are already in the process of doing so, up from 54 percent in 2024, according to a new survey from The Conference Board, a business think tank and trade group.
Among European CEOs, 77 percent are planning to make adjustments to their supply chains, up from 61 percent last year.
Many economists have been cautioning that the Trump tariff proposals, which have included a 10 to 20-percent general tariff and a 100-percent tariff on Chinese imports in particular, could lead to a rise in prices, which were a top concern for voters in the 2024 election following the post-pandemic inflation.
For importers of many consumer goods who rely on a low-price, high-sales-volume business model, the effect of a wholesale tariff could have a sizable effect on overhead costs and be passed along to customers.
“The whole point of a retailer like Temu is to sell a large volume at a low profit for each item. This means that they don’t have much room to lower the price, before it is not worth making the sale,” Dean Baker, senior economist with the Center for Economic Policy and Research, wrote in a Friday analysis.
Trump has defended his tariff plans by arguing they will help to protect U.S. industries against international competition and bring outsourced jobs back to America, particularly in manufacturing.
While promising to bring prices down on the campaign trail, Trump told Time magazine after winning the election that bringing prices down would be difficult.
“It’s hard to bring things down once they’re up … very hard,” he said, referring to grocery prices. In fact, while wholesale prices fluctuate according to various component costs, retail prices that consumers pay almost never go down in aggregate.
Imports have been surging at U.S. ports ahead of the expected Trump tariffs. The Port of Los Angeles received close to a million 20-foot containers in October, a jump of 25 percent on the year that port officials attributed in part to expected new tariffs. Volumes were up 16 percent in November.
Following the huge commercial disruptions caused by the pandemic, the Biden administration and many US companies talked often about the “friendshoring” and “nearshoring” of supply chains, diversifying them away from traditional East Asian production centers.
While Chinese imports to the US went down on the whole between 2017 and 2022, imports from other countries, also with cheaper labor costs, have increased. These countries may simply be pit stops in longer China-centric supply chains, economists have noted.
“Despite reduced imports from China, indirect supply chains with China, especially through Vietnam and Mexico, are strengthening,” Stanford University researchers noted in a paper last year.
Other concerns for CEOS, as polled by The Conference Board, include fears about a recession and a wider economic downturn, a lack of job force talent on artificial intelligence, U.S. public debt levels, and the dimensions of increased trade competition with China.
Concerns about debt levels may be showing up in financial markets too, as bond yields have been increasing even as the Federal Reserve has been cutting interest rates, a divergence that some investors have described as highly unusual.
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