Tariffs on Chinese imports and American exports have hurt American products and caused shortages, but the result is the U.S. is becoming more independent.
More companies here are manufacturing more of the products we need or are diversifying their product sources, business leaders said.
A big concern about China is industrial espionage, according to David N. Taylor, president and chief executive officer of the Pennsylvania Manufacturers’ Association.
“We need to be tough on that country because they want to make everything and have all other countries come to China as supplicants,” Taylor said.
The trade war with China started in 2018 and affected the supply chain for electronics, said Iordanis Petsas, Ph.D., professor and chair of The University of Scranton’s Department of Economics and Finance.
“The pandemic also has affected the supply chain,” Petsas said. “Companies started getting supplies from other countries. The effects cannot be ignored.”
He noted the pandemic began in China, and that is where many of the components the health care sector needed to fight the COVID-19 virus, such as face masks, protective gear and components of pharmaceuticals, are produced.
Petsas said the supply chain disruption is a reality check to see how much the United States can depend on itself to produce the products it needs.
“It’s wise to have drugs manufactured in the U.S.,” he said.
“The pandemic increased pressure to manufacture products domestically,” Petsas said. “Of course, increased domestic manufacturing is good for employment.”
The professor said that even before the pandemic, companies didn’t keep a lot of inventory, because production is based on demand, and companies try to increase profits. When the supply chains were disrupted because of the worldwide pandemic, and consumers overreacted, the shortages became worse.
Now, companies are creating strategies to try to diversify their supply chain, Petsas said.
Still, he added, “According to forecasts, world trade could drop 32 percent.”
Petsas added, “We are trading 32 percent. It could be much higher, depending on how much the product chain is disrupted.”
He said if three factories in Taiwan that make microchips for cell phones shut down, that’s going to cause chaos.
“Automakers use electronics, microchips in screens,” he said. “If any of these items are not available, you cannot make a car.”
Petsas said, “One solution is trying to bring more products back home. Also, they could diversify suppliers in other countries, have several suppliers. We don’t want to make every single product and disrupt trade. We don’t have all the resources here. We don’t want to make products we’re not good at making.”
Exports affected, too
Tariffs imposed on exports also are hurting American companies.
“While we do not have county-level data that tells the story of how businesses and products are being hurt by tariffs, we know that Pennsylvania businesses — from makers of farm products to manufactured goods — are facing major setbacks because of the tariffs,” said Casey Smith, spokesman for the Pennsylvania Department of Community and Economic Development (DCED).
He said DCED’s Office of International Business Development began hearing concerns from companies as soon as the tariffs were imposed on American exports.
Smith noted China is the largest market for Pennsylvania hardwoods, and there has been a significant drop in exports over the past year.
“Since Chinese tariffs have been levied on American forestry products in 2017, Pennsylvania exports to China dropped 13 percent in 2018 and are down another 39 percent this year through August, compared to the same period last year,” he said.
“NLMK Pennsylvania, a Russian-owned steel mill that imports steel slab to process for its customers in the U.S., has recently laid off nearly 100 employees and eliminated another 35 salaried positions as a result of the tariffs,” Smith said. “Additionally, the Department of Community and Economic Development has heard from a Pennsylvania company that purchases steel for its products and has seen a 20 percent increase in the price of domestic steel from a domestic supplier since implementation of tariffs.”
Supply chain disrupted
“Supply chain issues? Yeah, no question,” said John Augustine, president and chief executive officer of Penns Northeast, a regional nonprofit economic development agency. “A ventilator has 400 components. If you have 380 and you don’t have the other 20, you don’t have a ventilator.”
He said the pandemic, as well as tariffs on Chinese imports, caused supply chain issues.
“When everybody went home to work, not everybody had computers,” he said. “Parts come from China. You had a whole country told to work from home and they didn’t have enough computers.”
He said the United States imports products from various countries. But we can’t be dependent on other countries, he said.
“We’ve got to make our own masks, we’ve got to make our own ventilators,” Augustine said. “This will not be our last pandemic. I can guarantee that. We’ve got to be ready.”
He said, though, he believes the resurgence of manufacturing is due to COVID.
“I think the tariff thing has been an issue, some of the imports have been an issue, products have been an issue,” he said. “I think you’re going to see more manufacturing.”
Two new companies to the region, CANPACK Group and Ball Corp., are on par to bring in more than 600 jobs. Augustine said the CANPACK jobs would pay as much as $60,000 a year, the highest paying jobs he has seen come into the area in the 25 years he has worked in economic development.
CAPACK supplies aluminum packaging for beverage, personal care and household products customers, as well as aerospace and other technologies and services, primarily for the U.S. government, according to a company spokesman.
“We’re on par to do 3,000 new jobs this year,” said Augustine, who oversees eight counties.
“Companies are saying we’ve got to get products on the shelves,” he said. “If there is another shutdown, we’ve got to be ready. Seventy percent of pharmaceuticals are made in other countries. We’re trying to bring more here.”
“Manufacturing is the engine that drives Pennsylvania’s economy,” Taylor said. “There are a half million jobs on the plant floor.”
Taylor said the impacts of the tariffs vary widely and are continuing to evolve.
He said the larger issue with China is is the threat to national security to not just the United States, but our allies, as well, from China loading spyware into electronics it exports. He said there is concern among U.S. government officials about systemic Chinese industrial espionage.
Like Petsas and Augustine, Taylor said the U.S. has become overdependent on critical imports.
“It’s not just about economics,” Taylor said.
He said Beijing’s influence restrains America’s freedom.