The Tariff Effect

When Buying Domestically Isn’t an Option, the Consequences Can Be Slow, Costly

Aug 05, 2019
Logistics

SMITH BRAIN TRUST  Faced with the option of either buying American steel products or importing foreign steel and paying the associated tariffs, the choice would seem to be pretty simple.

But, for many U.S. manufacturers, it’s more complicated than it seems, says Gary Cohen, clinical professor of Supply Chain Management and Director of the Supply Chain Management Center at the University of Maryland’s Robert H. Smith School of Business.

In some cases, Cohen says, it’s not about buying foreign steel or domestic steel, saving money or spending a bit more – it’s about finding material that meets specific, hard-to-match standards.

While switching suppliers might work for some companies, there are plenty of examples, he says, of companies that have tried without success to switch from a global supplier, to a U.S. one.

“All along the debate, we never adequately addressed the question of: ‘What if the domestic producer doesn’t meet the same specifications that a particular manufacturer needs?’” he says.

A Maryland company was recently faced with just such a dilemma. Faced with the prospect of paying tariffs on imported steel and unable to source the steel the company needs domestically, Independent Can Company has applied for a federal exclusion on the tariff on Chinese steel. The process, according to reports, has been frustrating, slow and costly for the Belcamp-based business.

Now the company worries it might have to make cuts.

“That’s the problem with tariffs, and these tariffs in particular,” says Cohen. “They’re too broad-based. You’re saving one job and, in the process, you may be losing five or six.”

It’s an example, he says, of the unintended consequences spilling out in the wake of the tariffs.

“This is happening to companies all across the United States. There are no winners in a trade war.”

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