‘Fewer Choices and Higher Prices’: The Supply Chain of the Future
Liza Lin and Tom Fairless
5 min read
Vietnam faces a 46% tariff on its goods. - Linh Pham/Bloomberg
American consumers should brace for price increases and fewer options in the store, say people involved in the global networks that supply U.S. retailers.
The companies that built up Asian supply chains over decades operate on slim margins, and many say they have little choice but to pass on the cost of President Trump’s higher tariffs, assuming he sticks by his plan. They say it is impossible to make many labor-intensive products in the U.S., and shifting around production to ease the tariff burden will be time-consuming and costly.
“The supply chain of the future will look like a multiheaded dragon,” said Bruno Jaspaert, the chief executive of the Vietnamese industrial-park owner Deep C Industrial Zones. “The era of sourcing from one global manufacturing base in the world is completely over,” said Jaspaert, whose sites are home to tenants such as the tiremaker Bridgestone.
Others such as Eric Zheng, the president of the American Chamber of Commerce in Shanghai, said companies might sell less to the U.S. or pull out of the market altogether. With the new tariffs, “You’d see fewer choices and higher prices,” he said.
Ansell, an Australian maker of protective gloves that has much of its business in the U.S., said Friday it would raise prices to offset tariffs. It manufactures most of its gloves in Asia and said it didn’t intend to move production to the U.S.
Many industry participants said they were taking a wait-and-see approach, believing Trump would be willing to negotiate deals with countries to lower or lift the levies.
The president encouraged such speculation Friday with a social-media post saying he spoke with the Communist Party general secretary in Vietnam. It faces a 46% tariff on its goods under Trump’s plan. Trump said Vietnam was ready to cut its tariffs on U.S. goods to zero “if they are able to make an agreement with the U.S.,” suggesting the 46% rate might not stay.
If Trump stays with his plan, business executives and economists said certain countries with lower tariff rates were set to emerge as relative winners.
Countries such as Mexico, Brazil and India would step up to a bigger role linking China’s vast supply chain to the U.S. market, they said. Those countries would draw investment to replace the current “connector states” in Asia, led by Vietnam and Cambodia.
“What stands out is how hard these connector states are hit,” said Mats Persson, who was a foreign-policy adviser to David Cameron when he was U.K. prime minister.
Trump this past week put tariffs of at least 10% on all U.S. trading partners and singled out Vietnam, Thailand and others with especially high rates.
Products particularly exposed to tariffs are toys, videogames, computer parts and smartphones, according to research by S&P Global. Vietnam and China supply more than half of the furniture imported by the U.S., according to the Home Furnishings Association, which said, “Consumers in the U.S. are expected to bear the brunt of the costs” of tariffs.
Welding wire at a factory in China. - AFP/Getty Images
Vietnam supplies a third of the sports shoes and a quarter of the solar cells imported by the U.S.
China, Vietnam and Thailand make much of the world’s portable computers, data from the research firm TrendForce shows.
Since Trump’s first term in office, businesses such as Apple, HP and Nike have invested heavily in Asian countries outside China and moved assembly there. This strategy is often termed “China plus one.” It was designed to sidestep tariffs imposed by Trump in his first term and continued by the Biden administration.
Chinese factory owners who had been bracing for higher tariffs on their own country were surprised at how hard Vietnam and Thailand were hit, said Cameron Johnson, a supply-chain consultant in China for around two decades. He was in the manufacturing hub of Yiwu in China when the news broke.
Workers stitching apparel at a factory in Ho Chi Minh City, Vietnam. - huu kha/AFP/Getty Images
“Factory owners told me, ‘We’re all in this together now,’” said Johnson.
Philip Richardson, who makes high-end audio equipment in China’s Guangdong province, said Chinese factories could seek to cut costs by sourcing such components as resistors and transformers from parts of China where labor is cheaper. Even so, for luxury products, including the $10,000 speakers his company makes, the end customer would likely fork out the bulk of the increase, Richardson said.
He said his advice would be to ride out the storm rather than making sweeping changes now. “You gotta play smart. Fix your problems here, optimize your resources there, cut the fat and drop your margins. Stay afloat with a little fat,” said Richardson.
Apple, Taiwan Semiconductor Manufacturing Co. and the South Korean automaker Hyundai Motor have announced large factory investments in the U.S. this year, in line with Trump’s goal of rejuvenating American manufacturing.
But people in exporting industries said it would be unrealistic to expect labor-intensive businesses such as apparel to return to the U.S., because it lacks workers skilled in those industries and a nearby supplier network to keep costs down.
U.S. manufacturing employees earned around $103,000 on average in 2023 including pay and benefits, according to the National Association of Manufacturers, a Washington-based advocacy group. That is around four times the wage level in China and 2.5 times that in South Korea, according to ING.
“One thing is clear: Moving back to the U.S. at scale to avoid tariffs is not an option,” said Steve Lamar, president of the American Apparel and Footwear Association.
“Chinese factories have already relocated to Vietnam. The next place is jumping to India where tariffs are lower,” said Charles Kenny of the Center for Global Development, a Washington, D.C., think tank. Tariffs would have to be over 100% to make American workers competitive, he estimated.
