Will American Factories be Damaged Due to Tough Trade TalkS?

American factories were already in a tough spot before voters elected Donald Trump to become president. If Trump follows through on his threat to toughen trade talks and impose 45 percent tariffs on imported goods from China, U.S. manufacturing may decline even further than it already has.

Trump promised to protect American jobs by punishing companies that offshore labor. However, if these companies stop outsourcing jobs to cheaper laborers, the costs of their goods will skyrocket. American factories may not be able to compete with manufacturers from China, Mexico, India or Asian nations simply because their supply chain could become too expensive.

Countless companies rely on raw materials shipped from other countries. If future policies tack on an additional 45 percent to supply costs, goods made in other countries and shipped to the United States may become less expensive because of lower labor costs overseas. The additional tariffs might force companies to seek less expensive alternatives, and that could cause even more offshoring as U.S. manufacturers try to find goods at the lowest cost. Some American factories could close amid intense competition to make the same items for the lowest overhead costs.

At First Class Seating, owner Chuck Reid estimates that his recliners may increase in price by 20 percent if a tariff of 45 percent becomes a reality. Other American factories would have to follow suit to remain profitable. However, manufacturers of the same types of chairs in Colombia, Mexico and Australia would buy Chinese supplies without the 45 percent tariff. Yes, the costs of those goods would increase by 45 percent in America due to the tariff, but the basic overhead remains lower than American-made goods. First Class Seating might become a victim to lower sales and lower profits when movie theaters choose lower-priced alternatives made overseas despite tougher trade talks under a Trump administration that promises to bring manufacturing jobs back to the United States.

Manufacturing employment is already facing threats of a skills gap over the next 10 years. Advanced robotics and automation require highly skilled workers who need more education than a high school diploma. Instead of going from high school to the factory floor, more employees find themselves attending one to two years of college.

Experts and analysts believe that Trump's talk of employing tariffs as way to bolster American factories was just a gimmick. The practicalities of adding tariffs is much more difficult considering any tariffs must be approved by Congress first, and the World Trade Organization forbids any blanket tariffs. Congress must examine each tariff on individual sectors before imposing an increase.

American factories might continue to face tough times due to a struggling world economy, skills gaps and an uncertain political climate. The effects of increased tariffs may increase manufacturing costs, but automation still threatens traditional U.S. manufacturing jobs.

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