US Production Execs Support Increased Tariffs Despite the Risks of Recession

When you read business magazines, it is easy to get the impression that business executives are overwhelmingly opposed to increasing tariffs. When it comes to US manufacturing executives, that is not true.

These insights are based on a new survey that was recently released from LevaData. LevaData delivers applied AI to enhance strategic sourcing and procurement. LevaData surveyed 100 US manufacturing executives and managers in the high tech, consumer goods, industrial, automotive, and life sciences industries. 57 percent of the respondents held a title of director or higher. “Concerns regarding tariffs are clearly top of mind for enterprise manufacturing executives,” explained Rajesh Kalidindi, founder and CEO of LevaData.

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Manufacturing Execs Predict a Global Recession in 2020

A majority of manufacturing executives believe that a global recession is likely in 2020 (61%) and that an extended trade war would likely lead to a global recession (70%).

When asked what issues are likely to have the greatest impact on their company in 2020, trade restrictions (42%) were the biggest concern by far, followed by geopolitical instability (15%), natural disasters (12%), and impeachment-related uncertainty (11%). Despite the increased likelihood that Brexit will occur this year, only 7% expressed concern about this issue.

Further, executives fear that increased tariffs will mean:

  • Paying more for goods and services (48%)
  • Paying more for parts (47%)
  • Worsening relations between the U.S. and China (43%)
  • Seeing workers out of jobs (44%)
  • Paying workers more (31%)

Consumers Will Pay for Higher Tariffs

The vast majority (89%) of the executives surveyed agree that tariffs will increase production costs. Most estimate this increase at 10-20% over the course of the year. More than two-thirds expect both their production costs (71%) and material costs (67%) to increase.

As a result, 79% say they are likely to increase the price of their goods and services.

Indeed, when asked what tactics their company will likely pursue in the event of increased production costs, passing the cost along to consumers ranked number one. This was followed by trying to find cost savings elsewhere in the company, reducing profit margins and renegotiating part supply deals.

By industry, respondents expect electronics (60%), automotive (42%) and agricultural products (39%) in particular to bear the brunt of the trade war’s impact.

Will Tariffs Pay Off in the Long Run?

While execs recognize the near-term downsides of the trade war, they’re optimistic about its long-term outcome. Broadly speaking, only 22% of manufacturing executives don’t support the newly imposed tariffs. Nearly a third (32%) actively support them, and 46% are neutral. Further:

  • 65% think the tariffs will ultimately lead to improved global trade practices
  • 40% believe they will lead to improved U.S.-China trade relations in 2-3 years
  • 37% believe their supply chain operations will run more smoothly in the long term
  • Nearly half (47%) believe the tariffs will ultimately lead to economic growth in the U.S. However, an almost equal number (46%) believe they will lead to economic decline.

Trust in Trump Is Balanced

More than a third (37%) of manufacturing executives believe that the meetings between President Trump and China’s President Xi will result in reduced tariffs. An additional 21% think China will agree to most U.S. demands in order to eliminate tariffs, and 15% predict a temporary suspension of most tariffs.

More than half (58%) of executives think it is unlikely that Trump will be impeached and removed from office. In the case that he is removed from office, two-thirds (66%) would trust Vice President Pence to carry on trade deals with other countries.

Conclusion

Several years ago, I attended ARC Advisory Groups annual conference. In one closed door session, a Customs and Border Protection agency executive spoke about counterfeiting and the theft of intellectual property. The official fingered bad actors from China as being overwhelmingly the major culprits. The official had statistics and case studies to back up his assertions.  Manufacturing engineers and executives in the audience added their tales of woe in their dealings with China. It was all off the record.

The political climate has changed. Trade experts argue that it did not matter too much whether Trump or Clinton had won the election, the China/US relationship was headed toward a correction. In short, it does not surprise me that while production executives and managers recognize the near-term downsides of the trade war, they’re optimistic about its long-term outcome.

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