Tariffs, global tensions cloud manufacturing supply chains

Tariffs and geopolitical tensions are adding uncertainty to global manufacturing supply chains, complicating sourcing decisions and long-term investment planning, industry and port leaders said.

Lance Hastings, president and CEO of the California Manufacturers & Technology Association, said manufacturers remain broadly positive about business prospects but are cautious about an unsettled global trading environment.

"There's still some anxiety as the year wraps up," Hastings said during a recent virtual media briefing with Port of Los Angeles executive director Gene Seroka.

"Manufacturing decisions aren't 30-day or 60-day decisions; they're actually six-year, 10-year horizons," he said, adding that sudden disruptions make it more difficult for companies to plan with confidence.

Manufacturing in California generates about $382 billion annually, accounting for roughly 10 percent of the state's economic output. China remains one of California's most important trading partners and a major part of its manufacturing and supply-chain network, with two-way goods trade totaling about $137 billion in 2024, much of it involving manufactured products and industrial components.

The relationship is increasingly shaped by a layered US tariff regime. Most covered Chinese imports currently face an additional 10 percent reciprocal tariff, while longstanding Section 301 duties remain as high as 100 percent on electric vehicles and 50 percent on semiconductors and solar cells, adding costs and complexity for companies with China-linked supply chains.

Asked by China Daily whether continuing China-US trade tensions were prompting California manufacturers to move production or sourcing away from China, or instead diversify while maintaining Chinese suppliers, Hastings said the latter better reflects what companies are doing.

"I think it's more of the latter," he said. "It's really assessing the global profile that we face right now."

Some manufacturers began reassessing supply chains following the COVID-19 pandemic and considered bringing certain operations closer to home, Hastings said. Tariffs and geopolitical tensions have since added further pressure.

"There is a lot of uncertainty," he said. "Manufacturers always are looking at the long term, and that's the more important view."

Seroka said those changing sourcing patterns are clearly visible at the Port of Los Angeles, but they should not be interpreted simply as a withdrawal from China.

"China accounted for about 60 percent of the port's overall business portfolio in 2018, compared with roughly 40 percent today," he said, adding that while trade with Vietnam has expanded sharply, China and Southeast Asia's manufacturing supply chains have become increasingly integrated.

Importers large and small have increasingly explored alternative sourcing locations, particularly in Asia, while maintaining complex supplier relationships that often span several countries, according to Seroka.

At the same time, Washington is increasing scrutiny of China-linked global supply chains as it seeks to identify suspected tariff evasion through transshipment, raising questions about how authorities will distinguish illegal practices from legitimate cross-border manufacturing.

A White House report released this month outlines an artificial intelligence-supported initiative called "Detective Border", designed to help US Customs and Border Protection analyze shipment origins, trade routes and product information to flag potentially suspicious cargo.

Seroka said greater use of AI has not yet disrupted cargo moving through Los Angeles.

"We'll see the advent of AI and trying to explore a realm of possibilities and maybe even theories, but nothing yet that is inhibiting the trade that comes through this port," he said.

He cautioned policymakers against confusing illegal tariff evasion with the complexity of legitimate international production networks.

Seroka compared Asian manufacturing networks with the tiered supplier systems around US automobile plants. A vehicle assembled in Michigan, for example, may rely on tires, wiring harnesses and other components from multiple suppliers. Asian manufacturing works in much the same way, he said, except that parts often cross national borders before final assembly.

A garment, for example, may include buttons or other components made in China before being assembled elsewhere in Asia and exported to the United States.

"There are some policymakers that think they're trying to evade these new tariff policies and the prices that are associated with them," Seroka said. "And while there are some bad actors out there, I'm sure, in general, it's a sourcing complexity of parts and components that go into a finished good."

US customs rules similarly recognize that determining a product's origin can depend on where it undergoes a "substantial transformation", rather than simply the country from which the final shipment departed.

Seroka said more sophisticated enforcement should therefore be accompanied by a practical understanding of how deeply integrated global manufacturing has become.

"I'd like to see more awareness," he said. "I'd like to see folks really get some practical understanding of how supply chains work on the international stage."

For California manufacturers, Hastings said the underlying challenge remains making long-term decisions in an environment where trade rules can change far more quickly than factories, supplier relationships or investment plans.