Tariffs Are a Cry for Help

Author: Kevin O'Marah , Co-Founder and Chief Research Officer

US tariff policies are back in the news with rollbacks on 200 food categories including beef, cocoa, and bananas just days after big hikes on trucks, buses, and parts. Meanwhile, markets await a Supreme Court decision on the legality of tariff moves since Liberation Day back in April. As fodder for partisan debate, this all feels politically urgent in the immediate term. 

For operations leaders, however, it’s more about moving away from labor cost arbitrage as a supply network design principle for the long run. 

Industrial Policy Reflects Citizens’ Demand for Change in Global Supply Chains 

Researchers at the San Francisco Federal Reserve Bank just published a significant empirical analysis of the impact of tariffs using data from 150 years of history across not only the US, but also France and the UK. Two big takeaways struck me.  

First is that politicians responsible for raising or lowering tariffs have no idea how they’ll end up affecting prices or jobs at the macroeconomic level. In fact, tariffs have historically reduced inflation, despite being a tax on imports, mainly because they freeze business investment which slows demand. Tariffs are like the yellow flag in Formula 1 racing – a signal to slow down and stay in your lane. 

Second is that tariffs and nearly every other flavor of industrial policy are a populist cry for help. They are a signal that citizens want some kind of structural change to global supply networks. This includes everything from farm lobbies protecting specific agricultural sectors to aerospace associations encouraging foreign joint venture investment. At the microeconomic level, they make perfect sense. 

I have argued that industrial policy is here to stay, and operations leaders should regionalize or even localize supply networks going forward. The benefits of doing so include resilience, responsiveness, and even sustainability as local-for-local supply chains wean us off the ethically dubious habit of chasing low-cost labor around the world. 

President Trump, and nearly every other populist leader on the planet, however, is responding to something deeper. People are not satisfied with a future defined purely by consumerism.  

They want to be creators. 

Human-Machine Teams Are the Future

Zero100 has just completed a survey of 14,000 consumers worldwide to understand how buying behavior is affected by shoppers’ awareness of supply chain conditions. While we'll be sharing the complete findings in a report next month, early insights reveal that consumers are increasingly willing to pay a premium for products made closer to home. 

At the risk of reading too much into their responses, I suspect these consumers want more than just low prices. They care about where and how the work gets done. What's particularly striking is how many consumers are aware of the tactics we use to manage costs — from outsourcing and automation to AI and reshoring. 

So, despite some shared understanding that reshoring won’t bring back the good old days when thousands of industrial workers streamed daily through factory gates, voters have spoken. AI and automation are enabling 30-40% productivity gains in supply chain operations and people still want manufacturing to come home. 

Plus, the push for domestic manufacturing vitality is worldwide. India, the EU, Vietnam, and China all have aggressive industrial policies alongside surging investments in robotics, automation, and AI. The future they all chase is defined by human-machine teams promising not only abundant but also home-grown consumer goods of every kind.  

Strategic supply chain independence may be the policy goal, but proud self-determination is closer to what the people seem to want. 

Telegraph Your Supply Chain Plans

My first recommendation to COOs and CSCOs following Liberation Day was to quickly map out and communicate plans for more manufacturing in the US. Surveys we ran at the time found the average time to scale new operations was almost four years. We heard a lot about hurdles, including talent shortages, a lack of suppliers and infrastructure, and long lead times for equipment. Skepticism was in vogue. 

And yet, many companies raced to announce US manufacturing plans to assuage Washington and minimize the impact of tariffs. It has largely worked, with an economy that hasn’t stalled despite persistent inflation and minimal job creation. 

Maybe it’s the people, not the politicians, we need to impress.