Tariffs: The Impact on Corporate Site Selection, Supply Chain, Economic Incentives and Real Estate Strategies
by King White, on Sep 18, 2018 2:15:36 PM
With currently imposed tariffs of 25% on $50 billion of imports from China and another $200 billion under review, many companies are scrambling to figure out what the impact of new and pending tariffs will have on their site selection, supply chain, economic incentive and real estate strategies. To help understand the potential implications, Site Selection Group has identified some key factors to consider as well as a summary of these tariffs and the industries they are targeting.
Tariffs are creating increased site selection activity as companies evaluate their options
The phone has been ringing off the hook at Site Selection Group as companies try to gather cost information for setting up operations in the U.S. The factors that companies are analyzing include logistics cost, labor cost, tax rates, real estate and capital expenditures among other things. It is a complicated process that sophisticated companies began over a year ago while smaller companies are simply trying to catch up. It can take months to build an accurate business plan for reshoring and years to implement the plan — a major challenge for companies.
Supply chain is one the top factors to carefully evaluate
The U.S. manufacturing renaissance was already underway in the U.S. The new tariffs are simply adding fuel to the fire. As a result, many supply chain platforms are being disrupted which can be good and bad for companies depending on the complexity of their inbound/outbound materials. An example is the automotive sector. Many European auto producers have factories in the U.S. from which they produce cars for the Asian markets using European parts and components. This could make the U.S. less attractive as a production site as they may be double taxed, especially if China retaliates with tariffs on U.S. goods.
Economic incentives can offset capital investment but come with complexities
Economic incentives are more important than ever when trying to shift operations to the U.S. considering there is often a significant capital investment required. Cash grants, tax abatements, infrastructure grants, utility rebates and other economic incentives such as training grants can help to pay or offset some of the up-front expense and on-going operating expenses of a business. However, it is very important to remember that the economic incentive compliance process can be complicated and burdensome on resources. Economic incentive agreements may also include clawback provisions if promised job creation and capital investment aren’t met and/or maintained.
Real estate availability is limited and can slow down the site selection process
The demand for quality real estate with adequate clear height, proximity to rail and adequate utility service has created a shortage of good real estate options across the U.S. As a result, many companies are forced to build their facilities from the ground-up, which can take 12 to 24 months. Looking at available site-ready or certified sites that may be available can save a significant amount of time on due diligence and up-front infrastructure cost to get a site ready for construction.
The tariffs and their targeted products and industries
A recent article by MarketWatch identified imposed and potential future tariffs that are creating these challenges for certain employers and industries. The following table provides a summary.
Summary of Imposed & Planned Tariffs
| Imposer | Target | Subject | Rate | Imposed or threatened |
|---|---|---|---|---|
| U.S. | China, South Korea and Mexico | Washing machines | 20%-50% | Imposed |
| U.S. | Most countries, notably China | Solar panels | 30% | Imposed |
| U.S. | Canada | Newsprint | 22% | Imposed |
| U.S. | European Union, Canada, Mexico and most other countries | Steel | 25% | Imposed |
| U.S. | European Union, Canada, Mexico and most other countries | Aluminum | 10% | Imposed |
| European Union | U.S. | Bourbon, orange juice, jeans and other products | 25% | Imposed |
| Mexico | U.S. | $3 billion of U.S. goods including steel and pork | 20%-25% | Imposed |
| Canada | U.S. | $12.8 billion of U.S. goods including maple syrup and whiskey | 10-25% | Imposed |
| European Union | Most countries, except for "some developing countries" | Import tariff quotas on a number of steel products | 25%, once imports exceed the average over the last three years | Imposed |
| India | U.S. | $241 million of apples, stainless steel and other products. | 7.5%-60% | To take effect Sept. 18 |
| U.S. | China | $50 billion of goods | 25% | Imposed on $34 billion worth. Second set of $16 billion set for Aug. 23 |
| China | U.S. | $34 billion of U.S. goods, with another $16 billion in tariffs set for Aug. 23 | 25% | Imposed |
| U.S. | China | Additional $200 billion of goods | 25% | Threatened |
| China | U.S. | Additional $60 billion of products | 5%-25% | Threatened |
| U.S. | European Union | Automobiles | 20% | Threatened |
| U.S. | Uranium | Threatened |
Conclusions
The tariff wars underway are creating a lot of challenges for companies as they try to control their costs and plan for the future. As a result, companies are rethinking their site selection, supply chain, economic incentive and real estate strategies in order to optimize their location decisions. The most important thing is to make sure you have a site selection plan in place if you want to stay competitive in this ever-changing global economy.
