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Will the tariffs really drive American industry

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Question asked 05/04/2025

Will the tariffs really drive American industry

Hi guys, first up, I appreciate the work which goes into to all the reports, and can only imagine how many questions there will be this week. (No need to get to this one) Anyway, I was just pondering if companies are actually looking at setting up in the U.S. Just as a thought, surely the price difference from producing in Asia / India is a fraction of the price of the U.S. even just in labour costs. Would they really have a saving by relocating rather than just having the tariff applied; surely the production costs would out weigh the tariff. I understand it's a very broad, general view with lots of different scenarios and industries, but my thinking is the tax won't necessarily hit the bottom $ unlike operating costs. Regards, Simon

Answer

Hi Simon,

Not as many questions as we expected this weekend, it feels like people are in shock but as we said on Friday, we’ve seen it before, so far the current correction is smaller than the one in 2022 and we’re sure a lot of subscribers don’t even remember that 16% decline caused by rising inflation, rising rates, and the invasion of Ukraine by Russia, with Tech stocks suffering the most.

As you say a broad question which is extremely interesting in the current environment, our initial takes are as follows:

Retooling/moving any production facilities from one country to another is very expensive, especially if it entails increased labour costs and reduced efficiencies.
We cannot see for example a shoe manufacturer tapping into cheaper labour in Vietnam would be able to do the same thing in the US, nor should they, that is the whole benefit of globalisation. Countries do what they are good at, focus on where they have an edge.
However, tariffs are the stick, we now need to see the carrot to incentivise companies to expand in the US, we suspect this will happen next.

On balance we see many flaws with this aggressive stance on tariffs, it’s not good for the world and we doubt it will be good for America.

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LAST UPDATED 04/04/2025 15:19

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