[US Tariff Season 2] One Year of Tariff Boomerang... The Mirage of American Manufacturing Revival

The United States' strong tariff barriers have reshaped the global economic landscape over the past year. However, contrary to the original goal of "reviving American manufacturing," these measures have led to paradoxical outcomes, including China's shrewd circumvention of exports, the defection of allied nations, and a rise in domestic prices. Even if President Trump's tariff policy is maintained through Section 301, it is expected that his slogan of "Make America Great Again (MAGA)" will be difficult to realize.

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Major international media outlets have assessed that over the past year, the Trump Administration’s tariff policy has resulted in supply chain realignment rather than a return of U.S. manufacturing. The Wall Street Journal (WSJ) reported on April 2 (local time) that "due to tariffs, American companies are diversifying their production bases to cut costs, rather than relocating factories to the U.S." The Financial Times (FT) noted, "the tariffs have opened strategic space for China to expand its influence in European and Southeast Asian markets," adding, "allied countries are breaking away from the U.S.-centric economic bloc and devising their own survival strategies."

The U.S. has further strengthened its exclusion measures against existing "foreign entities of concern (FEOC)" such as Chinese companies by introducing the Prohibited Foreign Entity (PFE) requirement. If material support, such as raw materials or components received from a PFE, exceeds a certain proportion of the total cost of a product, eligibility for related tax credits is revoked. In response to these U.S. measures, China sought alternative routes. Instead of exporting directly to the U.S., China diversified its export destinations. According to the General Administration of Customs of China, China's trade volume with the U.S. dropped by 16.9% in January and February of this year. However, China recorded a surplus with all countries except the U.S., and its total merchandise imports and exports reached 7.73 trillion yuan, an 18.3% increase compared to the same period last year. Larry Hu, Chief China Economist at Macquarie, commented, "China's recent growth has been mainly driven by exports," and added, "although growth is expected to slow somewhat in the second quarter given the geopolitical situation, the Chinese government is likely quite satisfied with the current results."

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In particular, Chinese companies are using Vietnam as a cost-effective detour. Last year, Vietnam overtook China to become the largest supplier of laptops and gaming consoles to the U.S. However, in reality, this largely involves simple assembly of Chinese-made components. According to Bloomberg, BYD, which exported iPads worth 5.1 billion dollars from Phu Tho, Vietnam, imported components worth 4.9 billion dollars, meaning that the proportion of local value added was only 4.5%.

While China found alternative routes, U.S. allies were hit directly by the tariffs. Last year, as the U.S. announced high tariffs on European Union (EU) wine, exports to the U.S. fell by 9.2% compared to the previous year. European automakers such as BMW and Volkswagen are estimated to have suffered losses of about 6 billion dollars due to U.S. tariffs. Even when manufacturing in the U.S., tariffs on imported raw materials have increased the price of cars by an average of about 6,400 dollars per vehicle.

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In response, the EU has recently provisionally implemented a trade agreement with Mercosur in South America and is expediting negotiations with India, seeking to diversify its trading partners. Sixteen countries, including Singapore and Norway, are working to establish separate trade systems excluding the U.S.

There is growing criticism that the Trump Administration’s tariff policy, launched under the slogan "Make America Wealthy," has produced disappointing results. According to the tax policy think tank Tax Foundation, last year’s total foreign direct investment (FDI) amounted to 288.4 billion dollars, falling short of the 10-year average of 320.7 billion dollars. Manufacturing jobs decreased by 89,000 from April last year to February this year.

There has also been little effect on price stability. According to the Harvard Pricing Lab, as of October of last year, 24% of tariffs were passed on to retail prices, contributing 0.76 percentage points to the increase in the Consumer Price Index (CPI).

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