Trump tariff fears prompt supply chain scramble

State of play: Companies that source products from China are moving quickly to get out.

• "I've already started to see some volume from China shifted to Vietnam," Justin Kim, an account executive at freight company OEC Group New York, tells Axios.
• "And this is with not just one vendor but multiple vendors." Companies that make linens, bath towels and pillow cases are among the first to move production out of China, he said.

Last week, fashion company Steve Madden revealed that it plans to slash China-made products by 40% to 45% in a shift toward other countries — though not the U.S. — to avoid coming tariff hikes.

The big question: How much of the cost of increased tariffs will companies pass along to consumers in the form of price hikes?

• Toyota executive David Christ told the Automotive Press Association last week that tariff hikes could lead to price increases, Forbes reported.
• AutoZone CEO Philip Daniele in September said they would pass the costs on if tariffs hit, and Stanley Black & Decker chief Donald Allan Jr. said the same last month.

Friction point: Unlike during the first Trump administration's tariffs, Americans are reeling from a bruising battle with inflation — with many consumer goods companies reporting that customers are pushing back on price hikes.

• Such pushback could limit business' ability to pass along the costs of increase tariffs to consumers, though some may feel like they have no choice but to do so to preserve their profitability.

The intrigue: EV maker Rivian negotiated contracts that would stick its suppliers with the cost of increased tariffs, CEO RJ Scaringe said Thursday on an earnings call. But the company has also been looking to avoid tariffs altogether:

• "A lot of our focus has been on sourcing suppliers that are not going to be subject to large tariffs."

Zoom out: Many companies have already taken steps to diversify their supply chains after pandemic disruption caused widespread shortages and price increases.

• Joe Kudla, CEO of American clothing brand Vuori, tells Axios Pro: Retail Deals co-author Richard Collings that the company was already building a more nimble supply chain, sourcing production from multiple countries.

• Vuori gets items from countries such as Vietnam, Sri Lanka and Turkey, he said.

Yes, but: Shifting production out of China or Mexico won't necessarily be easy for companies that have made big investments there, such as automakers that have sprawling plants in both countries.

• "At some point we're going to start to run out of real estate of where we can source goods from," OEC's Kim says. "Vietnam doesn't have nearly the infrastructure that China does. And while India is growing significantly, I don't think that they'd be able to take the full demand that we have from China and Mexico."

Instead, companies may turn to other strategies — such as the upfront acquisition of additional inventory before tariffs hit.

• At Lifetime Brands, which owns KitchenAid and Farberware, executives "have taken defensive operational measures and increased inventory levels to protect against the potential for increased tariffs," CEO Robert Kay said Friday on an earnings call.
• That means the company has had to spend more in the immediate term than it otherwise would've, he said, but "we are comfortable with holding a higher level of inventory as a hedge against the material impact from potential tariffs."

The bottom line: Businesses aren't waiting for higher tariffs to take action.