A Harvard economist says supply chains follow cost, so tariffs often move where goods are made instead of stopping imports. Here is what that means for prices.
Harvard Business School professor Willy Shih argues that products are made where it is cheapest to make them, and that tariffs tend to shift the route rather than end it. He makes the case in his upcoming book, Where Does My Stuff Come From? The Powerful Economics Behind Global Supply Chains, and in an interview on The Verge's Decoder podcast.
Shih says every strange supply chain has an economic reason behind it. Frozen fish caught off Alaska go to Qingdao, China, for processing and then come back, because that is cheaper. Cashews labeled as from Vietnam may have been grown in the Ivory Coast or Ghana.
When tariffs hit goods from China, Shih says, manufacturers look for another path. They may assemble in Vietnam or Mexico, or find some way around the tariff. The interview notes that tariffs keep changing and that factories meant to return to the US mostly have not appeared.
Shih saw early that Foxconn's promised LCD plant in Wisconsin would not happen. The supporting supply chain was not there, and local plans did not include enough concrete and structural steel for a panel factory.
The excerpt cuts off before Shih explains how businesses react to trade barriers or why China stays a manufacturing powerhouse. His full views on AI's demand for computing are not in the material.
Prices and parts follow cost, so expect tariffs to reroute supply chains more often than they bring factories home.
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