
Dr. Bob Dieli says a tariff is nothing but a tax and, like taxes, tariffs are also useful in certain situations. Tariffs and taxes are entirely political mechanisms.
“The only way you can get a tariff is some form of government action. It is a political even from end to end,” says Dieli, economist at MacKay & Company. “There is no tax tree where we go get a fresh batch of tax.”
There is plenty of precedent for tariffs in American history. In the late 18th century, Dieli says Alexander Hamilton pitched tariffs as a way to protect infant industries in a very young United States. It worked. U.S. manufacturing grew at light speed, quickly becoming the largest, most efficient producer of goods in the world.
More recently, President-elect Donald J. Trump has pledged a 25% tariff on imports from Canada and Mexico along with a 10% tariff on global imports and a 60% tariff on Chinese goods. But U.S. industry is far from infant and supply chains that keep industry humming stretch around the world.
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Economically speaking, Dieli says, tariffs are unequivocally bad news. However, in certain situations, they can work to achieve specific goals. But the patient, in this case the American economy, may get worse before it gets better.
What is a tariff?
When a consumer goes to the store and purchases goods, the store collects a sales tax it pays back to the government. With a tariff, the tax is collected not at the store, but by customs officials at the port where the goods enter the country. This is akin to a shipping cost, and the cost of the tariff is usually — but not always — added to the final price the customer pays for the goods in question.
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Dieli says tariffs are bad because they defeat what economists call comparative advantage. Countries with different strengths and resources can leverage those advantages in a free marketplace to everyone’s advantage. Tariffs, with their restrictive nature, prevent the exchange of goods and services. They also, he says, inspire collusion in the marketplace. Producers hit by the tariff usually raise prices, and the rest of the market follows suit whether the tariff affects them or not.
Costs and prices
Producers usually raise prices, but not always.
Rob Phillips, CEO of Phillips Industries, says his company won’t be. Phillips makes telematics solutions for commercial vehicles. In 2023, the company opened a 500,000-sq.-ft. plant in Arteaga, Mexico. Phillips says while his company operated for nearly 100 years, it would not still be in business if it hadn’t moved to Mexico.
“We spent 15 years getting better and better and leaner with our manufacturing, but we still had a cost disadvantage,” Phillips says. “It’s easy to say you shouldn’t be moving jobs overseas. The reality is our citizens often don’t want the work we have in a manufacturing plant.”
His company won’t be raising prices in response to a tariff on goods from Mexico.
“What we have done right off the bat is notified all our customers in North America that we are not going to let that impact the price they pay,” Phillips says. “We will shoulder as much of the burden as we can.”
Phillips says so many goods, not just in heavy-duty, are made in Mexico that he finds it difficult to believe the Trump administration would enact a blanket tariff as the president-elect threatened to do.
“The reality is we don’t know where Trump’s head is at,” he says. Trump’s statements on the subject have been low on specifics, and tariffs are usually very specific, applying to narrow product categories.
“If you want to get a headache in 10 seconds, read a tariff,” Dieli says. However, as of press time, the incoming administration hasn't clarified exactly what goods will be targeted.
Bobby Rutherford at Freedom Truck and Trailer Parts says he’s expecting his costs, and probably prices, to go up.
“As much as I hate to say this, it will increase inflation,” Rutherford says. “Does this even the playing field? A little, but not much. We don’t manufacture here anymore.”
He said suppliers and distributors are already sending out new pricing and it wouldn’t surprise him if the tariffs were already figured in. Gear units, for example, are going up another 12%.
Bendix is another manufacturer with operations in Mexico and Canada. It employs 2,000 people at its Acuña, Mexico, plant, where it manufactures systems such as its global scalable brake control and global scalable air treatment technologies.
“The impact of tariffs on products and goods from Mexico and Canada could be significant as these potential costs are passed through the supply chain,” says Nicole Oreskovic, vice president of sales and marketing at Bendix Commercial Vehicle Systems. “We continually assess macro and micro economic situations that could impact us, like potential tariffs. This effort includes an ongoing evaluation of our sourcing strategies and strengthening of our diverse, global supply base.”
Some companies moved operations to Mexico to avoid existing tariffs on Chinese products, a practice known as nearshoring. Phillips says many of the heavy-duty companies he works with have reduced their reliance on Chinese manufacturing.
"We've all had six years to maneuver ourselves and get further from China," he says. But much of that maneuvering sent operations to Mexico. This new round of tariffs would eat into any money saved by companies moving production to North America.
Larry Griffin, vice president of program management for VIPAR, says the company is working with suppliers on pricing strategies and keeping distribution lines resilient.
"These new tariffs could offset those efforts, driving up prices across the board," Griffin says. "Increased costs will trickle down through the supply chain, ultimately affecting distributors and end users alike."
Ripple effects
Tariffs don’t just affect the goods they’re levied on. Countries targeted with tariffs could retaliate. For Mexico, that would put U.S. farmers in the crosshairs.
“Our pork industry would be in deep trouble,” Dieli says.
The first Trump administration aimed tariffs on Chinese goods. China retaliated by slapping a tariff on U.S. soybeans. The country was one of the largest markets for American growers. China went into other markets and encouraged participation in soybean exports, making the market more volatile than it had been and cutting American share. The same thing could happen south of the border.
“If we put a tariff on Mexico, we’re basically taxing ourselves,” Dieli says.
FTR Transportation Intelligence says its 2025 forecasts are assuming some impact from tariffs.
“We knew from election night we were looking at tariffs,” Avery Vice, vice president of trucking, says.
The threat of tariffs also could play havoc with inventories. Bendix, for instance, is seeing some pull-forward as companies stock up before prices jump. The lack of specifics may be dampening any ramp up in buying, Dieli says.
“Until you find out what you’re up against, it may not be worth your while to pull forward,” he says.
FTR says it’s looking for a shift in inventory activity ahead of both tariffs and the negotiations at East and Gulf coasts. The company is assuming a buildup of inventory followed by a slow drawdown. But eventually, inventory will have to be replenished in a tariff environment.
“We’re sort of assuming an overall impact for tariffs,” Vise says. “How would we do otherwise? There’s just too many things in motion.” He doesn’t expect any more clarity before Inauguration Day.
Tariffs were originally put in place to spur domestic manufacturing and while these are designed to do the same, Dieli and others aren’t optimistic.
“We can’t pick up the factory and move it out of Mexico in a matter of months,” Phillips says. His company also is standing up a distribution center stateside to try to mitigate any tariff costs.
That’s a sentiment shared across the industry. Moving manufacturing outside the U.S. has been going on for decades, and billions of dollars in investments won’t be abandoned in a month, a year or even four years.
Joseph Towers, a senior analyst at FTR, looked back at Trump’s 2018 tariffs against China. He says those tariffs targeted solar panels and washing machines because the U.S. had capacity to pick up slack. However, domestic production didn’t change, but goods started coming in from other Asian countries.
“We don’t have the ability to all of a sudden flip on a bunch of facilities to manufacture everything,” Towers says.
Tariffs would also affect global shipping. VIPAR's Griffin says a COVID pandemic-like shift in container movement and chassis allocation could occur, as well as raw materials price hikes.
"If pricing increases are industry-wide, prices will increase downstream in the channel to the end user. In addition, parts availability will become increasingly difficult due to high demand and constrained supply chains," Griffin says. "If these tariffs come to fruition, VIPAR Heavy Duty will proactively collaborate with our supplier partners to address distribution challenges and keep our distributors informed of their best supply options."
Then there’s the emissions regulations coming up fast in 2027. If tariffs affect some part of the manufacturing process related to the parts necessary to make trucks to meet those regulations, Dieli says it could affect the ability for OEMs and operators to comply. That could result in variances on either tariffs or on the emissions rules, and again, likely increased costs for everyone.
Timelines
Even though Trump has threatened to put tariffs in place on Day 1, Dieli warns not to expect quick action.
“No one ever does anything on Day 1,” he says.
As soon as he does take action, however, Rutherford expects to see higher prices.
“The replacement cost for what’s on the shelf went up,” he says. “So you immediately have to raise pricing because whatever you order in is going to be at that cost.”
Adds Oreskovic, “We focus on remaining flexible and adaptive as variables arise that can affect our operations and those of our customers.”