Opinion - The Friendly iPhone: How Trump Can Refocus China Tariffs on Friendshoring
Editor's Note: The Gerald R. Ford Presidential Foundation takes no position on matters of policy. We aspire to offer to readers thoughtful pieces on policy questions and invite contrary views. The opinions expressed in this essay are the author’s alone.
Imagine saving some money to buy an iPhone on Thanksgiving only to realize its price has doubled in one year. Made-in-China goods and services across all U.S. industries would face similar price hikes, from basic kitchen appliances like toasters to sneakers like Nike Air Force 1. The price hikes would result from President Trump’s immediate imposition of 10% base and 60% targeted tariffs on Chinese imports. After winning the 2024 election, Mr. Trump has touted tariffs to reduce economic dependence on China, given the $245.43 billion trade deficit in 2024, while boosting domestic production (US Census Bureau, 2024). Trump’s long-run goal of decoupling from China is useful. China’s increasing authoritarianism and willingness to disrupt existing global stability make it a strategic threat. Over the next three to five years, Mr. Trump must incrementally impose tariffs to encourage firms to leave China. More importantly, he must embrace friendshoring, a process by which companies shift production from China to other low-cost production countries that share similar values with the U.S. Friendshoring benefits U.S. consumers and workers, partner countries, and strengthens U.S. influence abroad.
The Case Against Immediate Tariffs
Rapidly-implemented tariffs harm middle-class American consumers and bring more costs than benefits. The ING group calculated that immediate 60% tariffs on China would cost an average middle-class family between $1,500 to $2,400 annually. This cost equals around 1 to 2 months of rent for a 1-bedroom apartment (Knightly, 2024). Because of the consequences of immediate tariffs, a gradual approach over three to five years is necessary. Firstly, firms need time to shift production away from China to partner countries. For example, in 2022, Apple started shifting production from China to India, a U.S. partner. By 2025, Apple expects to manufacture 25% of its products in India (Ray, 2023). Additionally, consumers need time to adjust to changes in the global supply chain, to avoid sudden economic shocks caused by lower consumer confidence. In sum, incremental tariffs help businesses and consumers to adjust to economic changes meant to reduce dependence on Chinese imports.
Mr. Trump is mistaken to think that tariffs can bolster domestic manufacturing through reshoring. Reshoring shifts production from China to the U.S. However, reshoring may raise prices due to U.S. labor laws and wage standards. For example, data from the 2024 National Association of Manufacturers report estimated that the average annual regulatory cost per employee is $50,000 for firms with less than 50 workers. These regulations increase domestic business costs, making manufacturing goods even more expensive. Moreover, the regulatory burden on domestic producers could equal a 1.6% excise tax on U.S.-made goods, as firms would pass on extra costs to consumers (Barr, 2024). As a consequence, the higher costs associated with federal regulations could reduce demand for U.S. factory workers, unintentionally raising unemployment.
While reshoring is more expensive because of U.S. wage laws, it may be advantageous. First, it can provide stronger guarantees of higher-quality products due to U.S. quality standards and reduce global supply chain dependence. Furthermore, shifting jobs to the U.S. can increase employment in the manufacturing sector. However, because of the higher costs of pursuing these goals, friendshoring presents a more cost-efficient and compelling alternative.
The Benefits and Importance of Friendshoring
Friendshoring is very beneficial for U.S. consumers. Friendshoring allows firms to diversify their production from China to cost-efficient partners like Mexico, India, and the Philippines, generally sharing values such as transparency and fair labor practices. This is especially true for intermediate goods like battery cells or electric circuits, which are production inputs for more complicated consumer products like cars. Friendshoring already benefits the U.S. in this way. For example, 30% of trade in the Midwest states is with Mexico. This trade relationship allows for cheap intermediate goods like tires to be imported from Mexico, resulting in cheaper domestic production of cars (Austin, 2021). By reducing production costs, this trade permits consumer affordability and profitable domestic industries, which rely on intermediate goods.
Furthermore, by shifting production to countries with similar regulatory frameworks as the U.S., higher compliance with international safety and quality standards is ensured. Friendshoring facilitates compliance with strict international laws, like large import tariffs, such as those established in the Inflation Reduction Act. Clearly, shifting production to countries with similar values ensures that U.S. consumers get high-quality goods as partner countries will follow quality standards. Additionally, diversifying global sources allows firms to access a wider variety of production components, which in turn leads to more product choices for consumers at their local department stores.
Concerning American workers, friendshoring offers many opportunities for advancement, particularly in technology and manufacturing. In Arizona, TSMC (Taiwan Semiconductor Manufacturing Company) has hired 4,500 people at its new plant. It is estimated that salaries will range from $65,000 to $153,000, exceeding Arizona’s $89,000 average salary for manufacturing jobs. Encouraging high-skilled industries to develop in the U.S. while allowing basic industries to thrive abroad, enables American workers to acquire higher-level skills. Moreover, it allows companies to train their employees (Vanek, 2023). In California, community colleges are partnering with chip manufacturer Nvidia to teach workers about Artificial Intelligence development, opening up new roles like public AI specialists (Villasenor, 2024). Training also upskills workers to succeed in emerging industries and makes them more productive.
For partner countries friendshoring offers an opportunity for higher productivity and a better quality of life. For example, friendshoring during the 1980s caused a group of lower-income countries, nicknamed the Asian Tigers (Taiwan, Singapore, and South Korea), to see rapid industrialization. As American companies established operations in the Asian Tigers, they invested around $18.5 billion between 1985 and 1992 in investment capital (Ito et al., 1996). This allowed governments to improve local infrastructure and services, creating better education, healthcare, and employment outcomes. For example, South Korea’s GDP per capita rose from $3,200 in 1980 to $25,000 in 2010 (Arias, 2017). This figure highlights the potential of friendshoring to drive similar industrial and economic growth in other partner countries with low production costs like Mexico, India, and the Philippines, similarly achieving higher standards of living. Additionally, American companies provide training and resources to boost the local workforce’s skills and productivity. Furthermore, friendshoring integrates countries’ economies into global supply chains (Biden White House, 2023), allowing countries to specialize in certain industries. For example, South Korea has become a global manufacturing hub. In essence, friendshoring strengthens economic growth and resilience.
Finally, friendshoring allows the U.S. to increase its influence abroad by creating trade relationships. As firms shift production to countries like Peru, the U.S. must sign free trade agreements with that country’s government to ensure a mutually beneficial relationship. For example, the U.S. has signed 20 free trade agreements (FTAs) with allies ranging from Peru to Morocco where low-cost production is possible (U.S. Trade Representative, 2006). These agreements reduce barriers to trade and waive most tariffs for U.S. exports and imports. However, pursuing FTAs as a mechanism for friendshoring, allows the U.S. to open new markets for trade and impose conditions like fair labor practices and environmental standards that countries embrace. FTAs foster mutually beneficial economic growth, allowing the U.S. to build trust with its partners. Therefore, the U.S. government can effectively align international trade practices with American values. Friendshoring provides an opportunity for the U.S. to grow its influence.
Despite its many advantages, friendshoring brings its own set of challenges. For example, partner countries like India or Mexico may not have adequate infrastructure to accommodate a rapid rise in manufacturing capacity, which requires significant investment in skilled labor, roads, and ports. Furthermore, political instability in some countries, like the War on Drugs in Mexico, could disrupt supply chains, creating new risks for American companies (BSI, 2020).
Finally, differing regulatory standards between partner countries and the U.S. could compromise the quality of final goods that consumers purchase. However, foreign direct investment, specifically greenfielding, which involves companies opening facilities in foreign countries, can significantly improve infrastructure as seen in China. Additionally, the U.S.’s control over global financial institutions like the IMF, which is the largest stakeholder, allows it to strongly enforce free trade agreements that address concerns about compromised quality of goods due to shifting away from China.
All in all, gradual tariffs paired with friendshoring benefit the U.S. and reduce its dependence on China, while ensuring economic stability. The U.S. can promote more efficient global trade, competitive pricing, and mutual economic growth by forging trade relationships with partner countries. Friendshoring benefits American consumers and workers and offers the chance to strengthen the economies of developing countries. With careful planning, Trump and U.S. policymakers can help hold China accountable while ensuring a more equitable global trade landscape. To achieve the goal of friendshoring, Trump must incentivize U.S. companies to leave China and help consumers adjust to initial price increase by exploring tax cuts or subsidies. In short, using gradual tariffs with the goal of friendshoring, the U.S. can help make the world and the American people more prosperous.
Sources
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