Get used to the uncertainty.

That’s the overarching message from Willy Shih, the Robert and Jane Cizik Baker Foundation Professor of Management Practice in Business Administration at Harvard Business School. Shih, an expert in manufacturing, supply chains and product development, was the featured guest on a webinar for promo industry members, entitled “Tariffs Explained: What Every Promo Professional Needs To Know,” hosted by Jonathan Isaacson, executive chairman of Counselor Top 40 supplier Gemline (asi/56070; Canada, 56071) and a member of the Counselor Power 50 list.

Jonathan Isaacson, Counselor Top 40 supplier Gemline (asi/56070; Canada, 56071), and Willy Shih, Harvard Business School

The virtual event was held on April 9, the same day the Trump administration announced a 90-day pause on tariffs on most countries, with the exception of China. Still, while markets skyrocketed upon the news, the waters are still choppy.

“Business is like sports,” said Shih. “It’s conducted on a playing field with rules and norms of behavior. Now imagine being a coach on the field, and the rules are changing every five minutes.”

During the hour-long conversation, Shih guided the audience through the complex nature of supply chains, from the manufacture of jet engines, cars and microwaves to critical food access. Over the next few months, there are very few items that won’t have price increases due to planned import duties.

Shih said tariffs are challenging in large part because of the number of components in one item. Take a laptop – specialized producers manufacture the different parts, like the display screen, keyboard, disk drive and chip, all representing different countries of origin. Cars too have thousands of components, and parts can cross borders multiple times.

“It shows the interdependency of supply chains, and it shows why tariffs are a problem,” said Shih.

‘No One Can Eat That Cost’

Consider a leather recliner, said Shih, a household staple. At one Chinese factory he recently visited, the cowhides come from the U.S. and Italy, and the lumber for the frame is sourced from Argentina. Workers will fill more than 100 40-foot containers a day with recliners.

But now, tariffs are making those recliners less comfortable. Say one is listed for $599 from a retailer – as tariff rates fluctuate, Shih estimated that chair will have a 30% to 50% retail markup, depending on the negotiating that retailer is able to do and what it decides to pass on to the consumer.

For microwaves, consumers are looking at markups of more than $200, on top of the current retail price of about $350. An ice cream maker for $99 might have an additional $50 in tariffs.

“Business is like sports. It’s conducted on a playing field with rules and norms of behavior. Now imagine being a coach on the field, and the rules are changing every five minutes.” Willy Shih, Harvard Business School

“No company can eat that cost,” said Shih. “I question the ability of anyone to absorb them.”

Cars and consumer goods will become more expensive over the coming months as front-loaded inventory makes its way to consumers and new inventory, subject to tariffs, arrives at ports. Shih is especially concerned about the price of food, particularly perishables, which will soon become apparent on store shelves.

“For food, margins are already narrow,” said Shih. “Some companies might decide it’s too expensive to sell to the U.S. They just can’t afford it. We’ve gotten used to eating fruit out of season, because it’s coming from different countries. We might go back to eating fruit in season if we’re focusing only on domestic agriculture, and blueberries might become a luxury good.”

Reshoring Is Unlikely

Part of the argument for tariffs is their ability to drive industry back to the U.S. But is that feasible?

Shih is skeptical.

“Companies established factories overseas, and that, of course, cost money,” said Shih. “What paid for them was the decreased cost for goods, which you could recoup pretty quickly. In the U.S., labor is so expensive that nothing pays for the new factory. It could be 10 years before a factory sees its first return.”

A lot of offshore manufacturing processes are also unfamiliar to the U.S. workforce – it’s just not feasible for a flat-panel display for laptops to be made domestically. “We’ve never made it here, and we don’t know how,” said Shih. “Also, companies here are having a hard time finding people to work in that kind of a manufacturing environment.”

Labor costs also make reshoring difficult. In the U.S., hourly rates tend to be anywhere from $18 to $50. In China, it’s just $4 to $8. It’s more than four times more expensive to hire in the U.S. than in Mexico, and more than nine times more expensive than Vietnam.

“In the U.S., labor is just too big a part of the bill,” said Shih. “So, some components are only made in certain countries.”

Looking Ahead

Consumer goods companies like Best Buy are certainly in a bind – now they’re compelled to ask factories to negotiate while deciding where to raise prices on customers. Stock up on nails, screws and copper wiring from Home Depot, said Shih – those will all soon be subject to tariffs.

By mid-April, shipping will slow as businesses wait and see what comes next.

“The big problem now is that companies are slowing down investment overseas until they get clarity,” said Shih. “In the meantime, there’s chaos up and down the supply chain.”

The Trump administration also recently pressed pause on the de minimis exemption – before mid-March, anything worth $800 or less could be exported to the U.S. duty-free. Now, the move is causing chaos – within 24 hours of the announcement, 1 million packages were backlogged at JFK Airport as Customs and Border Protection tried to figure out how to calculate taxes, added Shih.

“Everyone is now trying to jam everything into air cargo,” said Shih. “Sudden changes are exacerbating things.”

“Companies are slowing down investment overseas until they get clarity. In the meantime, there’s chaos up and down the supply chain.” Willy Shih

Soon, front-loaded inventory – not subject to tariffs – will make its way through the system. What should distributors do to be ready for the next phase, which is likely to involve price increases, asked Isaacson.

“Make sure country of origin documents are in place,” said Shih. “Diversify your sourcing when you can, and be realistic and honest with the cost increases. We have to come to grips with it. So far, it’s been mostly numbers on the news, but soon we’re going to see it on shelves. We’re now in a world where uncertainty is a way of life – do a lot of scenario planning and get used to it.”