U.S. Tariffs Are Forcing Lighting Companies to Rethink Supply Chains
Lighting companies that depend on imported components are being hit hard by this latest round of tariffs, particularly private-label brands that import completed goods from China for warehouse filling or cost-driven electrical distributors. Tariffs are taxes paid by businesses when they import products into the U.S. They’re collected by Customs and Border Protection and paid to the government.
Economical Lighting Brands
Distributor-oriented lighting brands that rely on private label Chinese manufacturing are hit hard by new tariffs. Such businesses operate under a low margin model that relies on shipping container loads of made-to-order fixtures from China directly to electrical distributors at cost, and now must eat up their costs or raise prices which will reduce competitive edge. Although some have attempted to relocate production chains away from China to Vietnam, India or Taiwan to avoid tariffs more easily, many small and medium manufacturers don’t have enough capital or time to make this move happen.
Tariffs also hit U.S. manufacturers that assemble Chinese components into finished lighting products in Mexico. Signify, which operates Cooper Lighting and Genlyte Solutions, relied heavily on maquiladora models in order to sidestep direct Chinese tariffs; however, Canada’s 25% duties imposed as part of their trade war response have nullified any such advantage.
As this uncertainty impacts manufacturers and distributors alike, they face an operational challenge that must be quickly evaluated. They must decide whether they should absorb costs themselves, pass them onto electrical distributors, or investigate alternative production in Vietnam, India, or Taiwan. While negotiating tariff changes is still ongoing, some may decide to wait before making major strategic shifts; in the meantime they need to adjust inventory levels and prices quickly to rapidly changing market conditions while simultaneously minimising operational disruptions and optimizing performance.
Canada
Canada’s economy relies heavily on seamless cross-border trade with the U.S. Every day, millions of dollars worth of goods and services cross the border; due to uncertainty regarding future tariffs, businesses are reconsidering their growth plans and investing more heavily in domestic supply chains – specifically within auto production this means boosting specialized production in order to bring work back home.
Retaliatory tariffs will harm Canadian consumers and businesses alike, raising prices at gas stations and stores while slowing economic growth thanks to decreased demand for American products.
Decisions on whether companies pass the cost of tariffs onto customers or absorb a hit to their profit margin can be complex. Companies might also consider reviewing sourcing options and strengthening relationships with Canadian suppliers who may be more flexible or open to negotiating better service or payment terms or arrangements.
Businesses are revamping their global operating models to become more cost-efficient and cost-effective in response to new risks, by adopting total landed cost analyses which take into account tariffs and taxes. Some manufacturers may move certain high-tariff production to countries with favorable trade status for greater cost synergies while others rethink value chain strategies with an eye towards manufacturing near home markets using tax credits or incentives as a possible solution.
Mexico
Many distributor-oriented economical lighting brands rely on third-party manufacturing in China for products like LED lamps, retrofit kits, flat panels and industrial high bays; purchasing them wholesale, then rebranding them under their U.S. brand names to sell through electrical distributors. Now these businesses are facing a 10% tariff on Chinese imports that could significantly raise costs while undermining pricing advantages they enjoy over rival brands.
The Trump administration’s new tariffs represent a dramatic escalation over previous measures. Their scope is wide-ranging, targeting Mexican and Canadian goods at 25% tariffs while adding 10% levies against imports from China. Their imposition could disrupt global supply chains, increase production costs for businesses and consumers, as well as damage economic growth.
Consumer response to tariffs will largely dictate policymakers’ decisions in the short term, according to research firm Morning Consult. If people experience increased prices due to tariffs imposed against specific countries or imposing generalized tariffs.
Before alternative raw material suppliers emerge, companies are faced with the difficult choice of whether or not absorbing tariffs themselves or passing them along to customers. Lighting manufacturers may pursue additional diversification by searching out alternative countries such as Vietnam or India but this process will take time.
U.S.
As the tariff threat escalates, lighting companies are scrambling for Plan B. Some will try to weather the storm using existing inventory; others may accelerate supply chain shifts to Vietnam or India; yet others may pass costs along to customers; whatever their strategy, success won’t come easily or swiftly.
Many manufacturers, distributors, and electrical contractors stockpiled raw materials and finished goods at pre-tariff prices to protect themselves against immediate price hikes of 25% or 10%. While this strategy can be costly in terms of warehouse space requirements and capital investments, it provides a short-term buffer against sudden price jumps of 25% or 10% in an industry such as lighting which operates using lean Just In Time inventory models.
At the end of the day, tariffs will have an impactful and lasting impact on consumers and businesses alike. A trade war could stall economic growth, eliminate jobs, increase consumer costs and have negative repercussions for all involved parties involved.
Businesses seeking to protect themselves against tariffs have many strategies available to them in order to mitigate risks imposed by tariffs, including investing in domestic manufacturing and sourcing, exploring collaborative supplier arrangements, redesigning products to minimize or eliminate tariff impacts or exploring alternative production opportunities. Some may even consider “friendshoring”, in which production is moved temporarily from America into a friendly country such as France with lower labor costs but similar political and trade agreements; this strategy reduces tariff risks while maintaining low costs of doing business.
