trade policy Archives - IHT Wealth Management

By: Colin Cheaney, CFA

Nearshoring is reshaping the North American supply chain, driving a reconfiguration of shipping routes as manufacturers relocate closer to where the American consumer shops. While tariff uncertainties continue to influence trade, large retailers and wholesalers remain relatively insulated, functioning as pass-through entities that can absorb rising input costs while maintaining margins. Even when prices rise, people still need to go shopping for their groceries and staples. Even discretionary goods still get purchased when prices rise, though the quantity and type of good may shift. In this hypercompetitive and turbulent environment many businesses are sharpening their focus on customer retention and differentiation.

A key competitive advantage emerging from this shift is the expansion of last-mile delivery and additional consumer services. E-commerce leaders like Amazon have set high expectations with vertically integrated logistics, prompting traditional retailers and wholesalers to enhance their own delivery capabilities. Historically reliant on third-party services for shipments of groceries, home appliances, and other goods, these companies are now investing in last-mile infrastructure to improve speed and efficiency.

As last-mile delivery evolves, businesses that streamline logistics and expand direct-to-consumer services stand to gain market share. For investors, this sector presents a compelling opportunity to support enabling firms while reducing exposure to the volatility of tariff-sensitive markets.

Serving The American Consumer

While manufacturers often face supply chain challenges related to tariffs, large-scale retailers and wholesalers generally aren’t as sensitive. Wholesalers can purchase goods in bulk, leveraging economies of scale to secure lower prices, and by doing so, can negotiate favorable terms with suppliers and absorb higher shipping costs. Both wholesalers and retailers also benefit from the use of bonded warehouses, where goods are considered to still be in transit, which enable storage without immediate tariff payments. This approach provides them with flexibility in managing inventory costs and delaying the tariff impact until goods are moved into domestic markets and sold to end consumers. Firms like Walmart (WMT) can then pass those costs directly to the consumer if need be in the form of higher prices on both essential and discretionary goods.

Even if tariffs are implemented in the coming months, the major retailers and wholesalers in the U.S. will continue to sell goods to American consumers. Walmart’s recent sales outlook for 2025 sent the stock into a slump due to forecasts lower than what analysts had expected, but they still forecasted 3-4% expected sales growth in the first quarter this year. The American consumer is really hard to slow down! Regardless of the overall economic climate, people need essentials — groceries, cleaning supplies, medicine, etc. — and companies like Walmart (WMT) and Costco (COST) continue to be cost-effective options for Americans. While consumer spending may shift to lower-cost substitutes in a recession, these companies have taken precautions to dampen any worrisome investors.

While added input costs are passed on to consumers, these companies also take steps to “recession-proof” their aisles and provide options for people across the income spectrum. For example, Costco (COST) has leveraged their membership-based business model to create pricing stability for customers. Walmart (WMT) and Target (TGT) both have their own loyalty programs, and even their own private brands which have become more and more popular as people are more open to “trade down” while shopping. Recent survey data from McKinsey & Company suggests that more than 80% of US consumers believe private brands to be of equal or higher quality compared to national brands. So, while Americans are becoming less loyal to brand names and pivoting to private labels like Costco’s Kirkland Signature or Walmart’s Great Value, these chains are still able to retain customers and reward brand loyalty. The composition of goods in grocery carts may change, but where they shop likely won’t.

Building The Right Shopping Experience

With large-scale retailers and wholesalers more insulated from potential tariffs, CEOs are instead contending with how to best balance in-store sales with e-commerce sales. In Walmart’s latest earnings report, considered a bellwether for U.S. consumer trends, e-commerce sales rose 20% YoY and one third of shoppers elected for delivery times of three hours or less. Convenience, speed, and efficiency are top of mind for consumers, and retailers have had to adapt. With the share of goods purchased online continuing to increase, retailers have increasingly turned to micro-fulfillment centers, which are smaller warehouse facilities designed to stock high-demand items closer to consumers. These centers allow for quicker order processing and reduced transportation costs, ensuring that customers receive their purchases faster.

Additionally, the rise of dark stores, retail locations repurposed for online order fulfillments, has helped businesses streamline operations and reduce overhead costs. These dark stores are strategically stocked with high demand products and located in densely populated key markets to reduce delivery times as much as possible. With less foot traffic compared to traditional storefronts, it’s also much easier to implement automated sorting/ packing systems and use robots to speed up fulfillment — whether it be footwear, groceries, or electronics, expect to see more dark stores pop up in your hometown. Investors should also keep in mind the companies that enable the buildout of same-day delivery and micro-fulfillment centers — industrial REITs. Companies like Amazon (AMZN) and Walmart (WMT) collaborate closely with industrial REITs like Prologis Inc (PLD) to develop facilities integrated with cutting-edge automation systems that cater directly to their fulfillment needs.

Even with the need for local fulfillment centers and dark stores, traditional storefronts have also never been more valuable. According to CBRE Group, retail real estate has the lowest vacancies of any commercial real estate sector. It could be as simple as elevated foot traffic from flexible work-from-home schedules or the desire for an expert opinion — but at the end of the day, there’s plenty of reasons for Americans to still shop in-person. In-store shopping still far outweighs online shopping in terms of retail sales dollars. Annual U.S. retail in-store sales for 2023 topped over $7 trillion, while online sales came in slightly above $1 trillion — still a massive difference between the two shopping methods, but one whose gap will likely continue to narrow.

For reference, online sales as a percentage of total retail sales have more than doubled since 2017. So, to further protect the appeal of in-store shopping, retailers can look to promote their installation and pro-shop services. Take Home Depot (HD) for example – as the largest home improvement retailer in the U.S., its earnings are closely tied to housing activity, but even if home sales slow it can still benefit from DIY home renovations by existing homeowners. Offering an expert opinion on drywall installation or paint jobs still has its perks. Either way you slice it; the large retailers have plenty of resources at their disposal to adapt to evolving consumer spending patterns down the road.

Delivering The Goods

With that being said, last-mile delivery is now the name of the game. Companies like DoorDash (DASH), Instacart (CART), and Uber (UBER) dominate last-mile delivery for grocery stores, restaurants, and even convenience stores, but how do the larger players make it happen? Costco, for example, has embraced partnerships with Instacart to offer same-day grocery delivery, allowing members to receive bulk goods without visiting physical warehouse locations. By leveraging these networks, stores can scale their delivery operations without maintaining an extensive fleet of delivery vehicles, making the process both cost-effective and able to comply with consumer expectations.

Even without scale, smaller retailers have options. Walmart’s home delivery service, GoLocal, has gained significant traction and recently announced integration into IBM’s Sterling Order Management system. IBM customers can now access the delivery service through their order management system and greatly reduces the friction for accessing GoLocal’s same-day delivery options. The gig economy drivers within GoLocal’s network are able to deliver goods from places like Home Depot to Sally Beauty, meaning traditional storefronts have almost become their own makeshift warehouses.

On the flip side of that coin is a retailer like Amazon. While the e-commerce giant used to rely on partnerships with the likes of FedEx, UPS, and USPS, the scale at which it’s grown has allowed for the build out of its in-house logistics network to get orders from their distribution centers to the end-consumer. Amazon offers both independent contractor work called Amazon Flex and third-party businesses called Delivery Service Partners for package deliveries, in addition to having their own employees drive their fleet of more than 20,00 electric delivery vans and counting. Reducing the distance between inventory and their customers has also been enabled by their same day delivery centers where fulfillment, sortation, and delivery are all vertically integrated. Besides Whole Foods, Amazon doesn’t have its own stores, so to compete with the likes of Walmart and Target, faster deliveries are the key to customer loyalty.

Investing In The Future

With major players having leveraged third-party services, while also expanding their own logistics networks, it will come down to who can offer the fastest delivery at the lowest cost. To achieve lower costs while not sacrificing quality of service, automation stands to take a front seat in the buildout of last-mile delivery. Drones and driverless cars have quite an opportunity ahead, but the upfront capital investment required will be substantial, meaning partnering with large-scale retailers or third-party delivery services has been common especially during this initial buildout phase. Certain cities like Los Angeles have already seen an increased acceptance of robotics for food delivery thanks to Serve Robotics Inc (SERV). The company’s partnership with Uber (UBER) introduced autonomous sidewalk delivery robots to bring down the all-in costs of ordering food online. Noteworthy is that without having to tip the robot, customers feel like they’re saving money which can lead to a stickier customer base.

Artificial intelligence, outside of robotics, is also transforming last-mile delivery by making routes more efficient and cutting input costs. Predictive analytics allow businesses to foresee demand spikes and allocate resources properly, in turn avoiding costly delivery delays. Embedded AI in third-party delivery services can examine traffic patterns, weather, and roadblocks to recommend the quickest delivery routes and lead to smarter navigation over time. Time is of the essence in last-mile delivery, so every second counts. While AI is already being used in proprietary logistics operations, the next step is to implement at the ground level, meaning equipping delivery drivers with the latest IoT technology to further enhance delivery data collection and overall efficiency. Amazon has reportedly been developing smart glasses for its drivers to assist with road navigation and even navigating hallways in commercial buildings for drop offs. From where we stand today, wearable tech will likely be adopted first by employees like delivery drivers, as there’s more of a use-case compared to the typical American consumer.

Checking Out

Retailers and wholesalers are navigating a rapidly evolving supply chain landscape, balancing the impacts of nearshoring, tariff uncertainties, and shifting shopping preferences. While they can pass through costs associated with tariffs or inflation, their competitive advantage increasingly depends on last-mile delivery innovations and expanded consumer services. The competitive landscape demands investments in logistics, automation, and micro-fulfillment centers to transforming how goods reach customers quickly and efficiently. As e-commerce continues to grow, the retailers that present the best investment opportunities are those who best integrate technology, delivery networks, and in-store experiences to solidify their market dominance.

Tariffs May Make Cheap Consumer Electronics A Thing Of The Past

The devices we rely on most — smartphones, laptops, tablets, and other smart accessories — share a common thread that is often invisible to the average consumer: The vast majority of them are manufactured, or at least assembled, in China. This fact, long accepted as a byproduct of globalization, has recently come under renewed scrutiny as U.S.-China trade relations have soured. With the U.S. economy, workforce, and education system increasingly dependent on affordable, high-quality consumer technology, the financial consequences of tariffs are at the forefront of the minds of company executives and investors alike.

President Donald Trump’s revived tariff policies have placed fresh strain on an already sensitive U.S.-China trade relationship. The proposed tariffs, aimed at reshaping American reliance on Chinese manufacturing, would have significant implications for the world’s largest tech companies, many of which are deeply connected to China’s sprawling manufacturing ecosystem. Tariffs on other Southeast Asian countries are a concern as well, as final assembly of goods often happens in places like Vietnam to bypass higher trade costs with the U.S., even though many core components are manufactured in China. Although electronics have so far been spared the full brunt of the 145% retaliatory tariffs on China, the uncertainty hanging over the supply chain will make it increasingly difficult for companies to plan, price, and deliver consumer products at the scale and speed American consumers expect.

China’s Grip On Electronics Manufacturing

The tech world’s dependence on China isn’t breaking news, but it’s often underestimated just how deeply entrenched this relationship has become. Over the last three decades, China has done more than offer cheap labor — it has built a vast, highly specialized manufacturing ecosystem tailored to the demands of modern electronics. Since the 1980s, China’s economic reforms and the creation of Special Economic Zones like Shenzhen — a hub for iPhone manufacturing — have attracted waves of foreign investment. These zones offer tax breaks, modern infrastructure, and regulatory flexibility, making China the go-to destination for labor-intensive manufacturing.

China’s building of a manufacturing base and expanding it to take on increasingly complicated projects is not an accident. Early on, the Chinese government recognized the leverage they could gain on a global scale if they became a manufacturing and export hub. Subsidies and incentives for manufacturers were plentiful, and businesses came in droves to take advantage of cheap supply chains. Today, the government not only supports manufacturing but supports companies across the country more broadly. In fact, 99% of publicly listed Chinese companies receive some form of subsidy each year. The breadth of state support — ranging from tax incentives to subsidized workforce training — gives China a significant upper hand in luring outsourced manufacturing operations. This level of support makes it difficult for other emerging market economies to compete with China, while also giving China’s more advanced companies the extra firepower they need to try to compete with more sophisticated competitors in foreign markets.

China’s manufacturing is also globally dominant because of its logistical efficiency. The country’s factories can source batteries, screens, and sensors from nearby storage facilities and ship finished products globally with minimal lag. This responsiveness allows companies to iterate quickly and launch products on tight schedules. For example, Apple designs its products in California and sources chips from Taiwan but still assembles over 90% of its iPhones in China due to the close proximity of necessary components for final assembly. Chinese manufacturers are flexible and capable of last-minute design tweaks that would cause delays in less coordinated systems.

Replicating China’s infrastructure and supplier network is a massive challenge. Decoupling from China is not something that will be done easily or quickly — if indeed it happens at all. Tariffs would need to be both high and permanent for companies like Apple to seek lasting alternatives to Chinese manufacturing.

Tariffs Threaten Consumer Electronics

President Trump’s goal for tariffs is twofold: to protect American industries from perceived unfair competition and to encourage U.S. companies to rethink their reliance on Chinese supply chains. On paper, the logic appears straightforward: If Chinese-made goods become more expensive, American firms will have no choice but to move production elsewhere.

The reality, however, is far more complex. Tariffs don’t automatically lead to domestic production. In the short term, they tend to raise costs for consumer tech importers, forcing businesses to make tough decisions: absorb the additional expense or pass it on to consumers through higher prices. While absorbing the cost sounds preferable, it often comes at the expense of layoffs and reduced economic output. For companies that thrive on razor-thin margins — especially in the hyper-competitive world of consumer electronics — neither option is attractive.

American households, which have grown accustomed to the relative affordability of smartphones, laptops, and tablets, are likely to feel the pinch first. The same iPhone or Galaxy device you bought last year could see its price jump by hundreds of dollars if tariffs on Chinese imports escalate. However, the extent of that price hike will ultimately depend on the tariff rates placed on countries like Vietnam and India. If the gap between those countries’ rates and China’s is significant — say 10% compared to 60% — then consumer tech companies are more incentivized to move manufacturing out of China and absorb the extra costs associated with relocating.

However, even relocating carries risks. Today’s tariff rates may not be the tariff rates of the future, so it’s difficult to justify significant upfront spending to relocate. The alternative, of course, is to bring manufacturing home. Building a factory in the United States ensures there won’t be any tariffs on final assembly. Unfortunately, manufacturing at home is likely cost-prohibitive. The U.S. has long outsourced final assembly to China in order to focus on other parts of the supply chain like innovation and design. Today’s workforce does not have the skills to do high-precision manufacturing, nor would it be a good allocation of skilled resources. Using survey data from the Cato Institute, the Financial Times reported that while 80% of Americans believed the U.S. would be better off if more people worked in manufacturing, fewer than 30% believed they personally would be better off. This major gap between personal and societal perspectives underscores the reality that the U.S. has evolved into a primarily services-based economy.

Tariffs Mean Electronic Components Will Cost More, Too

Additionally, what makes the smartphone and PC supply chain so challenging to unwind is its sheer complexity. Tariffs don’t just hit the final product. When imposed broadly, they also affect the flow of raw materials and intermediate goods, which can make even components manufactured outside China more expensive once they enter the Chinese assembly line.

While the final assembly of a device like an iPhone or Dell laptop may take place in China, its individual components are sourced from all over the world. The processor might be designed in California by Apple or Intel but fabricated in Taiwan at TSMC’s massive chip foundries. The display could be produced by South Korea’s Samsung or LG — or increasingly, China’s BOE. Memory chips often come from companies like SK Hynix or Micron, which manufacture across the U.S., South Korea, and Japan.

Even the smallest components — like resistors and capacitors, which are critical to controlling electrical currents in smartphones — often have winding production journeys that cross multiple borders numerous times before final assembly. Once these parts arrive in China, factories integrate them into a finished product, and the complete device is then packaged and shipped out. This intricate, interdependent system keeps costs low, lead times short, and quality high — but it also means any disruption, such as tariffs or sanctions, can cause cascading effects across the industry.

Simply moving final assembly from China doesn’t change the fact that all of the other components needed for final assembly are also being sourced from elsewhere. Unless we move the entirety of the supply chain to the United States, it’s likely that some components will end up facing tariff disruption of some sort.

If Not Made In China, Then Where?

President Trump’s tariffs have also laid bare the fault lines in global electronics production. Companies with deeply embedded Chinese operations face the harshest risks, while those that began diversifying early are positioned to capitalize on the disruption. Countries like Vietnam and India have emerged as alternative production hubs, especially for labor-intensive assembly work. Vietnam has steadily climbed the ranks in smartphone and wearable device manufacturing — particularly for lower-end models — but still doesn’t come close to China’s share of the market. India, on the other hand, has increasingly become a destination for high-end electronics, including iPhones.

Interestingly, in an attempt to sidestep potential tariffs, Apple’s suppliers in India reportedly shipped nearly $2 billion worth of iPhones to the U.S. in March alone — a clear signal of how seriously technology companies are taking the risk of higher costs. It’s worth noting that China’s exports of finished consumer electronics products have exceeded all other countries combined for more than 15 years. China’s share has remained well above 50%, while Vietnam hovers around 10% — a far cry from posing an immediate threat to China’s dominance.

Yet shifting production comes with trade-offs: fewer supplier options, higher costs for some components, and slower turnaround times during periods of high demand. While companies are beginning to rethink their strategies, China’s deep-rooted ecosystem will be difficult to replace entirely, especially for sophisticated products like smartphones and laptops.

Investment Opportunities Amid Tariff Uncertainty

For investors, the U.S.-China tensions present both risk and opportunity. Sharp tariff hikes can spark short-term stock market volatility, but they also open the door for long-term investment themes. American companies that face rising production costs due to tariffs may also benefit from federal subsidies and policy incentives aimed at bringing manufacturing back home — there are two sides to every coin.

Semiconductor companies like Intel (INTC), AMD (AMD), and Micron (MU) are clear examples. These firms not only have less exposure to Chinese assembly but are poised to benefit from government-backed efforts like the CHIPS Act. Intel, despite past operational challenges, has received significant U.S. government backing to expand its domestic manufacturing footprint.

Investors should also consider companies that enable advanced domestic production. Equipment suppliers like Applied Materials (AMAT) and Lam Research (LRCX) stand to benefit from the buildout of domestic semiconductor capacity, as their expertise in fabrication equipment is essential for next-generation chip architecture. Flex Ltd. (FLEX), which offers contract manufacturing outside China, may also benefit from a reorganized supply chain that needs short-term flexibility. Finally, firms specializing in automation and robotics could see a surge in demand, as companies seek to offset higher domestic labor costs with increased factory automation if onshoring comes to fruition.

Future Of Consumer Electronics

As tariff tensions escalate, the future of affordable consumer technology hangs in the air. For decades, affordable devices have been the result of a highly efficient, globally integrated supply chain — one that relies heavily on China’s vast manufacturing infrastructure. Disrupting this system with tariffs introduces friction into everything from production timelines to component sourcing and risks higher costs for consumers.

Investors should keep in mind that replicating China’s scale and expertise in manufacturing is a multi-decade undertaking. The era of cheap, seamless access to the latest technology may be giving way to a new normal — one where national security concerns and political agendas increasingly influence the affordability of consumer technology.

By: Colin Cheaney, CFA

Tariffs and the U.S. trade deficit have dominated headlines lately, with both equity and fixed income markets recalibrating based on future growth prospects. And what’s incredible is that market pundits finally agree on one thing for once – tariffs aren’t great for the global economy. For decades, free trade has benefited U.S. consumers and helped lower income countries grow, while allowing the U.S. to focus on investing in high value services and advanced manufacturing.

One important, yet often overlooked, aspect of the trade debate is services. While the United States has a trade deficit on the goods side of the equation, when we focus just on services, we actually run a trade surplus. Keep in mind when we hear the trade deficits referenced by the Trump administration, those generally focus solely on goods. Just because we run a goods deficit with a country, doesn’t necessarily mean we’re getting ripped off. There are two sides to every coin.

Currently, the U.S. workforce revolves around services. Almost 80% of our workforce is employed in the services sector, while the remaining 20% consist of workers in goods-producing industries. Breaking it down even further, less than 10% of Americans work in manufacturing – a massive decline since peaking in the 70s. By prioritizing services-based industries over the years like consulting, banking, logistics, insurance, and travel, we‘ve created new high paying, highly sought after jobs that help keep the U.S. economy churning.

Because most services are delivered digitally or virtually, retaliatory tariffs don’t apply directly and might not hit as hard initially, but the downstream effects resulting from lower confidence from our trading partners aren’t desirable. To target our services exports, foreign countries could tighten licensing requirements and impose bureaucratic hurdles that make it harder for U.S. firms to conduct business overseas.

Nobody knows exactly what the impact of tariffs will be, and the market uncertainty out there is real, but investors can take a little comfort in the fact that the U.S. economy doesn’t rely solely on producing goods – don’t forget about services.