President Donald Trump has threatened to impose new taxes on American companies that manufacture their products outside the United States.

President Donald Trump

If enacted, such taxes could have a significant impact on the U.S. promotional products industry. The vast majority of promo products sold in the U.S. are produced overseas, especially in China.

Trump made the comments about taxing companies for producing their products abroad in a May 14 interview with Fox Business Network. The president said such taxes could compel companies to return manufacturing to the United States. Trump didn’t say if the levies would come as a new type of tax or sweeping additional tariffs. A new tax would require congressional approval.

On May 14, Trump called global supply chains “stupid.” He opined that the coronavirus pandemic has, in particular, exposed their weaknesses. He wants production to be repatriated.

“We shouldn’t have supply chains,” Trump said. “We should have them all in the United States. We have the companies to do it. And if we don’t, we can do that.”

The president called out technology giant Apple in particular.

“You know, if we wanted to put up our own border, like other countries do to us, Apple would build 100% of their product in the United States,” Trump said. “That’s the way it would work. … One incentive, frankly, is to charge tax for them when they make product outside. We don’t have to do much for them. They have to do for us.”

Before the COVID-19 pandemic struck, the Trump administration’s trade war with China was arguably the single biggest disruptive factor facing the domestic promotional products industry.

During the trade dispute, Trump imposed tariffs on hundreds of billions of dollars worth of products made in China. That triggered price increases on a range of products in the promo space. It also compelled industry suppliers to begin geographically diversifying their supply chains, establishing production partnerships with more factories outside China.

“Tariffs forced us to look outside of China and we are currently sourcing more products from countries like Vietnam, Myanmar, Pakistan and India,” Dan Jellinek, executive vice president at Top 40 supplier The Magnet Group (asi/68507), told Counselor.

Promo executives are skeptical that a new tax on companies who manufacture outside the U.S. would compel suppliers and distributors to onshore a significant amount of production. High labor costs and inadequate access to raw materials could all prove to be hurdles.

“There is no significant open manufacturing capacity, and very limited availability of materials, mainly innovative fabrics,” Jose Gomez, senior vice president of operations at Kalamazoo, MI-based Top 40 supplier Edwards Garment (asi/51752), told Counselor.

The U.S. Commerce Department has reported that, as of January 2020, the Trump administration’s tariffs on Chinese imports had cost American companies $46 billion.

Business groups and economists have of late been stepping up calls for the president to cut or remove the tariffs to relieve some of the financial burden companies are feeling amid the recession caused by the COVID-19 pandemic. The International Monetary Fund has warned that measures that impede global trade, like import tariffs, can make the current recession last longer.