The University of Tennessee, Knoxville, Haslam College of Business Fall 2025 Supply Chain Forum featured sessions on today’s most pressing topics in supply chain management. One session, “The Economy and Supply Chains,” featured Tom Goldsby, the Dee and Jimmy Haslam Chair of Supply Chain and David P. Perrot Supply Chain Management Faculty Fellow, in an informative Q&A discussion with Georg Schaur, the Leigh Burch III Economics Professor and Haslam Family Faculty Fellow. Their talk covered subjects from tariffs and protectionism to national industrial policies and more.
Note: The highlights below have been edited and condensed for clarity and continuity.
Tariffs
Goldsby: When President Trump announced his heavy tariffs on virtually all U.S. trading partners on April 2, “Liberation Day,” I believed those costs would be passed directly to American consumers, sparking widespread inflation. That hasn’t happened. What’s your explanation for why tariffs haven’t affected prices more drastically?
Schaur: When the first Trump administration imposed tariffs, evidence showed they were passed to the U.S. economy almost at a rate of 100 percent. Research is being conducted into who is absorbing tariffs now, considering their full extent is not passed to consumers. The data shows it’s unlikely it’s the sellers. That means somebody in the middle probably is absorbing them.
Goldsby: There’s also the notion of companies getting quite creative with tariffs in the harmonized trade code [the internationally standardized numerical method of classifying traded products]. Can you explain what’s going on here?
Schaur: I have no evidence this is happening, but there are several ways to avoid tariffs. The easiest way to pretend you are not shipping what you are shipping is choosing product codes that are similar to what you’re shipping, but with lower tariffs. That is difficult to show in trade data research because firms will not tell you they are doing this. If there’s a mismatch between what a country says they’re exporting and what they’re importing, that could mean misreporting is happening. We’ve found previously that when tariffs increase, misreporting increases.
Goldsby: Can you address the concept of importing indirectly?
Schaur: Yes, instead of directly exporting from China to the United States, perhaps go first to Canada, Mexico or Vietnam to avoid some of these tariffs.
Protectionism and Industrial Policy
Goldsby: The Biden administration maintained the first Trump administration’s tariffs. Now we’re seeing additional tariffs placed on businesses. Can you give us a landscape of protectionist measures?
Schaur: After the two world wars, U.S. tariffs were at about 15 percent, which were eventually negotiated down to around three percent. What we see right now is an increase of the tariffs in the U.S. to about 14, 15, 18 percent. Essentially, we are moving back to where we were in trade protection after the wars.
Goldsby: The U.S. doesn’t touch or influence 85 percent of global commerce. There’s a suggestion that the U.S. is stirring up trade wars, and some conversations on multilateral agreements are starting to happen around the world without U.S. involvement. Do we risk that other 85 percent cutting the U.S. out?
Schaur: It’s important to understand how international trade has changed and how flexible international supply chains have become. In the 1800s, 1900s, we were trading finished products, and we needed all the materials here to finish those products. In the 1990s — with all the innovations in computers, the internet, reductions in communication costs — that production was fragmented and split all over the world. Given how fragmented production is, it’s easier to take individual pieces of that process and move it somewhere else in response to trade barriers.
We would expect if you’re imposing these kinds of costs, some supply chains will start excluding the U.S. On the other hand, we have other policies that, in certain industries, make it more attractive to come to the United States, because there are subsidies for things we want.
Goldsby: As a national industrial policy, the Biden administration recognized supply chains were important and identified critical sectors to reshore. The CHIPS Act was a $50 billion carrot to build advanced chips here. About $450 billion in private sector funding followed. That was the carrot approach. In my work with the Department of Commerce then, we talked about other sectors we needed carrots for. Now there seems to be a reversion from that approach. What are your thoughts on economic carrots and sticks?
Schaur: If you want some production to move back to the U.S., you need both. Standard economics says open markets stimulate economic growth and innovation. Imposing protective measures closes markets, leading to less innovation and less growth, which decreases returns, making the U.S. less attractive to foreign investors. To counteract that and attract industries you want in the U.S., you must give firms an incentive to move here despite the higher tariffs. That is the carrot in terms of the industrial policy measures.
Economic Precariousness
Goldsby: A question from the audience notes that Chipotle and DoorDash recently reported weak earnings. Personal debt levels are also at record highs. Is the country in a silent recession?
Schaur: Several indicators are showing the labor market is much weaker than we thought. We see this in Federal Reserve action. On the one hand, inflation levels are higher than the target, but the Fed is starting to lower interest rates because they have the same impression that the markets are not in good shape and perhaps we are trending towards a recession. We’re headed into a period where the labor markets are weaker than over the last 10 or 15 years and concerns are increasing.
Goldsby: Regarding trade regulation compliance, there has been so much walking back and doubling down on tariffs, how can companies hope to comply?
Schaur: Economists can ensure we are on top of the changing policies and have a logical framework to understand how they might affect the future bottom line of the economy and of a firm. Companies need someone who understands these policies and has a logical take on how they might affect things, and there are also some resources that do a good job keeping track of the tariff changes.
Other, non-tariff costs are much more difficult to observe. For example, when the tariffs were imposed, customs were struggling because, suddenly, they had to be more careful ensuring tariffs were paid, which led to delays. It is difficult to determine, on average, how much a three-day delay costs a firm. And how do you determine what investments to make to mitigate those costs when you don’t know what those costs are? The trade policies’ less-transparent effects that increase the cost of doing business are more challenging for firms and consumers than tariffs these days.
Uncertainty Hurts Long-Term Business Relationships
Goldsby: You’ve done extensive research in supply chain configurations and how they’ve changed. What does your research show about whether these protectionist policies will achieve the stated goal of reshoring production and operations?
Schaur: In terms of production location, one of the most challenging issues is the non-tariff barriers. One important barrier that is difficult to grasp is uncertainty. Everybody intuitively understands uncertainty is much higher than it was 10, 20 years ago. How does that impact international business? Recent research is assessing how global uncertainty affects production location. There are two ways to do business. One is, you write a contract for what you need from your supplier, and if they don’t deliver, you take them to court for not delivering. Another way of doing business is, forget contracts, I’m going to pay you a little more, so you’re incentivized to maintain a good relationship with me and deliver the quality product I want.
Why does uncertainty matter here? With a good contract, you don’t need relationships because you can go to court if they don’t deliver. Relationships depend on whether you believe the relationship will continue. A relationship’s productive longevity is what motivates the seller to produce the promised quality. If they believe the relationship won’t last, they don’t have an incentive to deliver because they can reap the one-time benefits from cheating and move on.
In our research, we use U.S. import data to see relationships between buyers and sellers in their transaction patterns to distinguish whether they are in a one-time contract or a long-term relationship. From this research we see if global uncertainty increases, the probability business relationships last decreases, making it more costly for firms to form relationships.
The surprising finding from our research model is, if you increase global uncertainty, production will move from Europe to China. The reason for that shift is that Europe and the U.S. over time have built long-term relationships. If uncertainty increases, those relationships are less likely to last. That increases the cost of doing business with Europe, and that change will make it more attractive to source from China.
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Scott McNutt, business writer/publicist, rmcnutt4@utk.edu
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