Memorandum
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- Derek Weston via The Verge
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- Business·3 min to read
- Re
Harvard's Willy Shih Says Tariffs Redirect Production Rather Than Return It
ReHarvard's Willy Shih Says Tariffs Redirect Production Rather Than Return It
Harvard economist Willy Shih explains why tariffs redirect production instead of bringing factories back to the US, and who bears the cost of these changes.
Harvard economist and professor of management practice Willy Shih warns that US tariff policy and the artificial intelligence boom are reshaping global supply chains in ways that often keep the true costs out of consumers' view. He made this point in an interview with the Verge Decoder podcast, tied to his upcoming book "Where Does My Stuff Come From?".
Shih emphasizes that tariffs most often do not return production to the home country but merely redirect it. Assembly is moved to Vietnam or Mexico, or the tariffs are circumvented in other ways. He cites examples of cashews and fish, where the origin shown on the label conceals economically motivated processing routes. In his view, the "made in" label often does not match the place where value is actually added.
The economist also recalled that several years ago he predicted that the Foxconn plant producing LCD panels in Wisconsin would not be built. In his assessment, the reason was that no established supplier base or necessary infrastructure of concrete and steel existed for such a plant. Today, he says, many promised returns of production to the US have failed to materialize.
The conversation also covers the broader context. Shih recalls the chip shortage during the 2021 pandemic, when supply disruptions became noticeable for many industries. Now, against the backdrop of Trump-era tariffs, the key consumer of resources has become the construction of AI infrastructure, which requires large computing capacity and materials.
Shih also examines the historical consequences of free trade. According to him, it was partly justified on the grounds that economic ties reduce the risk of war. He believes consumers benefited from cheap imports from China in the period from roughly 2000 to 2012–2014: inflation was relatively low and goods, including large televisions, were inexpensive. At the same time, in his assessment, workers who lost their jobs were not retrained, and the costs were distributed unevenly.
The economist also draws attention to the persistent US trade deficit. In his words, the exchange rate adjustment mechanism that should have reduced it did not work. The last time the US had a trade surplus and a dollar adjustment was in the 1980s. China, by contrast, has a large trade surplus and, in Shih's view, exports its own economic problems. Chinese flat-panel factories continue to operate, in part thanks to powerful industrial policy subsidies.
Shih also describes how steel tariffs have gradually turned into tariffs dependent on the content of goods, which raises costs domestically. He notes that Europe, including the German automotive sector, is now reviewing its own dependence on external suppliers. The unresolved question remains whether tariffs will actually bring production back or merely redirect it to other countries.
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