Tariffs could reach deep into manufacturing-heavy Indiana

Tariff talk is big these days as economists, manufacturers, industry groups and consumers—everyone, it seems—consider the potential impact of tariffs announced by the Trump administration.

While consumers across the country could pay higher prices on all sorts of goods, Indiana’s manufacturing-heavy economy is especially vulnerable to the uncertainty from tariffs and retaliatory tariffs between nations, economists told IBJ.

“If we’re not the most at-risk state, we’re one of the three most at-risk states because of tariffs,” said Michael Hicks, professor of economics and director of the Center for Business and Economic Research at Ball State University. “The reason for this is, we import a very large share of our manufacturing production that goes into finished products that leave the state.”

On Feb. 1, President Donald Trump issued executive orders imposing 25% tariffs on goods imported from Mexico and Canada (except energy from Canada, with only a 10% tariff) and an additional 10% on imports from China.

The North American nations agreed to a one-month reprieve. But the China tariffs took effect Feb. 4.

Then this week, Trump hiked tariffs on aluminum and steel.

He removed the exceptions and exemptions from his 2018 tariffs on steel, meaning all steel imports will be taxed at a minimum of 25%. The president also raised his 2018 aluminum tariffs to 25% from 10%. This round of announced tariffs is set to go into effect March 12.

Many economists, businesses and trade groups have taken a dim view of Trump’s tariff moves, warning that they will increase both costs and complexity for U.S. companies and consumers. Others are withholding comment as they watch the trade policies and negotiations play out. And still others are emphasizing the positive potential impacts, including the possibility that tariffs will motivate companies to work more with domestic suppliers.

David Hummels, professor of economics at Purdue University’s Mitch Daniels School of Business, said firms that make products that compete with imports could benefit, too, “assuming that you have locked in your supplies of inputs and raw materials.”

But the S&P Global Ratings economics team, in a research note on Feb. 6,called the tariffs “negative all-around,” predicting that U.S.-instigated tariffs and trading-partner counter-tariffs would result in lower GDP growth, higher unemployment and higher inflation.

“The way that I like to think about tariffs is that they are tax,” said Andrew Butters, associate professor in the Business Economics and Public Policy Department at Indiana University Bloomington’s Kelley School of Business. “They are a tax on trade when goods cross borders.”

Butters said past studies of tariffs revealed direct resulting price increases. “A $1 increase in tariffs … you typically see about then [a] $1 increase for that end consumer,” he said.

The effects of higher costs could ripple out from factories to workers, to the stores they use and into communities across the state. And the costs can compound.

A vehicle, for example, is composed of thousands of parts from numerous suppliers, and those suppliers have many suppliers, creating a complex international network of goods.

The Subaru of Indiana Automotive assembly plant in Lafayette has nearly 260 suppliers, including about 30 in Indiana. Subaru’s Lafayette site has 6,500 employees, including 5,500 in production. SIA expects to produce its 6 millionth Subaru in late June.

SIA did not comment directly about tariffs, but spokesperson Craig Koven said in a written statement that the company looks “forward to working with the administration and policymakers to further strengthen this important sector of the U.S. economy.”

Direct hit

In 2023, manufacturing accounted for about 18% of Indiana’s workforce and almost 26% of the state’s gross domestic product, according to the National Association of Manufacturers in Washington, D.C. Indiana’s top export destinations were Canada, Mexico and China.

Industries with significant manufacturing operations in Indiana include pharmaceutical, automotive and steel.

Andrew Berger, CEO of the Indiana Manufacturers Association, said Indiana automakers are particularly vulnerable to a tariff dispute with Canada.

“The auto sector is highly integrated with the Canadian market, both on an export and import basis,” he said. “Indiana is a global auto-making center, so we’ve got some real exposure.”

But the impact goes far beyond the auto sector. Hoosier businesses, from biotech to pole-barn builders, are weighing strategies to deal with potential tariffs.

Cummins Chief Financial Officer Mark Smith said in response to a question about tariffs during a Feb. 4 earnings call that the company would pass on cost increases to customers.

“On tariffs, by and large, our strategy is to make most of our products in the market in which they’re sold,” Smith said. “We do have a global supply chain … . Nobody knows exactly what the tariff situation is going to be.”

Smith added: “But to the extent that we do incur them, then we think it’s important that the market feels those, and we’ll look to pass those on.”

Global companies can shift production, although that is no simple task.

Jasper-based Kimball Electronics provides electronics manufacturing and contract manufacturing for automotive, industrial and medical markets.

During its early-February earnings call, CEO Richard Phillips said the company’s Mexico facility exports 25% to 30% of its production into the United States. And he said Kimball’s U.S. facilities import components from China, Mexico and Canada on customers’ behalf to use in manufacturing their products.

“There are a variety of options we will continue to review with our customers,” Phillips said. “Our customers may be able to change Kimball’s final delivery location, shift production to another Kimball facility or pay the tariffs.”

Vince Wong, CEO of BioCrossroads, a nonprofit advocacy group in Indiana, said Indiana’s life sciences sector relies heavily on global trade, “so tariffs impose material short-term and long-term effects.”

Ball State’s Hicks said biotech and drug manufacturers, including Indianapolis-based Eli Lilly and Co., could see disruptions but not as severe as others, such as the auto industry.

The pharmaceutical industry is “not going to have quite the share of inputs that are manufactured somewhere else, and there are more substitutes for them,” he said.

Anxiety: Anderson manufacturer says the uncertainty around tariffs is most maddening.

Opportunity: Distiller expects some prices might drop as competitors more exposed to tariffs get stuck with product.

Uncertainty: CEO of plastic parts maker says using an American supplier is not an affordable option.

Positives and negatives

Builders consuming lumber could be especially vulnerable.

Remington-based FBi Buildings, which constructs farm pole barns, commercial buildings and other structures, posted an extensive blog entry on its website in January about the potential impact of tariffs.

“These tariffs can spike lumber prices, directly affecting the cost of materials for pole barn construction,” the post said. “As Canadian lumber becomes more expensive, domestic mills may struggle to meet demand, resulting in supply chain disruptions and even higher prices.”

And Dan Starr, CEO of Fort Wayne-based Do it Best Corp., said this week that—in addition to lumber, steel and aluminum—many of the fasteners, tools and structural components in building materials that Do it Best’s member stores sell every day are imported.

“These tariffs may put added pressure on the home improvement industry,” he said.

Some prices are already increasing, Starr said, in anticipation of tariffs. He said he hopes that if the president is using tariffs as a negotiating tactic, it considers the short-term disruption the threat of tariffs is causing.

Other Indiana companies see the potential for positive effects from Trump’s emphasis on tariffs.

Lafayette-based semitrailer manufacturer Wabash said more than 95% of its Tier 1 supply chain is sourced domestically.

“While many manufacturers are now scrambling to respond to tariffs and global supply chain volatility, Wabash made the strategic decision years ago to prioritize domestic partnerships and build a resilient, U.S.-based supply chain,” Richard Mansilla, Wabash vice president of global supply chain, said in written remarks.

During Wabash’s Jan. 29 earnings call, CEO Brent Yeagy said the company made changes in response to tariffs during the first Trump administration.

“Thinking more broadly about the potential impact of U.S. tariffs, we’ve already seen near-shoring activity ramp up for multiple reasons in recent years,” he said. “To the extent that tariffs act as an accelerant to [that] trend, we believe that foreign imports of goods being replaced by North American manufacturing activity has an outside positive impact on dry van trailer utilization.”

Simon Property Group CEO David Simon replied to an earnings call question about tariffs with comments on the “de minimis exception,” which allows companies to sidestep paying duties on imports worth $800 or less when shipping packages to customers in the United States.

Trump revoked the trade exception but later paused the action in order to be able to process the volume of low-cost packages.

“What’s really going to be helpful to the American retailers and the non-Chinese retailers is to get rid of the de minimis rule, which basically exempts tariffs if you send a package [under] $800 to a customer. That’s not a level playing field,” Simon said.

He said retailers that ship in bulk pay more.

“It’s given real benefits to someone like a Temu [a Chinese online marketplace], where they ship purposely under the $800,” Simon said.

Hummels, the Purdue professor who acknowledged some companies could benefit from tariffs, said the biggest immediate impact will be uncertainty, which is making it difficult for business to make decisions.

“We actually have absolutely no idea where this is heading because, as far as I can tell, this is unprecedented in the last 70 years of trade policy,” Hummels said. “When businesses face that level of fundamental uncertainty about the competitive environment they face, they just hit pause.”•

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IBJ reporters Dave Lindquist and Susan Orr and Inside INdiana Business Managing Editor Alex Brown contributed to this story.