A Moving Target: The Impact of Higher Tariffs on Global Supply Chains

Download this article in PDF format.

No new tariffs have been introduced since the new U.S. presidential administration took over last week, but that hasn’t stopped companies from assessing and preparing for the potential impacts. President Trump has floated several different ideas—25% tariffs on imports from Mexico and Canada; new sanctions on Russia for the Ukraine War; and a 10% tariff on Chinese imports—but no specific actions have taken place yet. 

The day he was sworn into office, the new president said he was thinking of imposing levies of 25% on Mexico and Canada, and is targeting February for them to come into effect, CNBC reports. “He also issued a trade memorandum instructing federal agencies to scrutinize trade policies with other nations,” it adds, “especially China, Canada and Mexico — but the memo stopped short of introducing new duties.”

The president is also said to be mulling over imposing 25% tariffs on goods from Canada and Mexico within the same timeframe. “On the campaign trail, Trump vowed to levy a universal tariff of up to 20% on all imports to the U.S and more than 60% on Chinese products,” CNBC reports. If this happens, companies that import product may be switching over to using more domestic suppliers. 

Making that pivot isn’t always easy. “With supply chains being so integrated globally, and much of the manufacturing being done outside the U.S., companies may find it hard to shift production to local shores,” CNBC points out. “The higher costs, then, will likely be passed on to the consumer in the form of increased prices.”

Tariffs or No Tariffs?

The incoming president appears eager to impose taxes on imports and is making those intentions clear in his speeches and announcements. There could be both short- and long-term supply chain implications, depending on which direction he ultimately chooses to take and when the new tariffs go into effect. 

The Volkswagen Group is one automaker that’s watching these developments closely. Reuters says the tariff plans would mean higher car prices for U.S. consumers and hit global automakers.

“The Volkswagen Group is concerned about the harmful economic impact that proposed tariffs by the U.S. administration will have on American consumers and the international automotive industry,” a Volkswagen spokesperson told Reuters. "We value collaboration and open dialogue. The Volkswagen Group looks forward to continuing its longstanding and constructive partnership with the U.S. administration.”

According to Bloomberg, companies aren’t waiting around for official word on the tariffs; they’re taking action now. “Since the November election, in-house counsel at companies with global supply chains have been mapping their suppliers, planning how they can relocate, and starting to renegotiate contracts,” it says.

Citing data from PwC, Bloomberg says the implementation of all of the proposed tariffs could generate nearly $900 billion annually, up from the current $81 billion, with the highest impacts on the automotive and pharmaceutical industries.

“Preparation started in November—or even earlier—with companies analyzing their full supply chains, mapping where their suppliers, and those suppliers’ suppliers, are sourcing from,” it adds. “And even if a company isn’t hit directly with a tariff, its costs stand to rise if its suppliers face higher tariffs.”
 
More Reshoring and Nearshoring Ahead

Hartford Business Journal says Connecticut’s Chief Manufacturing Officer Paul Lavoie expects the trends toward reshoring and nearshoring production to accelerate in 2025, as companies—particularly large original equipment manufacturers (OEMs) —try to reduce their exposure to the risks of global instability.

“We will see manufacturing companies shorten supply chains, move manufacturing back to Connecticut from overseas and work to build out domestic supply chains,” Lavoie told the publication, which reports that Stanley Black & Decker is among the firms that have already announced their intention to shift production to different parts of the world in order to mitigate the effects of tariffs.