Your Tariffs Playbook & Path Forward in Supply Chain

Tariffs & the Path Forward

Tariffs caused business instability and great stress in the financial markets when initially announced but both have bounced back over the last several months. There were immediate, near-term consequences, caused mainly from the uncertainty associated with making business decisions and the fear of inflation. The government believed that these issues would be offset by the long-term benefits (manufacturing growth, mitigated geopolitical risk, and access to new markets). As luck would have it, just as things were settling out, inflation fears subsided, and significant manufacturing investments announced, the U.S. Supreme Court ruled against the tariffs (at least the ability to charge revenue).

We’ll talk through where we’ve come from, where we stand, and our projections for the future. We believe that tariffs will be around for the foreseeable future as the global trade environment shifts. Successful companies will be thinking ahead, planning appropriately and pursuing opportunities along the way.

Current State and Impacts on Manufacturing & Logistics
Reasoning Behind the Tariffs
Tariffs, Trade Deals & More
Our Tariff Forecast
Path Forward to Navigate Proactively

Current State & Impacts on Manufacturing & Logistics

The new ruling on tariffs has reinvigorated the buzz surrounding tariffs. Let’s take a look at tariffs and their impacts on manufacturing and logistics.

Tariffs: Trump put tariffs in place to curb fentanyl and with the objective of better balancing trade with other countries. He used the Emergency Economic Powers Act (IEEPA) as it was the best tactic for enabling quick action. In addition, he put tariffs on imports related to national security such as steel, aluminum, and auto parts under the Trade Expansion Act of 1962. The administration used these tariffs as leverage to negotiate trade deals with most major trading partners. Recent estimates show that the overall tariff rate was around 15%. On February 20th, the U.S. Supreme Court ruled that the U.S. could not charge revenue on the IEEPA tariffs, and so they are no longer in effect; however, the tariffs related to national security remain in effect. The day that the U.S. Supreme Court ruled against the use of IEEPA tariffs, Trump rolled out a new temporary global tariff of 15% under the Trade Act of 1974 and kicked off studies on trade practices to replace the IEEPA tariffs with already-tested tariff alternatives as the temporary tariff ends. Thus, the expectation is that tariffs will remain largely unchanged.
Manufacturing: Manufacturing has been in a recession since late 2022. As the tariffs were announced, customers stopped making decisions as they weren’t sure of the future. Backlogs shrunk. Additionally, media pundits and financial professionals were concerned about inflation although it has been insignificant overall. Exporting countries and companies absorbed much of the impact (depending on the country and product) and importing companies absorbed most of the rest. Therefore, what was passed on to consumers wasn’t substantial. Positive signs of life started returning to the sector late last year as favorable and competitive tax, regulatory, energy, and interest rate policies gained momentum and trade deal frameworks were formed.
Logistics: The big money in the logistics industries relates largely to trade as ocean freight, the ports, rail, tucking, and big box retailers such as Amazon and Walmart are largely dependent on imports from China. This industry and specifically the Southern California region with 80% of the port volume related to China has been extremely concerned about the tariffs; however, the hit on volume was short-term. In fact, the Southern California ports broke records in 2025. Companies are resilient and pre-bought inventory prior to the tariffs taking effect and at key junctures to ensure customer service remained intact.

Reasoning Behind the Tariffs

Manufacturing has been on a downward slope for many years. First, after World War II, the U.S. deployed favorable trade conditions as a short-term strategy to help countries recover; however, continuing them for the long-term has created trade imbalances and negative consequences. In essence, companies and countries had access to the U.S. market but the same was not true in reverse. Instead, U.S. companies had to contend with tariffs, VAT taxes, and other trade barriers, creating significant trade imbalances.

Second, when China entered the World Trade Organization in the early 2000’s, it created a significant trade advantage for China. Since then, manufacturing has flipped from the U.S. to China. According to the U.S. Treasury Secretary, 6 million manufacturing jobs were lost since 1999 and almost 100,000 factories have been closed. From a stock market point-of-view, it has been positive as inexpensive products from China cost less, and China does not have to follow the same rules (labor, environmental, regulatory, or financial laws) as they do in the U.S. In addition, China’s government can subsidize key products that it wants to dominate such as steel, rare earths, etc. Over time, more and more companies moved manufacturing to China and other less expensive countries to meet short-term company objectives while China looked long-term and followed its 100-year plan.

Since for every $1 invested in manufacturing, $2.67 is added to the economy, China knew its long-term strategy would yield results. Thus, the U.S. economy transitioned to consumption ($1 to $1 ratio), companies excelled, and the focus moved to Amazon-like service until the pandemic pointed out the magnitude of the threat of depending on other countries for critical products. Since you are only as strong as your weakest link in your supply chain, when China cut the world off from rare earths this summer, it could have stopped 90% of the world’s production if not addressed. It highlighted the need to de-risk. Ironically, Trump threatened tariffs on China, and a deal was worked out to keep shipments of rare earths flowing to the rest of the world.

Thus, in addition to curbing fentanyl, part of the reasoning behind the tariffs was to re-build critical infrastructure, support domestic manufacturing and increase these high-paying jobs. You cannot turn a switch and increase manufacturing output as it requires a rebuilding of property, plant, equipment, talent, and supporting supply chains. In today’s technology-enabled world, it is not “your grandfather’s old-style, dirty manufacturing environment”. Instead, there are smart factories and artificial intelligence enabled environments. These investments must accompany the traditional ones to ensure success. However, since companies haven’t been investing in these expansions as it didn’t fit the global strategy, it would require a heavy lift. And, although the results would be staggering in terms of economic growth ($2.67 for every $1 invested), the results would not be immediate. Worse yet, costs and uncertainty would emerge prior to long-term benefits. Thus, it is unlikely they would be popular.

Without a compelling short-term reason, nothing would change. As my HR mentor used to say, people will not change unless there is a significant emotional event. In addition, Newton’s First Law of Motion remains intact – an object will maintain its state of motion (either at rest or in motion at a constant velocity) unless acted upon by an external force. Thus, the decline of U.S. manufacturing and the rise of China’s manufacturing will carry on unless a significant emotional event occurs. COVID was no longer top of mind enough for companies to address the harsh realities and suffer near-term consequences. Tariffs became that significant emotional event.

Tariffs, Trade Deals & More

Tariffs spurred companies and countries into action. Trade negotiations occurred throughout the world. New deals have now been agreed upon with the majority of the U.S.’s major trading partners. In addition, Trump set tariff rates for the remainder of nations around the world, and so businesses started to smooth out as the future came into focus. Companies are resilient if they have a good idea of how to navigate the global business environment.

Tariffs were rolled out to address a few key themes:

Trade imbalances: If a country exported significant volumes to the U.S. but was not open to the U.S. for import or had significant trade barriers, it became a priority focus.
Critical products risk: If the country exported items required for national security, healthcare, or infrastructure, it was prioritized. If the product was related to a critical industry such as steel and aluminum, the automobile industry, rare earths, or pharmaceuticals, it was targeted.
National security & wars: Other tariffs were set with the objective of stopping fentanyl deaths and wars or addressing national security issues.
Closed loopholes: For example, the small package di minimis exception loophole was closed for packages less than $800.

After several rounds of rapid negotiations, trade deal frameworks were formed with most key countries. The deals typically addressed a few key issues:

Reduction in tariffs: This is self-explanatory as several countries like India had high tariffs on U.S. goods. For example, India’s tariffs averaged 17-18% vs U.S. at 2-3%. Automobiles were 60-100% vs 0-4%. The differences were significant.
Reduction non-tariff barriers to trade: These non-tariff trade barriers focused on standards, licensing, customs procedures, quotas, state-owned enterprises, and regulatory transparency. For example, Europe is known for its VAT tax as well as several other non-tariff barriers.
Market access: Opening up markets to U.S. exports was a significant theme. For example, several global markets are opening up to agriculture exports and aerospace (Boeing) exports.
Reduction in risk: As it relates to fentanyl, rare earths, and other critical items, several trade deals mitigate these risks. For example, the frameworks agreed upon with Japan, Australia, Indonesia, and the Ukraine relate to rare earths.
U.S. investments: Many of the trade deals also involve investments into the U.S. in energy, manufacturing, shipbuilding (South Korea), rare earths, data centers, and pharmaceutical plants.
Energy: Many agreements provide for the export of energy from the U.S. to countries that need to increase their energy footprint and/or replace energy from places like Russia. For example, Europe agreed to purchase liquefied natural gas (LNG) and other energy imports from the U.S. and wind down their purchases of energy from Russia to support an end to the Russia-Ukraine war.

Frameworks were developed for trade deals with many countries with each deal tailored to the specific trading partners depending on countries’ strengths and capabilities. Here are a few highlights the U.S. negotiated in exchange for a reduction of U.S. tariffs and access to the U.S. marketplace. Refer to a full list by year on the Office of the United State Trade Representative website.

Korea: Korea is investing and partnering with the U.S. on the vital industry of shipbuilding and reducing non-tariff trade barriers.
Japan: The U.S. and Japan signed a formal framework agreement aimed at securing supply chains for rare earths and other critical minerals, and that framework explicitly includes a coordinated investment component to accelerate mining, processing, and related infrastructure in both countries. Japan and the U.S. also worked out a successful deal for the Nippon Steel acquisition of U.S. Steel which effectively resulted in joint economic involvement and a national security agreement.
Europe: Europe agreed to eliminate tariffs on U.S. industrial goods and provide preferential market access for a range of U.S. agriculture and seafood goods. In addition, the EU agreed to purchase energy, invest in key sectors in the U.S. such as defense and advanced manufacturing, and the U.S. agreed to cap tariffs at 15%.
Taiwan: Taiwanese semiconductor and high-tech firms pledged major direct investment in the United States, including infrastructure and production capacity. In addition, Taiwan agreed to purchase LNG, aircraft, power equipment and more. The U.S. reciprocal tariffs on Taiwanese imports were set at a maximum of 15 %.

A note on USMCA (the U.S. agreement with Canada and Mexico): Although there has been a lot of discussion about the USMCA agreement, it remains intact. In addition, the fentanyl tariff went into effect as well as steel and aluminum tariffs, thereby creating consternation especially with the U.S. / Canada relationship. The USMCA is expected to be renegotiated later this year and so it could be up in the air if the parties don’t align on an agreement.

How does the U.S. Supreme Court impact these frameworks? Since the U.S. Supreme Court ruling was announced, government officials talked with the U.S.’s global trading parters and confirmed that they expect the trade deal frameworks to remain in force. Our estimate is that the 80/20 will remain intact.

Our Tariff Forecast

As Liberation Day unfolded, we projected that the tariffs would level out over time as they were largely used as a negotiating tool and that inflation would be mildly inflationary. Thus far, it has been “right on” with the overall picture. Of course, depending on your industry, specific suppliers, countries you trade with and several other factors, the devil is in the detail for each company. We’ve had clients impacted in various ways. For example:

China tariffs: an industrial manufacturer exported to China (one of the rare ones!), and so they reallocated production to another global facility to mitigate the impact of the tariffs. It temporarily negatively impacted the original manufacturing facility with reduced production requirements.
India tariffs: an equipment manufacturer imported castings from India and so costs increased on that key component; however, it didn’t increase to the level of internal production and so they continued to purchase from India. Luckily, they have flexibility and could change course if needed as they maintained flexibility in their plant network.
Steel and aluminum tariffs: several Canadian customers have cut back on purchases as the steel and aluminum tariffs have created ill will and uncertainty. With that said, it also spurred additional business for building product companies as large steel and aluminum facilities investments started to roll out in the U.S.
Mexico: Interestingly, overall, Mexican company executives were not unhappy that the tariffs created an urgency in addressing the drug wars. In addition, executives were relieved that Mexico was a part of the USMCA agreement which provided greater stability. On the other hand, tariffs created instability overall and dampened demand temporarily. During the prior administration, Mexico became wildly popular as companies added Mexico capacity with the benefits of USMCA, and China started building mega factories to ship products to Mexico to take advantage of free access to the U.S. market. This came to a halt when it looked like the government might change.

Overall, our forecasts related to tariffs have not changed. Of course, we continue to tweak as conditions change. First, from a government perspective, we expect that Trump and his trade advisors will find alternate strategies to accomplish the same tariffs as in place prior to the U.S. Supreme Court ruling. There are multiple options that have been proven in prior court cases. They will take extra time to study and roll out. However, in the interim, a 15% global tariff is in place. It appears that the trade deals negotiated thus far will remain intact.

Here are our forecasts by segment:

Domestic manufacturers: Domestic manufacturing will ramp up (reshoring, expansion, new investments, foreign direct investment, vertical integration, strategic partnerships) but remain focused on critical industries and supporting supply chains as well as commonsense, innovative solutions. For example, if you are going to re-configure your supply chain, why not take a step back and redesign products to require less labor, be automatable, provide enhanced value to the customer etc.?
Large vs small manufacturers: Large companies are generally better prepared to reallocate production, invest in new equipment and facilities, and produce to scale. On the other hand, small companies tend to be more innovative and develop new technologies and strategies to take a sharp right turn when everyone else is going left. During the Depression, more forward-thinking companies willing to invest and take prudent risk shot to the top of their industry or market than in any other time in history. The next few years will provide the same level of opportunity for companies that are ready for the challenge.
Regional supply chains: Regional players will gain. Mexico wants access to the U.S. market (as they have gained significantly with the USMCA) and has the advantage of scale since they have been building capabilities for quite some time. Since even moving a small portion of China’s volume will require scale, Mexico is well-suited. The best regional supply chains will keep supporting factors top of mind – water, electricity and goods movement infrastructure. Canada has the advantage of natural resources and also has an intermingled supply chain with the U.S. Thus, we expect the USMCA countries will remain committed to working together (although not without its highs and lows) and will build a powerful regional supply chain.
Latin America: Latin America will have significant opportunities with the transition to domestic and regional supply chains. The U.S. has worked our trade deal frameworks with countries such as Argentina and is partnering with key Latin American countries on domestic priorities. For example, the U.S. and Venezuela are partnering to deliver energy to the region. Refer to our recent Supply Chain Byte on how Venezuela and Greenland relate to regional supply chains.
China/ Asia: Although significant shifts are underfoot, companies will not fully move out of China. You don’t go from being #1 to zero overnight, and the U.S. would like a productive relationship with China. In fact, there is a preliminary trade deal in place, and both countries are living up to the agreement. The U.S. and China’s economies are dependent on each other. In addition, several key Asian countries have put together trade deal frameworks with the U.S. and will grow substantially as companies’ de-risk from China but want to stay in the region. Taiwan also has a trade deal framework focused on de-risking computer chip supply chains.
Logistics: While manufacturers have been in a recession since late 2022, the logistics industry has been booming since the pandemic. Geopolitical risks have increased the need for companies to purchase safety stocks, spurring additional demand. Logistics will move with evolving supply chains. Modes of transportation, the specific locations of distribution centers, and specific routes will change as conditions change, but goods still must move. Thus, overall, logistics will remain intact even though the details will evolve and specific companies and modes of transportation will win or lose.
Southern California logistics: Since the Southern California ports are the most dependent on China (70-80%), they will be the most impacted with changes in the global supply chain (as companies change routes, mode of operation, etc.). However, if they automate, improve efficiencies and throughput and reduce costs, they will continue to have significant opportunities as they have scale and structural advantages (such as the ability to accept large ships that require deep water and a significant logistics infrastructure of rail, trucks, distribution centers, 3PLs and other types of providers).

In terms of the economy, the tariff impact and the trade deal framework themes have been incorporated into business projections and the financial markets. At first, tariffs caused the markets to sink; however, they recovered rapidly as hope for stability seemed to be on the horizon. There have been highs and lows as trade frameworks were worked out and as concerns surfaced about inflation and impacts on the economy. Just as the markets seemed to embrace business stability, the U.S. Supreme Court ruled against the tariffs, causing additional uncertainty. However, the Treasury, Commerce Department, and the Trade Representative Office have communicated that they expect equivalent tariffs to take over and for revenue projections to remain intact. We expect markets to remain intact as well.

From a personal point-of-view, I will stick with my Aunt Joan’s theory of investing. Focus on good companies that make products people need. Pick the best and invest in the long-term. Everyone (me included) thought she was insane with some of her investing choices and seemingly taking big risks for a senior person, but her track record speaks for itself.

Path Forward to Navigate Tariffs

Successful companies are resilient, forward-thinking and take action. They focus on the following strategies to ensure success:

Secure supply: for near-term needs at a minimum and evaluate additional steps including increasing safety stock, sourcing additional suppliers, diversifying your supply base, and pursuing vertical integration and/or strategic partnerships. Refer to our article in MPO about strategic partners in the medical supply chain for additional insights on the value of partnerships.
Assess your supply chain: Rapidly assess your end-to-end supply chain – start by asking the 5 whys. Who, what, when, where, why? Review the priority and criticality of each material. Assess your risks, alternatives, likelihood of occurrence and impact.
Visibility: Increase your end-to-end supply chain visibility so that you can trace changes and/or issues in your supply chain. Consider rolling out supply chain visibility processes and software as needed to estimate time of arrivals (ETAs), predict available to promise (ATP) dates. and increase your capabilities to better navigate changing tariffs, disruptions and other geopolitical events.
Build resiliency: No matter your position in the supply chain, the more flexible, agile, capable, and the greater your ability to pivot and scale up or down, the more successful you’ll be.
Culture of innovation: Only the innovative will thrive during these VUCA-laden (volatility, uncertainty, complexity, ambiguity) times. Brainstorm creative solutions, test new theories, pilot process improvements and instill a culture of innovation.
Create predictability: It will no longer be enough to react quickly; you must predict, take prudent risks, adjust on the fly, and invest wisely so that you are ready to leverage the opportunities as they arise, mitigate risks and avoid bottlenecks.
SIOP (Sales Inventory Operations Planning): Roll out a SIOP process to better predict demand and adjust your operations and supply chain to prepare for success. Several clients have reallocated production, reevaluated sources of supply, and addressed tariff risk as a natural part of the SIOP process. To learn how to roll out an effective SIOP process, download our eBook, “SIOP: Creating Predictable Revenue & EBITDA Growth“
Upgrade talent & technologies: Navigating tariffs successfully and preparing for the future will require upgraded talent (upskill, expand, supplement, add) and technologies (additive manufacturing, ERP, AI, digital twins, IoT). To read about strategies to utilize AI for manufacturing to power smart supply chains and smarter decisions, download our eBook.
Redesign products: It is an opportune time to redesign products to be less dependent on labor, to address material supply considerations, and to reduce cost and/or improve performance while maintaining quality.
Regional supply chains: The future will be mainly focused on regional supply chains with quick responsiveness to changing product designs, customer and market conditions, supplier needs, lead times, etc.
Energy & natural resources: Ensure availability for current and future needs within your end-to-end supply chain.
Financial: Ensure access to capital and be ahead of the changing needs with the resources to support growth and success.
Common sense assumptions: Use common sense and proceed accordingly. For example, you cannot wait for full clarity (wait too long) or move before you know if you are moving in a “directionally correct” manner.
Deep dive into tariffs: Learn about tariffs in detail, find online training and education, hire trusted advisors (coach/ consultant, attorney and CPA) familiar with navigating these processes, and evaluate potential bottlenecks.

Depending on your company type and situation, modify your response.

If domestic manufacturer: If you are a manufacturer with minimal items dependent on China in your end-to-end supply chain, build your capabilities and capacities (including your key suppliers) as you will have significant opportunities to expand. Upgrade your infrastructure, talent, processes, systems/ technologies, strategies, etc.
If global manufacturer: Get ready to pivot, move equipment, reallocate and/or expand capacity and keep key supply chain partners close to the vest.
If dependent on China: Secure supply for your core customers, diversify key sources of supply immediately in your end-to-end supply chain, source backup sources of supply, and bring in additional critical items while preparing for the future.
If distributor: Get ready to pivot, take advantage of short-term space needs and keep your ear to the ground for changing conditions so that you can stay ahead of new trends and needs.
If transportation partner: Get ready to pivot and take advantage of opportunities arising out of changing conditions.

Tariffs and trade negotiations will transform global trade over the next few years. A manufacturing renaissance will emerge in the U.S. as investments gain steam and high-paying jobs emerge. These changes will be accompanied with the revolution of artificial intelligence and advanced technologies. Although there will be significant change, there will also be significant opportunities. The winners will separate from the rest of the pack and unlimited opportunities will emerge for those who are resilient, innovative, forward-thinking and ready to scale.

If you are interested in reading more on this topic:
Resilience in Supply Chain of Paramount Importance