Featured in:
Supply Chain Digital
CPO Strategy
Donald Trump’s re-election has left the global logistics industry evaluating its next moves, with the returning President weighing up tariffs of 10-20% on all imports arriving in the US and 60-100% on Chinese imports. Many retailers and manufacturing companies have been scrambling to ‘front load’ shipments to the US before tariffs are imposed. The lasting effects of these policies on global trade and logistics could reshape the industry and are worth investigating.
What is President Trump reportedly weighing up when it comes to tariffs?
If we take Trump’s campaign rhetoric at face value, the United States may impose tariffs at levels unseen since the 1930s, having a seismic impact on trade relations as we know them today. During his first term, Trump often used the threat of tariffs as leverage in trade negotiations, but didn’t always follow through.
However, current reports suggest his administration could be considering tariffs of 10-20% on all imports and a staggering 60% on goods from China. This will largely target goods and manufacturing, rather than services. Such measures would likely hit electronics, apparel, and toys hardest – sectors heavily reliant on Chinese manufacturing.
From a sustainability perspective, Trump’s proposed tariffs could be shortsighted. In his previous administration, it is possible that the tariffs he imposed intending to curb China’s dominance actually backfired, inadvertently enabling China to take a leadership position in technologies critical for the green transition. According to the International Energy Agency, China currently controls more than 80% of the global solar value chain. If these tariffs go ahead, they could further cement China’s position in green technology while increasing costs for U.S. manufacturers and consumers.
Retailers and manufacturers are first to respond to the anticipated tariffs
At this stage, the majority of retailers are still evaluating their options and modelling scenarios to prepare for potential tariff impacts. The range of options is broad but could involve moving operations. This will likely accelerate a trend that has started to establish in recent years, with product flows being broken up into three ‘global zones’ – the Americas, Europe, and APAC – to mitigate risks associated with tariffs. The new tariffs will likely speed up this trend with companies managing their supply strategies in a regional network.
Manufacturers may hedge risks by increasing inventory in strategic areas. This marks a shift away from a true “just-in-time” inventory model, as companies prioritise resilience over efficiency to counteract ongoing global disruptions. Onshoring or relocating manufacturing to regions with lower tariff exposure is another likely strategy, and we may see Chinese firms potentially acquiring Mexican businesses to sidestep tariffs in the States.
Some firms might also stockpile resources with high anticipated tariffs, while others may explore ways to automate and cut costs in their manufacturing base. While much is still to be firmed up surrounding Trump’s tariffs, firms should look to tread a careful balancing act of cost, efficiency, and resilience.
Is a trade war looming?
The policy and response from other countries could take many forms. During Trump’s first term, we saw ‘tit-for-tat’ responses from China and the EU, and this pattern will likely escalate further if he follows through on his campaign promises.
The scope of a trade war largely depends on how other nations respond. While superpowers like China may engage directly, it looks unlikely that smaller countries would enter into a tariff war with the U.S. and are more likely to mitigate exposure to the impacts.
For example, countries reliant on U.S. energy exports might shift to alternative sources, as China has done in its long-term pursuit of energy independence. Can the U.S. really afford the consequences of sustained trade conflicts? The answer may not just reshape its economy but redefine its role on the global stage.
Multiple sectors are affected by the threat or tariffs
Consumer goods and retail are most obviously in the firing line. However, modern supply chains are incredibly complex, with both components and finished goods being sourced from all four corners of the world. The ripple effects could mean that sectors like pharmaceuticals and industrials could also feel the impact, depending on which direction the tariffs go.
Ironically, the American powerhouse of life sciences sector might suffer unexpected consequences. While the U.S. excels in large-scale drug manufacture, with exports to other countries, many secondary and tertiary materials needed to pack and produce these products – such as syringes, lab equipment, and packaging – are made in China. Establishing local alternatives takes time and could lead to supply disruptions.
Automotive manufacturing is another vulnerable sector, as it often relies on complex, cross-border supply chains. Even industries where the U.S. has competitive capabilities, like pharmaceuticals and cars, could experience increased costs and logistical challenges as a result of the proposed tariffs.
It’s time to embed resilience into supply chains
Firms should look to adopt a ‘resilience by design’ approach – assessing strategic networks and creating playbooks for different scenarios that arise. Embedding resilience requires a proactive, multi-layered strategy.
One step that firms could explore is opening new facilities in non-tariff regions or relocating logistics hubs around less disrupted zones. They could also evaluate alternative sourcing models, keeping in mind that these, too, could be disrupted again at a later date. If Plan A fails, firms can have contingencies for multiple scenarios – and Plans B, C, and D to fall back on.
It’s equally important to understand the tier 2, 3, and even 4 of raw material supply to identify where cross-border tariffs will likely impact sourcing. This helps to spot any vulnerabilities so firms can build inventory buffers for critical raw materials in the mid-term. In the longer term, firms should be prepared for the loss of some trade. They should look to identify alternative customers from other markets and feed this into their long-term strategy and planning.
Leveraging suppliers’ expertise and know-how can help firms stay one step ahead. Suppliers often have valuable insights from working with multiple customers facing similar challenges. Transparent relationships help create trust and flexibility, allowing for quicker pivots when disruptions arise.
Share:
