Since returning to the White House, President Trump has announced a series of tariffs, ranging from blanket Mexico, Canada, and China tariffs to individual raw material tariffs on commodities like steel and aluminium. These tariffs, which are import taxes paid by the US business that imports the goods, will have a direct impact on all US companies that import raw materials or goods.
Enterprises should pay close attention to Trump’s tariffs and their potential impacts, as they will likely radically shape global supply chain links. Any business that currently has a supply chain that spans multiple countries, including the US, should begin to develop strategies to minimise disruption.
What Are Trump’s Tariffs?
Trump’s tariffs, just like all tariffs, are a blanket tax placed on certain materials, goods, or products that are imported into a country. For example, if a company wants to buy steel from a different country, it would have to pay the import tariff associated with that material. Trump’s tariffs, which will impact several core industries, will increase the cost of importing goods for numerous companies across the USA.
Trump’s extremely high tariffs seek to restructure trade away from importation and toward using materials and products sourced or created inside the US. As US firms will have to pay these import tariffs if they want to use materials from outside the US, Trump’s tariffs create an enormous increase in total production costs. Considering over $3.17 trillion dollars of goods are imported into the US per year, companies are set to face much higher operation costs.
While Trump initially threw out some extremely high tariff figures, he has since decreased them. However, businesses need to be aware of a number of Trump’s tariffs and their impacts. Here are the key tariffs and what they mean for your organisation:
- Aluminium Tariff: One of Trump’s tariffs is an increase in the aluminium import tax rate from 10% to 25%.
- Steel Tariff: Another central one of Trump’s tariffs is on steel, with the president seeking to expand the total number of derivative steel articles that are subject to the established 25% tax rate.
- Country-Specific Tariff: On February 1st, the White House announced a 25% import tariff on all products from Mexico and Canada (apart from energy resources) and an additional 10% tariff on China. By February 4th, after Mexico and Canada both outlined similar import tax increases, Trump suspended these additional tariffs.
- Consumer Goods Tariff: As a result of blanket Trump tariffs, consumer goods will see steep increases in costs, as suppliers in the US have to pay more to acquire products from other countries and will then forward this cost to US consumers.
Pharmaceuticals and Semiconductors: Most recently, on the 19th of February, Trump announced plans to introduce a 25% tariff on automobiles, pharmaceuticals, and semiconductor chips. While an official date has not been announced for these, they will create significant operational supply chain increases for many industries.
Source: Which Products Are Most Affected by Trump’s Tariffs
According to the Tax Foundation, these tariffs would reduce the GDP of the United States by upward of 1.9%, representing billions of dollars in lost economic power. Alongside slowing economic growth, this would create major cost increases for both businesses and consumers within the USA.
Source: US Steel Imports by Country
Are Trump’s Tariffs Still in Place?
The most pressing trump tariff is the steel and aluminium import tax. Especially for countries like Canada and Mexico, which account for nearly 40% of all US steel imports, these tax changes are significant factors. After threatening retaliation, Trump has agreed to pause these tariffs while the countries enter into discussion.
While a deal may still come to fruition, US supply chain companies that engage in steel or aluminium should begin to look for ways of diversifying their suppliers. Unfortunately, the sudden nature of this has meant that many businesses are looking for new suppliers at the same time, creating a surge in demand which results in difficulty securing economical trade deals.
While there are seemingly many Trump tariffs in the works, many remain to come to fruition. As the BBC reports, it’s likely that threats that President Trump makes will not come to pass, with special waivers or distinct deals being created at the last minute. We’ve already seen this with Mexico and Canada, as their retaliation made Trump rethink his import tax hike.
Although the tariffs are not yet in action, it’s important for companies to look for alternative options and stay as proactive as possible in this turbulent time.
How Will Trump’s Tariffs Impact Global Supply Chains?
One of the main motivations for applying a tariff on imported goods from another country is to protect national businesses from foreign competition. If a business can buy steel cheaper from Canada than it can from other companies in the US, this creates a favourable deal for the company but results in capital leaving a country. The Trump tariffs are general import tax increases that will seek to prevent businesses from looking elsewhere for their raw material sourcing.
Any business that currently has a multinational supply chain will be directly affected by these Trump tariffs, as any importation into the USA will become dramatically more expensive. Especially in the case of raw material sourcing, companies will see tariff rates that cut into their profits and may cause them to rethink their pricing strategy.
Beyond cost increases, the Trump tariffs will also cause significant disruptions to supply chains, increasing the complexity of supply chain links and bringing new factors into the equation. Enterprises that have spent years developing an optimised multinational supply chain will suffer. Here are some of the potential challenges global supply chains will face:
- Raw Material Cost Increases: The Trump tariffs are mainly focused on raw materials, which will create a major increase in the cost of materials like steel and aluminium for any US company. If any material impacted by the tariffs is a core part of your supply chain, you will have to either absorb the 25% tariff increase or increase your prices. These unfavourable conditions will especially impact any business that is heavily reliant on international suppliers.
- Manufacturing Cost Increases: Numerous businesses buy products from countries like China due to the lower cost of manufacturing in these places. As the tariffs arrive, these cheaper alternatives may no longer be a cost-effective solution, causing enterprises to turn back to US manufacturers. This shift will create a surge in demand in the US, causing major price increases and boosting manufacturing costs in the supply chain.
Loss of Core Supplier Connections: Due to increases in costs or new potential trade barriers, some trustworthy suppliers for a supply chain business may no longer be a feasible option. The sudden shift away from trusted partnerships due to these Trump tariffs can create friction in a supply chain and cause major disruptions.
What Industries Will Trump’s Tariffs Impact Most?
While all industries will feel the effects of these tariffs, any industry that typically deals internationally will experience major shifts in its supply chain structure. Here are some of the industries that are most at risk:
- Electronics: Especially with the potential for semi-conductor Trump tariffs, any business that manufacturers or sells electronic devices will experience cost increases
- Clothing and Retail: Suppliers that have international links with lower-cost manufacturing countries may have to restructure their supply chain and incur higher costs.
- Automotive: Automotive and the raw materials used to create cars are both going to be subject to Trump tariffs.
- Consumer Goods: Any company that imports consumer goods for mass sales will have to rethink where they acquire these products from, absorb the additional costs, or significantly increase the final retail price for the consumer.
How Can Trump’s Tariffs Affect Your Business Costs?
As outlined above, Trump’s tariffs will directly affect business costs in a number of ways: raw material price increases, manufacturing cost surges, import duty taxes, and an increase in demand for US-based resources causing a price hike.
While many multinational corporations may have strategies to manage these Trump tariffs, such as simply absorbing the cost or charging their customers more, the solution for many small and medium-sized businesses is less clear.
The BBC recently reported on a California-based liquor importation company, Bad Hombre Importing, which will have to contend with a 25% price increase for all imports from Mexico. The owner, Fred Sanchez, is worried that passing a price increase of 25% onto the customer just isn’t feasible, but adding this to operation costs will quickly lead the company into the red.
Trump’s tariffs, although idealistic, overlook the complex balance of the global supply chain, causing SME and enterprise businesses major disruptions while simultaneously harming the US economy. Considering that US manufacturers will bear the brunt of these tariffs, ABC News also reports that it could have a major consequence of putting American jobs at risk.
Another important factor to consider is that the Trump tariffs will actively increase the total cost of products for the average US household. The Peterson Institute for International Economics suggests that tariffs on Canada, Mexico, and China would cost the typical US household over $1,200 extra a year.
Considering this substantial increase, many households will reduce their spending over the coming periods, which could result in a decrease in sales for all industries, impacting every business with a complex supply chain as demand begins to shift.
Source: Total cost of the Trump tariffs to the consumer.
Practical Tips for Managing Tariff Impacts
Enterprises must take Trump’s tariffs seriously and begin to prepare ahead of time. Especially considering how quickly some of these tariffs spring into action, businesses must stay one step ahead.
Here are some proactive approaches that businesses can take to better manage Trump’s tariff impacts:
- Diversify Supplier Base: Diversifying a supply chain supplier base is one of the most effective ways of reducing the potential disruptions that can come from Trump’s tariffs. By looking for alternative suppliers, your business can craft a stronger network of suppliers that can step in to help with any resource scarcity or production delays. Creating a strong base of suppliers ahead of time will ensure that you have contracts in place to fall back on if some of your suppliers become non-viable in the future.
- Explore Local Sourcing Options: Trump’s tariffs actively seek to force US businesses to look internally for their sourcing options. While this will create a massive surge in demand for a limited stockpile, which economists have suggested will negatively impact the US economy, businesses do still have time to find alternative suppliers in their area. By getting ahead of other businesses and securing local contracts as soon as possible, businesses may be able to avoid any price hiking that occurs internally.
- Leverage Trade Agreements: Several Free Trade Agreements (FTAs) present excellent opportunities to access trade across borders for a lesser or completely eliminated tariff cost. By locating options to engage with FTAs and introducing them into your supply chain, you may be able to plan around Trump’s tariffs.
Even though each of these practical tips is a useful practice to follow, we recommend taking stock of your entire supply chain. Building supply chain visibility over the coming months will help identify where efficiencies can be made to decrease how impactful Trump’s tariffs are for your enterprise.
How Should Global Supply Chains Adapt to Trump’s Tariffs?
While these drastic tariffs may still be only on the horizon, it’s still imperative that businesses act swiftly to avoid the potential disruptions and financial consequences of hesitating. Diversifying suppliers, encountering new partners to collaborate with, and proactively managing Trump’s tariff impacts are the keys to success in this turbulent time.
Contact Prewave for an AI-driven supply chain risk management solution that can help you gain full visibility into your supply chain and identify where risk is greatest.
