How to Keep Your Supply Chain Moving Amid New Tariff Policies

Jan 21, 2025
Supply Chain
Innovation
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With President Donald Trump’s return to office, global trade is facing renewed uncertainty, particularly due to his tariff plans that could reshape supply chains. On Inauguration Day, Trump held off on unveiling specific tariffs for China but made a significant announcement regarding 25% tariffs on goods from Mexico and Canada, set to take effect by February 1st. He reiterated his stance that these key trading partners have been complicit in allowing undocumented migrants and drugs to flood into the U.S.

In addition to the tariffs on Mexico and Canada, Trump’s administration is considering a 10% tariff on imports from China and a 10% to 20% universal tariff on other imports. These proposed moves put pressure on businesses to reassess their strategies as the new administration begins. The renewed fears of a trade war have already sent global companies scrambling to make their supply chains more resilient and transparent. To stay competitive, businesses must adapt quickly, ensuring their supply chains remain flexible and robust. By addressing vulnerabilities such as dependency on suppliers and reliance on manual processes, organizations will be better prepared to navigate disruptions and manage rising costs in an unpredictable trade environment.

The Ripple Effects of Proposed Tariffs on U.S. Industries

The proposed tariffs are set to have wide-reaching impacts across various industries, with some sectors expected to bear the brunt. A key example is the North American auto industry, particularly U.S. producers. Nearly half of U.S. auto parts imports come from Canada and Mexico, and these parts include critical components such as seat belts and airbags. Tariffs on assembled cars, which account for half of U.S. imports from these countries, could decrease demand for domestically made parts. The share of global executives making plans to move suppliers closer to customers through localisation and reshoring more than doubled year on year. U.S. automakers that assemble vehicles domestically would face more challenges than foreign brands producing in the U.S., putting additional pressure on American manufacturers.

The broader impact of tariffs will be felt beyond just automobiles. As reported by AP, Canadian Prime Minister Justin Trudeau warned that 25% tariffs on all imports would have devastating consequences for both the Canadian and U.S. economies, with Americans facing higher prices on goods ranging from electronics to food products. A recent analysis by the Peterson Institute for International Economics highlights that machinery, electronics, and electrical equipment would bear the heaviest burden, increasing costs for capital goods, intermediate inputs, and finished products.

Rethinking Sourcing Strategies

As businesses face mounting tariff challenges, many are reevaluating their supply chain strategies. The need for diverse suppliers to help avoid tariffs has become even more apparent. Trade tensions may offer opportunities for countries like Brazil to take the place of U.S. exports in specific markets. While the U.S. is pushing for more domestic manufacturing, there is also a push to shift production closer to home, particularly to “friendly” economies with lower risks. Latin America, from Mexico to South America, presents a natural alternative for sourcing. However, the region's logistics infrastructure, especially containerized freight capacity, still lags behind China.

Emerging countries like Vietnam and Indonesia may also benefit from shifts in sourcing, but they face their own challenges, such as limited capacity and freight constraints. Eric Johnson, Senior Editor at the Journal of Commerce, advises businesses to consult trade experts when developing flexible sourcing strategies. These strategies must account for varying tariff scenarios and the availability of ocean freight, as even sourcing from low-cost countries with zero tariffs won’t be effective if ocean capacity is constrained.

The U.S.-EU trade relationship is also under strain, with the U.S. administration imposing higher duties on allies like the EU. Companies must stay alert to shifting dynamics and collaborate with trade compliance experts to navigate evolving opportunities.

What Should Companies Be Doing Now to Prepare for New U.S. Tariff Policies?

With pressure mounting, leaders must act swiftly in response to tariffs. A recent McKinsey & Company report reveals that, once a disruption occurs, companies typically take an average of two weeks to develop and implement a response. This highlights the urgency of proactive preparation. To minimize disruptions and maintain competitiveness, supply chain leaders can take several key actions.

  • Stockpiling Inventory: Many retailers and manufacturing companies have been scrambling to ‘front load’ shipments to the US before tariffs are imposed. Stockpiling inventory ahead of tariff implementation can mitigate the financial impact of new tariffs, though it risks holding aging inventory. The decision to stockpile should be based on product specifics and financial considerations.
  • Diversifying Supply Chains: Businesses should reassess and diversify their supply chains by exploring alternative sourcing and production locations where tariffs are not imposed. Diversification can help reduce exposure to tariff-related costs and cushion the impact on specific regions or products.
  • Exploring Domestic or Near-Shore Production: Shifting production to domestic or near-shore facilities can help reduce reliance on overseas manufacturing, offering new partnerships that minimize tariff exposure.
  • Seeking Supply Chain Alternatives: Companies should think beyond traditional supply chain models by collaborating with ocean carriers to anticipate changes in trade patterns. Diversifying shipping routes and focusing on intra-Asia or closer-haul lanes can improve resilience and offer more frequent sailings.
  • Fostering Partnerships and Collaborations: Building partnerships with government bodies and businesses is essential for mitigating risks in an uncertain landscape. Although trusted trader programs have often been insufficient, proactive engagement with trade experts and exploring alternative partnerships remains valuable.

The Role of Real-Time Visibility Technology in Navigating Tariffs

This is where real-time visibility technology becomes indispensable for Supply Chain Leaders. With the looming challenges posed by tariffs and trade disruptions, having a clear view of your supply chain allows for quicker decision-making, streamlined operations, and enhanced resilience in an unpredictable environment.

Here’s how it can help:

  • Enhanced Forecasting and Risk Management: Real-time visibility allows businesses to predict and manage tariff impacts by providing accurate, up-to-date data on inventory, shipments, and lead times. This enables proactive assessment of tariff effects and adjustment of sourcing strategies to minimize delays and cost increases.
  • Proactive Supply Chain Diversification: Real-time visibility helps businesses identify weaknesses or bottlenecks, enabling them to quickly switch suppliers or shipping routes in response to tariff impacts.
  • Informed Decision-Making with Real-Time Data: Real-time monitoring of goods in transit, shipment routes, and transit times allows businesses to make immediate, data-driven decisions. This capability helps companies adjust quickly to shifting trade patterns and minimize delays.
  • Agility in Response to Changing Policies: Real-time visibility technology enables rapid adaptation to new tariffs and trade policies, ensuring businesses can swiftly adjust operations and mitigate financial impacts.
  • Improved Collaboration with Partners: Real-time visibility fosters better coordination with suppliers, logistics providers, and customers. Sharing up-to-date data helps minimize the effects of trade tariffs and ensures smooth operations.
  • Streamlined Compliance and Documentation: Real-time tracking simplifies documentation and helps businesses stay compliant with tariff regulations, avoiding delays or penalties related to customs.

The coming year promises to be a pivotal one for global supply chains, with proposed tariffs already influencing business strategies even before their potential implementation. To stay ahead, businesses must embrace uncertainty, act decisively, and develop robust action plans today. Companies that invest in mapping their supply chains and gathering detailed data will be better equipped to adapt quickly and navigate the challenges and opportunities that new tariff policies bring.

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How to Keep Your Supply Chain Moving Amid New Tariff Policies
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How to Keep Your Supply Chain Moving Amid New Tariff Policies
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How to Keep Your Supply Chain Moving Amid New Tariff Policies
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