Trump promises new tariffs. How are businesses preparing?

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Days after winning the 2024 presidential election, Donald Trump began ramping up plans to increase tariffs in the name of protecting U.S. jobs and manufacturing.

The president-elect has promised to implement 25% tariffs on Mexico and Canada, as well as additional 10% tariffs on products made in China, on his first day in office.

The plans echo the aggressive tariff policies deployed by the president-elect during his first term, when he imposed sweeping tariffs on China during a two-year trade war. Trump also imposed tariffs on U.S. trading partners in Asia, North America and Europe, including on steel and aluminum from Mexico and Canada.

In anticipation of what could be a wave of new tariff hikes that Trump claims he is ready to implement as early as this month, manufacturers and retailers are preparing their supply chains for a new business landscape.

Here are the ways businesses are adapting according to experts.

Frontloading inventory is only a short-term solution

Even though new tariffs are likely, most companies are avoiding radically changing their supply chains until more concrete steps are taken at the federal level, said Madhav Durbha, group vice president of CPG and manufacturing at supply chain technology company Relex Solutions. This level of certainty will only be available when Trump is in office.

One of the most popular tactics companies are already employing is anticipating imports and stockpiling inventory before Trump's inauguration, according to Jonathan Todd, vice chair of the transportation and logistics practice group at law firm Benesch Friedlander Coplan & Aronoff.

However, this will not address the long-term implications of tariffs and is far from a one-size-fits-all solution, particularly for less shelf-stable products like food.

Alternative sourcing and supplier relations

Tariffs implemented by the last two presidential administrations have accelerated the move to diversify supplies away from China, or even eliminate supplies from the country altogether.

The most attractive regions to move to have been Southeast Asia as well as Mexico and, to some extent, Canada, according to Todd. Countries like Vietnam, India, Turkey and parts of Europe like Poland have also become more common sourcing locations, Durbha said.

A shipping container at the Port of Los Angeles on September 20, 2024. Many retailers and manufacturers are anticipating their shipments ahead of possible tariff increases this year.

Mario Tama via Getty Images

However, moving production and sourcing to new countries is far from easy, as it can take at least five years to sufficiently change a company's supply mix, according to Todd.

Beyond an extended completion time, moving to new countries also forgoes the volume advantage of single-country sourcing and comes with significant cost requirements, Durbha said.

If you're expanding into new countries, you need to consider regulatory compliance in those countries, which is very different from, say, regulatory compliance in the United States or China, he added.

Leaving countries targeted by tariffs may not be the right decision for all businesses, especially those with strong relationships with their suppliers. In this case, companies should proactively negotiate with their suppliers and change their buying and selling expectations, according to Todd.

Perhaps the financial burden of these increased tariffs on landed goods should be borne equally, or in some balance between seller and buyer, meaning that foreign producers could internalize some or all of that cost for a while, Todd said.

Improve visibility

Shippers must fully map their supply chains to understand where all supplies and inputs are coming from. Performing a thorough review of the origin of inputs can be particularly helpful, according to Evan Chuck, a partner at the law firm Crowell & Moring.

It's like if we take that nomenclature and really scrub it to determine if it's a mineral, let's find out where and what mine it came from, right? If it's plastic, what barrel of oil? » Chuck said.

Companies can also review their product classification to ensure they have appropriate expectations for pricing impacts, said Brett Johnson, a partner at law firm Snell & Wilmer.

It's not like companies can react knee-jerk to everything said, tweeted, or broadcast on Truth Social. »

Madhav Durbha

Vice President of the CPG and Manufacturing group at Relex

Experts say manufacturing in FTZs, also known as free trade zones, provides another potential safety net against tariffs. Goods produced in these areas are not subject to the jurisdiction of U.S. Customs and Border Protection because they are shipped for consumption outside the United States.

National supply and political game

Of course, the safest and easiest way to protect against tariffs is to rely on domestic production. Trump has argued that higher tariffs would incentivize companies to bring their manufacturing operations back to the United States, but experts are less convinced of that strategy.

The challenge of domestic sourcing is, of course, you know the capacity is not what it used to be, and even if you can find domestic producers, many of those inputs are coming from foreign sources, and those -they will therefore have a burden to pay. rates are also going up, Todd said.

Exemptions could provide relief to some businesses if the tariffs take effect.

Any exemptions would depend on the specifics of the new rates. As part of President Joe Biden's 2024 tariff increases, the Office of the United States Trade Representative authorized exemptions for certain inputs for domestic manufacturing equipment and set a March 31, 2025 deadline for companies to submit exemption requests.

For any company hoping to qualify for an exemption, having strong ties to Capitol Hill will be essential, Chuck said.

While there are many strategies available, shippers should ensure their tactics support more rigorous scenario planning to prepare for possible tariffs.

It's not like companies can react knee-jerk to everything said, tweeted or broadcast on Truth Social, Durbha said. I think what they're doing is they're being a little more thoughtful and saying OK, at least the crux of the story is I need to create options in my supply chain.

Alejandra Carranza contributed to this article.

This story was first published in our Procurement Weekly newsletter. Register here.

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