The US is preparing for a renewed wave of tariffs, featuring aggressive trade strategies intended to deliver ambitious objectives – protect US manufacturing, gain leverage in geopolitical negotiations, and protect industries critical to national security. Proposed measures, such as a 25% tariff on imports from Canada and Mexico and an additional 10% tariff on Chinese goods, threaten to significantly disrupt industries including automotive, food and beverage, consumer products, industrial tools, and electronics. Businesses must act quickly – adapt to these policies or risk severe cost pressures and supply chain disruptions. Proactive measures, such as supply chain diversification or leveraging trade agreements, can mitigate risks and turn potential disruptions into opportunities for long-term resilience.
Lessons from the 2018 Tariffs
The 2018 tariffs, implemented under Sections 201, 232, and 301, raised average tariff rates in targeted categories from 0% to as high as 25%. Despite initial expectations of sweeping 45% tariffs on all Chinese imports, the actual measures were more targeted—impacting specific categories such as steel, aluminum, and $34 billion worth of other Chinese goods.
The results were mixed. US-based steel producers saw temporary gains, but costs rose across industries. For instance, the automotive sector faced steep increases in production expenses, and food and beverage exporters struggled to maintain competitiveness amid retaliatory tariffs. The broader objective of reshoring manufacturing remained largely unrealized, highlighting the complexity of using tariffs as a negotiation tactic.
What to expect in 2025
If history is a guide, 2025 tariffs on imports from Mexico and Canada may fall short of the proposed 25%. Instead, we expect targeted measures in key categories, while tariffs on Chinese imports are likely to include the promised 10% increase.
| Category | Value of US Imports from China (2023) | 2016 Tariffs | 2018 Tariffs | 2024 Tariffs | Anticipated 2025 Tariffs | Most Impacted Industries |
|---|---|---|---|---|---|---|
| Electrical, electronic equipment | $126.68 billion | No specific tariffs | 10-25% | 25-100% | 35-110% | Consumer electronics, Telecommunications |
| Machinery, nuclear reactors, boilers | $85.89 billion | No specific tariffs | 10-25% | 25% | 35% | Manufacturing, Energy |
| Toys, games, sports requisites | $33.39 billion | No specific tariffs | 10-25% | 25% | 35% | Retail, Entertainment |
| Furniture, lighting signs, prefabricated buildings | $20.29 billion | No specific tariffs | 10-25% | 25% | 35% | Construction, Interior design |
| Plastics | $20.16 billion | No specific tariffs | 10-25% | 25% | 35% | Manufacturing, Packaging |
| Vehicles other than railway, tramway | $16.41 billion | No specific tariffs | 10-25% | 25-100% | 35-110% | Automotive, Transportation |
| Oil seed, oleagic fruits, grain, seed, fruits | $16.03 billion | No specific tariffs | 10-25% | 25-100% | 35-45% | Food and Beverage |
| Optical, photo, technical, medical apparatus | $11.79 billion | No specific tariffs | 10-25% | 25-100% | 35-110% | Healthcare, Photography, Scientific research |
| Articles of iron or steel | $11.71 billion | No specific tariffs | 25% | 25% | 35% | Construction, Manufacturing |
| Footwear, gaiters and the like | $10.04 billion | No specific tariffs | 10-25% | 25% | 35% | Fashion, Retail |
Source: https://tradingeconomics.com/united-states/imports/china
Strategies for Mitigation
The challenges from anticipated tariffs are significant, especially for businesses that are already struggling with profitability. However, there are a range of strategies to consider, all requiring varying levels of effort, resources, or time required.
- Supply chain diversification – Shift sourcing to suppliers in non-tariff regions or countries with favorable trade agreements
- Effort and Resources: High
Requires identifying and qualifying alternative suppliers, renegotiating contracts, and potential regulatory adjustments. - Timeline: Medium to long-term (6–18 months) depending on category complexity.
Simpler for standardized categories with abundant suppliers.
- Effort and Resources: High
- Leveraging trade agreements – Ensure that 51% of a product’s production or value addition occurs in countries with favorable trade agreements, qualifying for preferential tariffs.
- Effort and Resources: High
Entails significant adjustments in supply chain and production processes. - Timeline: Medium to long-term (6–24 months)
- Effort and Resources: High
- Tariff Engineering – Modify product classifications or specifications to qualify for lower tariff rates.
- Effort and Resources: Medium
Requires technical and legal expertise. - Timeline: Short to medium-term (3–9 months)
- Effort and Resources: Medium
- Strategic Stockpiling – Build an inventory of key goods before tariffs take effect to mitigate immediate impacts.
- Effort and Resources: Medium
Ties up working capital and carries risks of obsolescence. - Timeline: Short-term (1–3 months)
- Effort and Resources: Medium
- Nearshoring or Reshoring – Relocate production closer to end markets to reduce tariff exposure and transportation costs.
- Effort and Resources: High
Requires significant capital investment and operational restructuring. - Timeline: Long-term (12–24 months)
- Effort and Resources: High
- Utilizing Foreign Trade Zones (FTZs) – Defer, reduce, or eliminate tariffs by operating within designated FTZs.
- Effort and Resources: Medium
Requires compliance with specific regulatory frameworks - Timeline: Medium-term (6–12 months)
- Effort and Resources: Medium
- Advocacy and Lobbying – Collaborate with industry groups to influence trade policy decisions
- Effort and Resources: High
Demands sustained engagement with policymakers - Timeline: Long-term (ongoing)
- Effort and Resources: High
- Cost Pass-Through – Adjust pricing strategies to pass tariff costs to end consumers
- Effort and Resources: Low to medium
Dependent on price elasticity of demand - Timeline: Short-term (1–3 months)
- Effort and Resources: Low to medium
Why Act Now?
Following the 2018 tariffs, many businesses adopted a China + 1 strategy to identify alternative geographies, including reshoring within the US or near-shoring in North America. However, challenges such as cost, capacity, and expertise in alternative regions—like Mexico, Vietnam, and India—persist.
The evolving tariff landscape demands bold, informed decisions. By proactively implementing strategic and multifaceted approaches, businesses can safeguard profitability, mitigate risks, and position themselves to thrive in an increasingly complex global market. Are you prepared to navigate the tariff tightrope?