Impact of Latest Tariff Changes on Businesses and Supply Chain Landscape

The U.S. Tariff Landscape: A Decade of Escalation 

The U.S. tariff strategy emerged from decades of manufacturing offshoring and trade deficits, culminating in two pivotal phases The U.S.-China Trade War (2018–2020 and Strategic Decoupling (2021–Present).

The first one with China due to Section 301 tariffs targeting $370B in Chinese imports (steel, electronics, machinery) to counter IP theft and forced tech transfers led to Chinese retaliatory tariffs on U.S. agricultural exports (soybeans, pork). This created Supply chain chaos for companies like Apple and Tesla. Ultimately leading up to 20–25% cost increases on Chinese-made components.

The second phase due to key policy changes in CHIPS Act (2022) attracted 25% tariffs on advanced semiconductors to reshore production. Also, the Inflation Reduction Act (2022) which gave Tax credits towards U.S.-made EVs (battery sourcing restrictions) helped local businesses in USA as Mexico and Vietnam replaced China as top trading partners for electronics (U.S. imports from Mexico ↑19% in 2023). But as per Federal Reserve data, in short term, levying 25% taxes on Chinese imports led to Consumer price inflation impacting 1–2% to prices of electronics, furniture, and autos.

Why Tariffs Matter for Supply Chains Today? 

As per the McKinsey report, 78% of firms accelerated supplier shifts post-2022.  From Off-shoring to Near-shoring. Nearshoring adds 15–20% operational costs but reduces tariff exposure. Winners? Domestic manufacturers, Mexico (as a trade alternative), Vietnam (electronics exports up 18% YoY).

Losers? Retail (higher consumer prices), SMEs struggling with compliance costs.

Tariffs have direct impact on Consumer Prices. Inventories go up, Just-in-Time reliability is impacted. Retail Assortments shrink as fewer SKUs availability due to sourcing constraints; this gives momentum to private labels sales and can gain share.

A 20% duty from EU, 25% duty on South Korea and 34% duty on Chinese goods, are expected to impact various industries, leading to increased production costs, logistical challenges, and shifts in sourcing strategies.

Storage facilities are becoming congested as producers delay shipments in response to trade uncertainties, leading to potential spoilage and financial losses.

Tariffs on Canadian crude oil, natural gas, and industrial metals are raising costs for U.S. refineries and manufacturers, potentially leading to higher prices for consumers and delays in construction projects.

Supply Chain Risk Mitigation Amidst Volatile Global Economy

How can Organizations limit the impact or take advantage?

Supplier Risk Scoring

A static supplier list is no longer sufficient. Businesses are adopting continuous monitoring tools that score suppliers based on financial health, ESG compliance, geopolitical exposure, and logistics resilience. Real-time dashboards—fed by data from news, social media, and satellite imagery—allow companies to flag and replace at-risk suppliers before disruption occurs.

War Gaming

Enterprises are increasingly using "war game" simulations to anticipate and test responses to high-impact, low-probability events like a potential Taiwan conflict, cyberattacks on ports, or a second pandemic. These tabletop exercises help cross-functional teams develop coordinated response strategies under pressure and identify weak points in current contingency plans.

Nearshoring

Nearshoring—moving production closer to key consumer markets—offers advantages beyond just cost savings. For U.S.-based companies, shifting manufacturing to Mexico or Central America not only minimizes transit times and customs complexity but also allows them to leverage favorable trade agreements like the USMCA. Proximity can also enhance supply chain responsiveness and reduce carbon footprint, aligning with broader ESG goals.

Multi-Sourcing

Relying on a single geographic source—such as China—for critical components or finished goods is now widely seen as a strategic risk. The "China+1" strategy has gained traction, where companies maintain Chinese suppliers but diversify to additional low-cost regions like Vietnam, Thailand, or India. This multi-sourcing approach ensures that disruptions in one region don't paralyze the entire supply chain.

FTAs Utilization

Free Trade Agreements (FTAs) remain underutilized by many businesses. Strategic use of agreements like USMCA (United States-Mexico-Canada Agreement), ASEAN trade deals, or even bilateral treaties with Australia, South Korea, and Japan can drastically reduce duties and improve cost competitiveness. It’s essential to evaluate original rules and documentation requirements to fully capture these benefits.

Customs Classification

Incorrect or suboptimal Harmonized System (HS) codes can result in higher-than-necessary tariffs. By conducting regular audits and working with customs experts, businesses can ensure correct classification of goods, potentially unlocking savings or eligibility for lower-duty categories. In some cases, minor product design tweaks can shift goods into more favorable classifications.

Dynamic Safety Stock

Traditional safety stock models fall short in today’s uncertain environment. Advanced forecasting tools powered by AI and machine learning can assess real-time risk signals—like political developments, weather disruptions, or labor strikes—to dynamically adjust safety stock levels. These systems can model lead time variability and demand shifts with far greater precision than static models.

Agile Procurement

Contractual rigidity can trap businesses into unfavorable sourcing arrangements. Leading procurement teams are now embedding flexibility clauses in supplier agreements—such as volume flex, cancellation windows, and secondary sourcing rights. This enables rapid pivoting when tariffs spike or logistical routes are blocked. Strategic partnerships with 3PLs (third-party logistics providers) also offer on-demand warehousing and freight agility.

Industry-Specific Case Studies

Retail: Walmart’s AI-Powered Inventory Optimization During COVID-19

Challenge: Panic buying and supplier delays led to stockouts (e.g., toilet paper, sanitizers) and overstocking of non-essential goods.  

Solution:

• Deployed AI-driven demand sensing to track real-time purchasing trends.  
• Used predictive analytics to reroute shipments from less congested ports.  
• Implemented dynamic pricing algorithms to stabilize demand surges.  
  

Outcome:

• Reduced out-of-stock rates by 35% in Q2 2020.  
• Optimized markdowns on overstocked apparel, saving $400M+ in excess inventory costs.  

CPG: Unilever’s Supplier Risk Analytics During the Russia-Ukraine War

Challenge: Sunflower oil (key ingredient in food products) shortages due to Ukraine export bans.  

Solution:

• AI-based alternative sourcing: Identified suppliers in Turkey and Argentina using NLP-scanned trade databases.  
• Blockchain traceability: Ensured ethical sourcing compliance for new vendors.  
• Simulation modeling: Tested cost impact of reformulating products with alternative oils.  

Outcome:

• Secured backup suppliers within 4 weeks, avoiding $200M+ in lost sales.  
• Maintained 99% product availability in European markets.  

Healthcare/Life Sciences (HLS): Pfizer’s Predictive Logistics for Vaccine Distribution

Challenge: Ultra-cold storage requirements and air freight bottlenecks threatened COVID-19 vaccine delivery.  

Solution:

• IoT + AI temperature monitoring: Real-time tracking ensured vaccine integrity.  
• Route optimization algorithms: Prioritized flights based on regional outbreak severity.  
• Risk-prioritized allocation: Directed doses to high-risk regions using CDC data.  

Outcome:

• Achieved 90% on-time delivery despite global logistics chaos.
• Reduced spoilage rates to <0.1% (vs. industry average of 5% for biologics). 

Industrials: Tesla’s Tariff Avoidance with Nearshoring Analytics

Challenge: U.S.-China tariffs raised costs for Chinese-made battery components.  

Solution:  

• Geospatial analytics: Evaluated manufacturing costs across Mexico, U.S., and Indonesia.  
• Robotic Process Automation (RPA): Automated customs paperwork for USMCA-compliant parts.  
• Digital twin simulations: Modeled production line adjustments for new suppliers.  

Outcome:

• Shifted 40% of battery sourcing to Mexico by 2023, cutting costs by 18%.  
• Reduced exposure to China tariffs by $500M annually 

Recommendations for Implementing Analytics

1. Start with high-impact pain points (e.g., port delays for retail, ingredient shortages for CPG).  
2. Combine AI with human expertise (e.g., Pfizer’s logistics team + outbreak data).  
3. Build modular analytics to adapt to new disruptions (e.g., Tesla’s digital twins for supplier swaps).  
   

Final Thought: Companies that treat analytics as a strategic early-warning system, not just a reporting tool—will lead to supply chain resilience.

AUTHOR - FOLLOW
Tanmay Dighe
Manager, Supply Chain Practice