Stop Trying to Guess Government Policy Direction

In the first month of his presidency, Donald Trump has signed 65 executive orders—including several policies which could influence global supply chains for years to come. 

We’ve been following The Economist’s coverage of the slew of policy updates, including its “Trump Approval Tracker”. So inspired were we by The Economist’s commentary on Trump’s first 100 days that we decided to launch our own “Trump Watch” series which will follow the Economist’s content with our own supply chain design perspective.  

Recent U.S. tariff policies have forced executives to confront pressing questions:  

• How can we minimize the financial impact of these disruptions?  

• Are our sourcing strategies resilient enough to withstand sudden policy changes?  

• What risks are hidden in our supplier networks, and how can we address them proactively? 

 

The global trade environment is increasingly unpredictable, with shifting policies and rising tariffs creating new challenges for supply chain leaders. However, as our CEO Don Hicks says, “Trying to guess what the government will do is a fool’s errand. Change isn’t something new—you must reanalyze and adjust constantly.”

Being able to respond to change—in the short- and long-term view—is the new basis for competitive advantage. If you can’t shift and adjust to cost changes like tariffs, your competitors will overtake you. Here’s how to get the upper hand on Trump’s tariffs with intelligent supply chain design. 

Overview of Potential Trump 2.0 Tariff Policies 

The latest government official communications highlight plans to impose tariffs on imports to protect national manufacturing, maintain a competitive edge, and strengthen the U.S. negotiation stance globally. An additional 10% tariff on Chinese imports, raising the total to 30%, has already been confirmed.  

These taxation policies will impact sourcing and manufacturing decisions for U.S. companies, as China has long been a cornerstone of global supply chain cost reduction initiatives. High tariffs could push businesses to evaluate nearshoring due to their effect on competitive pricing, lead times, and supply chain control. 

Tariffs have also been proposed for key trade partners Mexico and Canada, with 25% rates likely to be implemented soon. These tariffs could disrupt U.S. companies that rely on Mexican manufacturing or Canadian-based tech talent.  

For global trade, new policy may lead Mexico and Canada to seek new trade partners, altering international trade systems and supply chain dynamics. These changes will ripple through industries, forcing adjustments in supply chain flows and competitiveness. 

The government is also reviewing trade partners individually to adjust tariffs based on specific relationships, which could further impact supply chain strategies. Companies will need to carefully evaluate their operations to stay competitive while managing increased costs.  

This evolving situation calls for a reassessment of global sourcing and manufacturing decisions to adapt to changing trade policies. Businesses must weigh trade-offs to minimize risks and align with the new economic environment. 

In addition to tariffs, the administration has opened a conversation about reducing or even eliminating income taxes, which could shift consumer behavior in the U.S.  

Lower taxes would boost disposable income, encouraging higher spending and offsetting some of the rising costs from tariffs. This approach aims to balance the economic impact of trade changes by increasing consumer purchasing power. However, the long-term effects on overall economic stability and supply chain competitiveness remain uncertain. 

Impacts of Tariffs on Supply Chains

For supply chains tariff changes have multiple impacts that we can classify into three different categories: 

1. Inbound Impact
2. Consumer behavior Impact
3. Outbound impact 

Inbound Impact

Following COVID, the drive to increase resilience of global supply chains caused U.S. companies to diversify their supplier/vendor relationships and evaluate nearshoring—mostly in Mexico and Canada.   

If sourcing and manufacturing operations are moved from Mexico and Canada, overall production and distribution costs will likely increase. Businesses must ask: 

• How much of this incremental cost can be transferred to the end consumer without losing customers? 

• Is there a sufficient workforce locally to support bringing manufacturing back? 

• Is there sufficient workforce skill locally? 

Consumer Behavior Impact

Consumer behavior will shift due to changes in finished goods pricing caused by higher supply chain costs. This shift will require the supply chain to adapt to meet new customer preferences, such as: 

• Tighter lead times  

• Higher quality expectations  

• Competitive pricing  

• Greater variety of options  

Innovation in processes, procedures, packaging, and presentation will be crucial to stand out in the market. This will impact suppliers, manufacturing processes, workforce and training, as well as logistics efforts needed to adapt to the evolving environment. Adaptability and flexibility will be essential as consumer behavior and market conditions continue to change. A responsive supply chain will be better positioned to capitalize on these shifts.

Outbound Impact

It is expected that tariffs will be levied on US exports by countries affected by the US import tax. This shift will significantly impact target markets for many local products and require efforts to adapt to the changing demand landscape. 

Key considerations include: 

• Exploring new markets: Identifying and entering alternative markets to compensate for reduced demand in traditional markets.  

• Boosting local demand: Re-igniting domestic demand to offset losses, potentially supported by increased household income.  

• Driving innovation: Developing new products to cater to alternative markets and maintain revenue streams.  

• Adjusting pricing strategies: Leveraging increased local income to implement viable pricing adjustments. 

Exploration of alternative markets and competitive advantages in these regions will be critical. Additionally, re-igniting local demand or innovating to find alternative revenue streams will play a key role in balancing the demand shortfall. 

Tips to Navigate Tariffs and Other Disruptions in Your Supply Chain

1. Ensure that your teams understand the behavior of your supply chain, weigh the trade-offs, and find the breaking points.
2. Your supply chain organization must be able to quickly understand the impact of upcoming changes and explore scenarios and potential outcomes to adjust and adapt.
3. Determine contingency plans based on tariff scenarios and target countries they will be levied to.  These plans should consider not only the overall cost to serve but most importantly the margin to serve (i.e. pricing strategy and market focus are key inputs to this analysis for it to be complete). 
4. Supply chain and executive teams making decisions must understand the structure, design, and behavior changes required in the supply chain to remain competitive and navigate the changing landscape. 

Tackle Trump Tariff Disruptions with Cosmic Frog

Optilogic Cosmic Frog is a supply chain design solution that enables anyone in your company to answer supply chain questions using a shared virtual supply chain model. Using Cosmic Frog, analysts can anticipate tariff impacts, evaluate alternative strategies, and rapidly implement results with easy access for business users.