2025 May Bring Higher Tariffs. Manufacturers Should Start Tariff Planning Now.

Tariffs may be increasing in 2025.

After an extended period of inflation woes and supply chain snarls, manufacturers were hopeful for a normal year in 2025. Unfortunately, macro-economic stability seems to be delayed once more. President-elect Trump has made multiple references to imposing tariffs up to 100 percent on imports from BRICS countries, and up to 25 percent on imports from Canada and Mexico. Analysts have been quick to point out the far-reaching impacts these tariffs would have on the American economy. Many retailers and manufacturers are also anxious about how rising costs and fewer imports will impact their businesses.

Right now, it’s difficult to know what these tariffs may look like. They may be implemented exactly as promised, in a much more limited way, or not at all. Still, it’s clear that in 2025, manufacturers will need to be ready to test the impacts of different variables in an unpredictable economic climate. Financial and operational plans will need to be flexible, incorporating robust scenario planning to let you prepare for whatever happens. Ideally, you should be able to understand the downstream impacts of tariffs on your business before they happen. Let’s explore how.

Consider the effects tariffs may have on your business.

Tariffs can have a variety of effects on manufacturing businesses. To begin planning, it’s important to understand how your business may be affected. As of now, tariffs are only expected on goods, but these tariffs will still send ripples through the business world.

Tariffs will mean numerous financial impacts.

Tariffs on imported goods raise the cost of raw materials, components, and finished products alike. Manufacturers can expect to see the following impacts as a result:

• Higher Manufacturing Costs: Industries relying on imported steel, aluminum, and electronics saw a sharp increase in production costs during the most recent two Presidential terms. The proposed tariffs for 2025 are much higher and broader than those currently in force. The new tariffs will also apply to all goods from several countries that make up most of the US’s imports. Businesses unable to adjust pricing to cover tariff-related expenses will experience compressed margins.
• Retaliatory Tariffs: Several affected countries have promised to impose retaliatory tariffs on imports from the United States if the proposed tariffs go into effect. These tariffs will hurt manufacturers selling into these countries (i.e. US manufacturers will see reduced profits on goods sold abroad). They may also raise costs on goods that cross the border multiple times, though goods under temporary import bonds may be exempt.
• Capital Cost or Allocation: Even if not applied, tariffs will create uncertainty for organizations and investors in impacted markets and geographies. Companies and investors will need to consider how to reallocate capital to or from affected regions.
• Inflation: As companies pass the costs of tariffs on to consumers, prices will increase across the board. This will have numerous economic effects, but most immediately, consumers will likely reduce spending, hurting demand.
• Foreign Exchange: The announcement of potential tariffs can affect impacted countries’ exchange rates with the US Dollar, tariffs may further affect foreign exchange rates. Impacted countries may look to devalue currency to bolster demand beyond the tariff impact.
• Other Costs: The collective impacts on FX, cost increases, inflation, and others noted above will impact other major cost areas such as shipping and labor. This will be particularly true for organizations with multi-national operations and cross-border globally integrated supply networks.

Supply chain disruptions may also result.

Tariffs will also introduce significant operational challenges for businesses’ supply chains:

• Uncertainty in Trade Policies: Sudden or unpredictable changes in tariff rates and policies will create uncertainty, complicating long-term planning. While companies have options, such as employing bonded warehouses to store goods without paying tariffs, quickly changing trade regulations will make it challenging to plan.
• Shipping Delays: Increased demand for goods from alternative suppliers will likely lead to capacity shortages and bottlenecks in ports and logistics networks. The same structural challenges that made manufacturing challenging in 2022 and 2023 may return, exacerbated by higher-than-ever tariffs and a rapidly changing policy landscape.
• Inventory Challenges: To avoid tariff hikes, some businesses have already begun stockpiling goods. If this continues, it may lead to inventory management issues and higher warehousing costs.

The manufacturing landscape is already shifting.

Increased tariffs from 2016 through 2024 have already pushed manufacturers to make structural shifts. Some of these changes may accelerate under the proposed tariffs. In other areas, things may be complicated.

Companies are diversifying their sourcing.

As a result of past tariffs, supply chain complications, and other regulations such as the CHIPS Act, many companies have already adjusted their sourcing strategies. To compensate, companies have turned to:

• Nearshoring and friendshoring: Businesses have increasingly moved manufacturing and sourcing away from China to other countries in Southeast Asia (e.g., Vietnam, Thailand) and to India. However, China is still the US’s largest single manufacturing partner. Furthermore, several countries that have benefited from nearshoring and friendshoring face potential tariffs of their own. How this trend evolves will depend on what tariffs go into effect, but companies not subject to tariffs will benefit.
• Reshoring to the U.S.: Some companies moved manufacturing operations back to the U.S. to avoid tariffs, although this often came at a higher labor cost. If many manufacturers see a more turbulent tariff landscape as the new normal, it’s likely this trend will accelerate. To keep costs manageable, many of these new US manufacturing operations will be highly automated. The result: lower operating costs, but higher capital expenditures up front.

New technology helps companies adapt.

To manage the complexity introduced by tariffs, many companies turned to technology. Business technology offers several ways to help companies better understand their options, including:

• Planning Tools: Since tariffs affect a business in multiple ways, they’re hard to truly plan for without access to more comprehensive data. Many manufacturers have already adopted tools to help them monitor and adapt to tariff changes and compliance requirements through quicker planning. Still, many manufacturers don’t have the level of functionality they’ll need to make these plans. As a result, many manufacturers are resorting to Excel to model outcomes outside the scope of the day-to-day.
• Data-Driven Decision-Making: Real-time analytics tools have helped companies identify the most cost-effective sourcing and transportation strategies. With better data, and with better ability to use it, manufacturers will be prepared for more potential eventualities.

Make strategic shifts as circumstances change.

It’s possible that new tariffs—or even the threat of new tariffs—will throw the manufacturing world into disarray again. Manufacturers will once again need to adapt to changing circumstances and stay agile. A few strategic adjustments will help.

Mitigate risks where possible.

Companies should consider how they prioritize resilience as well as cost-efficiency. The cheapest solution today may not be the cheapest solution next week, so reducing reliance on single-source suppliers may ultimately be the best for your organization.

Assess emerging market opportunities.

As we’ve already discussed, countries like Vietnam, Mexico, and India saw increased investment and trade as businesses sought tariff-free alternatives from 2016 through 2024. In 2025 and beyond, consider how you can invest in new markets that reduce your costs.

Consider geopolitical risks.

Businesses should stay attuned to the geopolitical risks of global supply chains and factor trade policies into decision-making. At the very least, stay up to date on proposed trade policies, and have plans in place in case of the worst. As regulations evolve, manufacturers will need to move fast to beat the competition.

Use more effective tariff planning technology.

It’s clear that the impact of tariffs will be complex. If you don’t have one already, you’ll need a planning approach that allows you to model that complexity and understand possible outcomes. This modeling can be quite extensive: Multiple variables will need to be tested in parallel, such as tariff percentages combined with cost and FX changes. Ensure your systems can process and make sense of the modeling outcomes.

Quantify your exposure.

Your first challenge will be to accurately model exactly where and how tariffs will impact your business. The more extensive your business, the more factors you’ll need to consider, but start with your suppliers. Understand where you’re importing goods from, considering how some components or products will cross borders multiple times during production. You should also consider how tariffs will affect your suppliers’ suppliers and anticipate price increases, shortages, and/or delays.

Model impacts of tariffs and other linked variables.

Once you understand where the tariffs will hit your business, you can start to build your model. Using an enterprise-level planning system, build a tool that can calculate the overall impact of a given set of tariffs on your business when combined with other related variables such as exchange rates, inflation levels, etc. The impacts of these elements won’t be felt in isolation, so they shouldn’t be modeled in isolation either.

Specific inputs in your model should include tariffs applied to specific countries. To start, assume tariffs on Canada, Mexico, China, and the BRICS countries, as well as other countries you do business with or might consider reshoring to. Also ensure you can test specific levels of tariffs. Start by making sure you can evaluate the tariffs that have been proposed, and then give yourself the ability to dial in specific levels of tariffs that may occur in the future. We recommend a worst-case, best-case, and most realistic scenario to begin with.

From there, run these scenarios and see the impacts. What happens when a tariff wall goes up between you and your number one supplier? In the short term, you’ll want to be able to assess your options to continue sourcing. Over the long term, you’ll need to understand how to adjust your business strategy if high tariffs are the new normal.

Finally, understand your business’s projected financial and operating KPIs under a wide range of economic variable assumptions. Know the upper and lower bound limits of where you need to be and monitor performance as more information on tariff decisions is available. Make your decisions based on what you evaluate are the most likely and the most pessimistic scenarios for your business.

Use the data you gain.

Data can only take you so far. Once you have your tariff planning model, use it and refer to it consistently to inform your strategic decisions. Make sure that this data is incorporated into your monthly S&OP process to inform sales and production approaches. As you gain new data, run new scenarios quickly to assess your current outlook.

Throughout that process, keep your team informed. The strategic decisions you make will affect everyone from the finance team to the production line, and everyone will need a different level of information on how plans are shifting to do their jobs. Make a communications plan, and as plans change, keep your team in the loop.

Tariff planning isn’t just a short-term concern either. Tariffs should be top of mind as you enter long-range planning. While individual tariffs may be temporary, uncertainty will persist for the longer-term, and smart preparations today may be what keeps your company profitable tomorrow. Evaluate major capital projects with an eye towards resilience, using your planning tools whenever you can.

Smart tariff planning can help you maintain profitability.

As 2025 begins, manufacturers may feel discouraged by more potential turbulence on the horizon, but reasons for optimism persist. Consumer confidence is up, and many difficult structural challenges are in the rearview mirror. As you make your plans, keep your eyes on the headlines, but make sure to steer your company based on data and best practices. An effective tariff planning approach can keep your margins healthy and your supply chains secure even in the face of higher tariffs.

Throughout the chaos of COVID and beyond, Spaulding Ridge was a partner to numerous manufacturers as they navigated supply chain crisis after supply chain crisis. We’ve helped global enterprises figure out how to keep moving forward in the face of adversity and emerge stronger. As you consider your next moves, we’re here to help you plan.