Tariff Chaos is Here. Manufacturers Need a Tariff Planning Solution Now.

Tariffs are 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. Tariff regimes are changing by the hour, and few countries or industries have been spared. Analysts have been quick to point out the far-reaching impact of a chaotic tariff approach on the American economy and many retailers and manufacturers are also anxious about how rising costs and fewer imports will impact their businesses.

Right now, it’s unclear whether the United States’ tariff plans will continue to change rapidly or settle at a new normal level, and if so, what that new normal may look like. Still, it’s clear that manufacturers 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 shift. 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 have only been implemented 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. Tariffs implemented so far have been much higher and broader than those currently in force, and even higher tariffs have been threatened. Businesses unable to adjust pricing to cover tariff-related expenses will experience compressed margins.
• Retaliatory Tariffs: Several affected countries have already imposed retaliatory tariffs on imports from the United States. These tariffs will hurt manufacturers selling into these countries (as US manufacturers 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 tariffs are threatened and then not applied, they create uncertainty for organizations and investors in impacted markets and geographies. Companies and investors 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. Though economic data showed low inflation at the beginning of the year, tariff impacts on prices have yet to be felt.
• Foreign Exchange: Tariffs may affect exchange rates between the US Dollar and the currencies of affected countries. These 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 multinational 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 have already created uncertainty, complicating long-term planning. While companies have options, such as employing bonded warehouses to store goods without paying tariffs, quickly changing trade regulations make it challenging to plan.
• Shipping Delays: Increased demand for goods from alternative suppliers may 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 new 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, countries that have benefited from nearshoring and friendshoring, like Mexico, Canada, and EU countries now face tariffs of their own. How this trend evolves will depend on what tariffs remain in effect, but countries not subject to tariffs will be at an advantage.
• Reshoring to the U.S.: Some companies have moved manufacturing operations back to the U.S. to avoid tariffs, although this often comes at a higher labor cost. If 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.

New tariffs have already thrown the manufacturing world into disarray. 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, build models of all the tariffs that have been implemented or proposed that might apply to countries where you do business or where you might consider reshoring. Also ensure you can test specific levels of tariffs. Once you can evaluate the tariffs that have been implemented or proposed, give yourself the ability to analyze specific levels of tariffs that may occur in the future. We recommend analyzing a worst-case, best-case, and so-so 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.

Right now, manufacturers may feel discouraged by the turbulence, but 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 an unpredictable tariff landscape. As a starting point, Spaulding Ridge’s Tariff Analysis Solution can help you understand your tariff exposure and generate executive-ready takeaways. We’ve numerous 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.