Tariffs are coming. How will manufacturers respond?

Tariff policy is perhaps the most anticipated and discussed initiative proposed by the incoming Trump administration—with much at stake for the global economy, businesses, and consumers. Trump has proposed levies of 10 to 20 percent on most imports and up to 60 to 100 percent tariffs on China. All eyes are on tariffs as we head into 2025—Google Trends data shows a major jump in the search term “tariff” in the past few months.

And while we don’t yet know what level of tariffs or export controls will be enacted, precisely which sectors will be impacted the most, or when this will happen, we do know that companies will need more resilient strategies to get ahead of the inevitable disruption to trade flows and resulting uncertainties across global supply chains. Companies should be proactively pursuing inflation mitigation strategies, diversifying sourcing, renegotiating contracts, and where currently more reliant on China, pursuing more nearshoring and friendshoring efforts or finding alternative sources. And all manufacturers will need a new framework to decide where their products will be sourced and made amid the uncertainty that 2025 will surely bring.?

Global rewiring will hit an inflection point

Amid a post-pandemic recovery, global supply chains have already been experiencing a massive rewiring, fueled by conflicts in Ukraine and the Middle East, shifting sustainability priorities, and the rapid adoption of transformative technologies such as AI, among others. In 2025, many of these changes will come to an inflection point. In particular, companies that rely on cross-border operations should be paying attention. Even before the 2024 super-cycle of elections around the world, economic fragmentation was rising, and trade patterns were shifting—a dynamic clearly illustrated by the shake-up in import sources for the United States over the past four years. In 2023, Mexico replaced China as the top exporter to the United States. And in 2025, those shifts will surely continue.

Leading organizations are considering the uncertainty that looms ahead; what 2025 holds is on everyone’s mind. At Kearney, we’re thinking of this moment as “Resiliency 2.0.” Regardless of industry or location, everyone is going to be affected by shifting tariff policy. The question is, how will you navigate that journey?

Where will goods be made?

To help leaders answer that question, our team at Kearney developed a new report in collaboration with the World Economic Forum. The report explores how manufacturers should be using a broader set of criteria (in addition to performance, resilience, and sustainability) to navigate global risk and architect their future supply chain network and manufacturing footprint. Companies should consider flexibility and a country’s ability to deliver change in line with global strategic priorities.

One big takeaway from the report: nations that have proactively invested in readiness factors will increasingly be the most attractive for investors. The report examines seven key readiness factors that companies should be evaluating in potential manufacturing locations:?

• Infrastructure
• Resources and energy
• Technology
• Labor and skills
• Fiscal and regulatory
• Geopolitical landscape
• Environmental, social, and governance (ESG)?

Stories from countries around the world, including the Dominican Republic, Malaysia, Singapore, the United Arab Emirates, Israel, South Korea, and Mexico, bring to light how companies are partnering with governments to build resilient relationships.

Example: Audi in Mexico

For example, in June 2024, the German carmaker Audi announced plans to invest €1 billion in its production facility in San José Chiapa, Mexico. The plant went into operation in 2016 after the Mexican government provided tax incentives and a streamlined regulatory process to encourage Audi to establish and expand its production capacity in the country. With over 5,300 employees, the manufacturing facility has been a major generator of local jobs and has contributed to the growth of Mexico’s automotive industry.?

Now is the time for every company to ask new questions about its supply chain footprint. During the pandemic in 2020, manufacturers around the world joined a growing conversation about building resilience. But many of those ideas (reshoring, diversifying sourcing, using AI to avoid risk) never fully came to life; 2025 will be the year that businesses no longer have a choice. Disruption is coming; what will you do to prepare?

Read the full report on the World Economic Forum website.

This article was written by Per Kristian Hong and sent as part of a monthly perspective Kearney shares with our clients on the bigger trends unfolding across the operations landscape. Interested in receiving next month’s note? Sign up here.

Per Hong is a partner and global leader in Kearney’s Strategic Operations practice, helping clients to navigate supply chain disruption and build long-term strategic advantage in both developed and developing market contexts. He’s been with Kearney for over 25 years and also leads Kearney’s global collaboration with the World Economic Forum ’s Advanced Manufacturing and Production System platform since 2018, including to help launch the World Economic Forum’s COVID Action Platform and lead multiple global value chain resilience initiatives. He is based in Minneapolis.

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