The ripple effect of tariffs: How global supply chains are being reshaped

President-elect Trump campaigned on a call for a general tariff of 10 to 25% on all imports with 10 to 35% additional tariffs on goods imported from China. Recent statements confirm the incoming administration's focus on leveraging tariffs as a major foreign policy agenda. Most analysts expect his administration to act early in his second term by potentially invoking the International Emergency Economic Powers Act (IEEPA), with the impact of tariffs varying by industry and country. 

As seen during the previous Trump administration, there may be some moderating factors and considerations at play that will impact trade policy going forward. For example, the war in Ukraine led to targeted exemptions, and these are expected to continue. A 60% tariff increase on imports from China may be viewed as too inflationary and anti-competitive for U.S. finished goods. However, it seems only a matter of extent and timing rather than if there will be action. The USMCA is due for review in July 2026 and may be revisited in whole or in targeted parts, which could have a significant impact on U.S. companies' supply chains.  Additionally, tariffs on imports from Mexico and Canada will significantly upend the U.S.'s automotive supply chains. 

U.S. exporters are likely to face retaliatory actions from other countries on their goods, similar to previous instances when the European Union (EU) and China imposed tariffs on specific American products. Mexican leadership has already signaled the possibility of retaliatory tariffs as a response. 

We recommend that U.S.-based companies begin to evaluate options and plan for the worst-case scenario by acting now to reduce business risk and impact.  While nearshoring and “China+” strategies have gained popularity over the last 6 years, new rounds of tariffs could target countries such as Vietnam and Mexico that may be viewed as routes to circumvent tariffs.  

More immediately, revoking the Trade Act Section 321 (the de minimis exemption) benefit for China-origin goods is under consideration by the current U.S. Congress and could pass with bipartisan support in the final weeks of the Biden administration.  

We suggest three broad options to address tariff-related challenges, ranging from immediate actions to longer-term strategies: 

1. Duty engineering. Reconfigure pricing and supply chain arrangements to minimize total tariffs through first sale, tariff re-engineering, low tariff regions, free trade zones, incentives, and subsidies available to select suppliers. Companies can execute some of these mitigations in 3 to 9 months. 

2. Customer pass-through. Pass tariff surcharges on select customer segments based on market research, analytics, and price elasticity measurements. This can be implemented in 3 to 6 months. 

3. Strategic sourcing. This involves strategically realigning supply chains using a total cost of ownership-driven approach. Levers include relocating supply sources and relocating and reconfiguring their owned manufacturing sites based on markets served, cost structure, tariff impacts, and logistics considerations. Expected execution time is 6 to 12 months.  

AlixPartners leverages a proprietary set of tools supported by our AI-enabled Global Trade Optimizer digital platform to rapidly:  

• model the impact of changing cost drivers on our clients’ products and P&Ls, 
• identify alternatives (from supply through manufacturing and logistics), and  
• execute trade strategies and shift clients’ supply chain footprints.  

Get in touch today to discover effective strategies for mitigating tariff impacts, de-risking your supply chain, and navigating uncertainty with confidence.