How the U.S. election could change the domestic manufacturing calculus

The lesson of the pandemic years was that companies need to invest in supply-chain security and build agility into their manufacturing strategy. They need to be like water, adjusting as conditions change, as they always do. Stabilized inventory and easing inflation reduced pressures slightly in 2024, and with the Trump Administration set to take office in early 2025, companies need to consider how their current manufacturing and supply-chain strategy will fare under proposed policy changes.

Firstly, lower corporate tax rates and higher tariffs on imported goods could change the calculus for companies looking at the merits of onshore or nearshore versus offshore manufacturing. A National Bureau of Economic Analysis study of the 2017 Tax Cuts and Jobs Act, entailing significant corporate tax cuts, found that domestic investment increased by about 20% for firms with an “average-sized tax shock” over a baseline scenario. This legislation sunsets on December 31, 2025, though the corporate tax rate, currently 21%, has no expiration and could be dropped to 15% under the incoming administration’s vision.

Second, the proposed tariffs could have an impact on demand and cost for goods. President-elect Trump campaigned on a blanket 10-25% tariff on imported goods—and an additional 60% for goods manufactured in China. The prospect of a trade war could, in turn, impact U.S. producers; the Australia-China trade war, in which China imposed 200% tariffs on Australian wine, saw the Australian share of wine imports drop from 27.46% in 2020 to 0.14% in 2023, according to government data.

Third, the United States-Mexico-Canada Agreement (USMCA) will need to be renewed in mid-2026. Under a scenario in which the U.S. exits the USMCA, Chinese electric vehicle (EV) companies looking to manufacture cars in Mexico could expect to see increased tariffs, given the threat to U.S. EV companies such as Tesla and Rivian.

Where domestic demand is expected to grow, companies need to have a plan to meet it. Consumer fatigue will also shape demand as higher prices cut into spending.

These are the dynamics that will shake out in 2025 as the transition takes place, in advance of which companies need to take a strict approach to margin protection and agility in their supply chain strategy.

Considerations for improving productivity, driving operational efficiency, and optimizing costs

As companies forecast their short- and long-term sales, certain sectors projected to see an uptick in demand have a small window of opportunity to ensure their sales, operations, and inventory (S&OP) process is robust. Companies with mature S&OP processes outperform competitors by improving forecast accuracy, reducing inventory costs, and enhancing customer service levels while operating efficiently. 

Companies expecting an increase in demand will collaborate not only internally across functions but also externally with suppliers to ensure sufficient raw materials are ordered and, in turn, produced upstream. Within manufacturing, driving throughput improvement and operational efficiency for capacity-constrained facilities could be critical. Additionally, planning and scheduling could be the key to maximizing valuable production time and fulfilling customer demand on time.

Companies anticipating a decrease in demand due to retaliatory tariffs will need to look for ways to optimize costs, especially in manufacturing, by driving operational efficiency. This could be the right opportunity to reevaluate product portfolios and conduct SKU rationalizations while optimizing the manufacturing footprint and—potentially—bringing manufacturing back to the U.S.

Considerations for transitioning manufacturing locations

Any greenfield (undeveloped) or brownfield (legacy site) manufacturing plant start-up involves setting up production processes from scratch or transferring assets from another plant. The manufacturing transition involves a series of decisions:

Manufacturing footprint: A key step in considering moving production processes is evaluating the current manufacturing capabilities and opportunities to leverage existing locations, facilities, and/or assets. Often, existing facilities are under or poorly utilized, which, when tied to productivity and operational improvements, can enable increased output without new facilities or enable consolidation of existing plants. Additionally, footprint evaluations can drive the optimization of production, products, and processes closer to the respective customers and reduce logistics costs. 

Transferring equipment vs. buying new: For a complete migration of a production process, it is possible to save significant capex by transferring the equipment. This also mitigates the risk of long lead times for new equipment. That said, older equipment may not transfer well or prove very interoperable and may not have much useful life left. Potential technological advancements may deliver improved throughput and reduce reliance on manual labor such as automated packaging lines or faster manufacturing lines capable of producing multiple products—but that depends on the equipment. Companies can evaluate their existing production lines to see if dedicated or flexible manufacturing lines would make sense for their business needs. Although flexible lines could reduce the initial space and capex requirements, dedicated lines could deliver superior efficiencies at a lower cost per unit. 

Building inventory: Migrating a production line could potentially lead to a production gap during the transfer period, which is compounded by the inevitable unforeseen challenges. For many companies, it may be difficult to build up enough inventory to provide finished goods during the transfer period. Additionally, building excess inventory ties up capital, requires additional storage space, and poses the potential risk of obsolescence. 

Assessing regulations and supporting infrastructure: The original manufacturing process may have been designed to comply with local regulations and standards at the time of installation; however, regulations may have changed or could be different if relocating to a different country, state, or even a municipality. For example, waste-water regulations for the chemicals industry could be vastly different across municipality lines. During the assessment stage, the regulations and supporting infrastructure in potential locations should be fully reviewed to ensure viability. 

Knowledge transfer: Established production lines will commonly have significant amounts of tribal knowledge and poorly documented procedures. From small idiosyncrasies about how to run old machines well to how to fix a specific fault are part of the experience and knowledge companies often underestimate. To minimize loss of information and ensure knowledge transfer, companies should focus on establishing or enhancing standard operating procedures (SOPs) for existing processes and bringing a select group of experienced personnel, including operators and maintenance personnel, to support manufacturing startups in the new location. Ensuring knowledge is preserved and transferred to the new plant will help accelerate a successful launch.

Considerations for manufacturing labor availability 

Manufacturing jobs have recovered to just above pre-pandemic levels, and labor shortages persist. Manufacturing wages increased around 8.6% from October 2022 to October 2024, per U.S. Bureau of Labor Statistics data, driven in part by union negotiations such as the recent UAW and IAM contracts. Unemployment in the manufacturing sector has historically been low (sub 4%). As more companies look to bring manufacturing back to the U.S., we would expect upward pressure on wages and intensified competition for labor. A loose campaign pledge to eliminate taxes on overtime pay would benefit hourly workers and, in our view, decrease labor productivity during regular hours.

Considerations for sourcing and procurement 

Whether moving manufacturing to a new location or increasing production in an existing location, ensuring the availability of raw materials is crucial. Finding and identifying a set of new suppliers and validating them for a manufacturing facility in a new region can be a daunting task, but might offer opportunities to facilitate better payment terms or negotiate volume discounts. Partnering with a credible supply chain partner could accelerate project timelines, ensure supplier reliability, and keep costs competitive. Some manufacturers may consider stocking up on inventory to lock in current prices before tariffs take effect. 

Considerations for warehousing and distribution

From procuring raw materials to distributing finished goods, companies may need to establish a new warehousing and distribution network or refine their existing plan, especially if they plan to increase their inventory levels. Although warehousing and logistics costs have come back down to pre-pandemic levels, any disruption in the supply chain could provide upward pressure on warehousing and logistics costs, and as demand for reshoring or near-shoring increases, warehousing and logistics costs could increase. Companies may benefit from signing long-term contracts to ensure they aren’t paying spot premiums on lane rates or renewing their leases early if possible. 

The exact policy landscape of the next four years is not yet clear—it is still out to sea. To ensure they are ready for what is to come, companies have a chance now to evaluate their strategy and consider reshoring or near-shoring. 

Read our previous article on how tariffs may reshape global supply chains and what companies can do about it here.