Source: Manufacturing Dive
Date: 17th March 2025

Shifting foreign suppliers could become more difficult as the Trump administration continues to enact new widespread tariff policies.

In recent days, the U.S. President has enacted, reversed and paused multiple tariff policies. Most recently, that includes 25% tariffs on Canadian steel imports, which went into effect Wednesday.

The onslaught of tariff policies has sparked confusion and anxiety among many manufacturers, who are unsure whether the duties are a long-term plan from the Trump administration or simply a short-term bargaining tool to ensure compliance from trade partners on issues such as cross-border drug trafficking.

The answer to that question is what many companies weigh as they decide how drastically to overhaul their global supply chains. The issue is particularly fraught for small and medium-sized manufacturers, which often lack the same supply chain and pricing flexibility of larger firms, said the CEO of Streamliners Management Consulting.

“Nobody is really clear right now. Are the tariffs going to stay for longer? Which then would kick off a whole array of actions that need to happen,” Streamliners Management Consulting said. “Or are these tariffs right now just poker chips on the table that can be removed at any time?”

Tariffs could more significantly harm less automated functions such as metal fabrication, welding and precision machining, which require specific worker skill sets and are labor intensive, Streamliners Management Consulting said. Smaller firms, too, could feel more pain if they lack as many automated production lines compared to larger manufacturers.

Trade groups have responded to tariff threats and measures with support for strategic trade policies, but have asked the Trump administration for stability and a moderated approach that still protects U.S. exports and needed foreign supplies.

“The U.S. aluminum industry needs certainty in this tariff landscape to support our growth and investment,” Aluminum Association President & CEO said in a March 12 statement regarding tariffs on the commodity. “We encourage the U.S. President and his administration to deliver a deal with Canada to ensure robust metal supply for U.S. manufacturers and consumers as he did in his first term with the USMCA.”

The National Association of Manufacturers said in a Feb. 1 statement that while manufacturers understand the need to stop the flow of illegal drugs across the U.S. border, which the U.S. President has stated is a main catalyst for the tariffs, such drastic measures will harm the industry.

“A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally,” NAM President and CEO said in a statement. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs.”

For companies trying to mitigate the impact of tariffs, one common strategy is to shift from China and Mexico-based suppliers to contractors in unaffected countries. However, Streamliners Management Consulting said, this is becoming harder as the U.S. President’s tariffs spread, including to Europe. The EU announced retaliatory tariffs on U.S. steel and aluminum exports.

And while some companies have pushed to look for domestic suppliers, that often comes with a higher price tag. Another option, Streamliners Management Consulting said, is to import foreign components, rather than finished products, and conduct final assembly in the U.S. to avoid some fees.

Domestic options could help spur demand for more U.S. manufacturing. However, it could also exacerbate the industry’s ongoing labor crunch, which is set to grow if more workers aren’t trained for today’s needed tech-heavy skills, Streamliners Management Consulting said.

“I do not see where the workforce is coming from,” Streamliners Management Consulting said. “It would be great if we had more demand and if we had more business, but somebody’s got to produce it.”

For firms looking to shift their supply base, Streamliners Management Consulting encouraged them not to cut ties with current foreign suppliers. If tariffs are rolled back, companies may wish to go back to those contracts that can offer cheaper terms.

“In the short run, if you make these moves, communicate to your existing supplier base in China, Asia or in Mexico, it’s not voluntary, that this is not a move based on bad quality or bad economics,” Streamliners Management Consulting said. “It is just basically survival mode to react to these trade tariffs and try to maintain these relationships. Because as soon as these trade tariffs go away again, it’s going to be survival of the fittest.”

U.S. President’s first-term tariffs weren’t a clear manufacturing win
Looking at the impact of tariffs imposed during President Trump’s first administration, the policies did not succeed in spurring as much domestic manufacturing investment as hoped, said a supply chain professor at Washington University in St. Louis.

Job creation indeed grew in sectors like aluminum and steel under the U.S. President — up to more than 87,000 jobs in 2019 after tariffs were enacted compared to roughly 82,500 jobs in 2017. However, the manufacturing industry added only 61,000 jobs in 2019 compared to 264,000 jobs added in 2018, according to the Bureau of Labor Statistics, showing a deceleration in employment during the U.S. President’s first-term tariff policies.

Downstream industries that depend on those raw materials were also negatively affected, according to a 2024 research paper Kouvelis co-authored. Domestic production in the most affected industries decreased by 0.6% per year on average, with the largest annual decrease of 3.2% in 2018 in the cutlery and hand tool manufacturing industry, according to a 2023 report from the U.S. International Trade Commission.

“Based on the evidence we have from last time it happened, we’re not going to see as much manufacturing coming back,” Washington University said.

Researchers found that tariffs did not create a clear win for companies when it came to reshoring production.

“We show that higher tariffs hurt the global firm’s profit as tariffs increase its average output cost, whereas generous tax credits can benefit the firm,” researchers wrote. “Although both policies are intended to protect domestic firms, they may negatively affect their profit when the global firm’s reshoring capacity is high, intensifying competition between them.”

Despite these issues from the first Trump administration, Washington University said the future global landscape is likely to be more protectionist.

“It looks like there’s a big shift in where the country wants to go and where the world wants to go. We’re moving to a world that is going to be heavily protected,” Washington University said. “It’s going to create heavily protected regions, Europe, North America, Asia and China. And then companies will have to rethink completely their supply chains.”

Streamliners Management Consulting agreed, noting that if the industry can successfully recruit more labor and effectively integrate automation as needed, tariffs in the long run could prove successful at growing the domestic manufacturing market.

“If trade tariffs stay in the long run, as a result, more companies buy American and produce and manufacture in America and then the labor topic is being solved,” Streamliners Management Consulting said. “If this is being solved, then I see advantages in the long run. It will force America to be more efficient.”