Trump’s Tariffs Herald a Painful Transition for Supply Chain 

President Trump’s universal and reciprocal “Liberation Day” tariffs mark the end of the era of global supply chains designed around low-cost labor, and the birth of a new era of localized supply chains powered by the revolution in robotics and automation. 

Transitioning from the old operating model to the new is going to be time-consuming, painful, and expensive for many supply chains. In the near term, just surviving what’s shaping up to be an intense global trade war, as major US trading partners retaliate against Trump’s new tariffs, will be job number one.  

Uncertainty and unpredictability around trade policy is set to continue. But with the new tariffs on all US imports due to take effect from April 5, the time when companies could afford to hold off taking key supply chain decisions would appear to be over. 

Their response needs to be a mix of short-term actions to limit the damage, along with the development of a longer-term strategy to expand US sourcing and manufacturing footprints.  

China+1 is now China+1+X% 

Trump 1.0 tariffs focused on taxing Chinese goods as part of the United States’ struggle with China for geopolitical and economic supremacy. More than 90% of tariff revenues collected under the Trump and Biden administrations from 2018-24 came from Chinese imports. 

Trump 2.0 tariffs continue this fight with an additional 54% on Chinese goods. But they also target precisely those countries where US and other multinational companies have moved supply chain operations to avoid China tariffs and diversify their risk. 

They include Asian countries such as Vietnam (46% tariff), Thailand (36%), Indonesia (32%), and Malaysia (24%), which have grown their exports to the US in key product categories over the past five years. 

In the short term, US companies in sectors such as apparel and footwear and consumer electronics that depend heavily on these countries will have tough decisions to make. They may choose to follow the example of big retailers like Walmart, Costco, and Target in asking their suppliers to shoulder some of the extra costs. Alternatively, they will have to absorb the burden themselves or pass it on to customers in the form of higher prices. 

Switching orders to pre-qualified suppliers in countries facing lower tariffs is another shorter-term option. Examples of countries at the 10% baseline include Egypt, Turkey, Singapore, Brazil, and Guatemala.  

However, Trump’s announcement suggests that simply chasing the “next Vietnam” isn’t going to work. Assuming these new tariffs stick for even the next four years, companies that rely on the US for a significant share of their sales need to use a broader playbook and take a longer-term view. 
 

 
Automating a New Generation of US Factories 

Trump has made it clear that he sees reviving American manufacturing as a key objective of his tariff strategy (along with raising huge tax revenues). So companies are going to need a roadmap for expanding their US production and domestic supply base. 

Given the tight US labor market and higher wage costs, companies will have to double down on flexible automation and robotics in next-generation digital factories. What can they learn from their counterparts who have ramped up manufacturing automation?  

China and Southeast Asia have led the way with investments in robotics and automation in production, though this prowess was a result of several cultural factors and, in China’s case, an explicit five-year plan to become a global leader in robotics.  

The US will need to scale the technical capabilities as well as develop digital skills in areas such as simulation, robotics-enabled automation, and AI to quickly catch up. Today, only 7.4% of jobs in US manufacturing require robotics skills, while 22% require digital skills, according to Zero100 data analysis.  

Workforce training to infuse digital skills into existing manufacturing capabilities, as well as a targeted focus on innovation in automation, will be needed as companies develop a long-term US-based manufacturing automation strategy.

Dealmaking for Short-Term Relief

This will take time and significant capital investment. To soften the cost impact of tariffs in the short to medium term, companies should consider lobbying the US and other governments for exemptions. 

Trump may have indicated that exemptions will be limited this time around, but reciprocal tariffs offer a natural platform for dealmaking. Companies should seek to apply pressure directly and through industry groups to take advantage of any opportunities to ease the transition. 

Supply chain leaders will inevitably face difficult challenges over the coming days. Those that have already taken steps to increase their “Made in America” footprint will be less exposed to the new tariffs and potentially better positioned to take advantage of market opportunities. 

Everyone else is going to have to play catch up.