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What will the US-China tariff adjustments mean for businesses?

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Insight
Summary

Authors: Arnaud Antoine, Matthew Lekstutis, Jana Milosevic, Julian Catchick

US-China tariffs pose yet another challenge for global supply chains. While uncertainty remains on how exactly the tariffs will change, businesses cannot afford to wait; to stay competitive, leaders must rally their organizations to proactively assess risks and build robust mitigation plans.

Rising tariff pressures: What’s changing?

As geopolitical tensions reshape global trade, businesses must prepare for a new wave of tariff disruptions. With the United States set to impose tariff increases of 10–30% across key sectors – including manufacturing, high-tech industries, and medical equipment – in Q1 and Q2 2025 and China reducing export rebates on electronics, textiles, and machinery, companies face mounting cost pressures and supply chain complexities. In this environment, reactive strategies will not be enough. The firms that navigate these shifts successfully will be those that act decisively to mitigate risks and build long-term resilience.
 

Lessons from the past: How companies adapted to previous tariff hikes

The 2018 US-China trade war underscored the importance of agility in global supply chains. Companies that acted early to diversify sourcing, restructure operations, and develop alternative trade routes emerged stronger. Their approaches offer a playbook for today’s business leaders.

Some companies mitigated tariff exposure by shifting production. Sonos relocated manufacturing from China to Malaysia, prioritizing supply chain flexibility over short-term cost increases, and HP and Dell reduced their reliance on China by shifting up to 30% of their notebook production to other locations. GoPro moved US-bound production to Mexico while maintaining Chinese operations for non-US markets to maintain overall cost efficiency. Consumer electronics leaders, including Microsoft, Amazon, Sony, and Nintendo, also restructured their supply chains to reduce geopolitical risks.

Others capitalized on shifting market dynamics to build trade partnerships. JBS SA leveraged China’s meat shortages to secure a multibillion-dollar deal with Alibaba, increasing its export share to China. Tesla, strategically aligned with China’s electric vehicle expansion, secured a 10% tax exemption on its Shanghai-manufactured vehicles, boosting its competitiveness despite an increasingly crowded market.

For some, tariff shifts prompted a strategic reset. Ford abandoned plans to import the Focus Active from China, instead doubling down on high-margin SUVs and trucks. Caterpillar Inc. responded to rising raw material costs by implementing cost efficiency measures and redesigning machinery to use 20% fewer components.
 

Looking ahead: Three levers for navigating tariff changes

As companies brace for another round of tariff adjustments, three key levers will determine their ability to manage risks and maintain competitiveness.

1.    Tactical actions to mitigate immediate risks

In the short term, firms must act swiftly to reduce risk exposure. Engaging in rapid supplier negotiations can help with sharing cost burdens, and strengthening supply chain visibility through supplier communication and collaborative engagement facilitates proactive decision-making. Companies can also consider increasing prices, balancing this with market competitiveness. Where feasible, lobbying for tariff exemptions can provide temporary relief.

2.    Structural shifts to enhance flexibility

A medium-term response requires foundational changes in supply chain structures. Businesses should explore diversifying their supplier base, reducing reliance on any single country or region. Mapping multi-tier risks will help with understanding vulnerabilities beyond direct suppliers, and stockpiling critical inventory may provide a short-term hedge against volatility. Finally, establishing solid governance frameworks and response strategies for different scenarios will help organizations respond more effectively to future disruptions.

3.   Long-term strategies for resilience

Future-proofing operations demands transformative investments. Reshoring or nearshoring production can insulate businesses from shifting trade policies, albeit with higher labor costs. Automation and digital supply chain solutions can help offset these costs and improve operational efficiency, and securing critical intellectual property (IP) and proprietary manufacturing capabilities will enhance production flexibility. Lastly, aligning with supply chain partners who share a long-term resilience mindset will be essential to sustaining competitive advantage amid unpredictability.

From risk to opportunity: Building a competitive advantage

While tariff uncertainties present challenges, they also create opportunities for businesses that take a proactive approach. The firms that successfully navigate these shifts will be those that integrate flexibility, resilience, and strategic foresight into their supply chains. This shift is not merely about defense: by proactively reassessing supplier relationships, optimizing cost structures, and embracing digital supply chain innovations, organizations can gain a competitive edge over those that remain reactive. Additionally, companies that embed agility into their procurement and sourcing strategies will be better equipped to withstand future geopolitical or economic disruptions, ensuring a more sustainable and adaptive business model. The ability to turn external shocks into catalysts for operational excellence will distinguish market leaders from those left scrambling to respond.