How Do Tariffs Affect Your Supply Chain?

In this article, learn about:

• How tariffs can impact a supplier’s profit margin
• What the current tariff situation is in the United States
• How to best mitigate the effects of tariffs on a supplier’s business 

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Over the past few months, the White House has implemented a series of steep protective tariffs and threatened to impose many more. As a result, tariffs have remained front-page news, and many suppliers are wondering how these new regulations will affect their business and how they might be able to alleviate the worst of the impacts. 

In the most basic definition, tariffs are taxes imposed by a government on imports, typically paid by the importer. Tariffs are a form of revenue for the government that imposes them. Additionally, tariffs can be considered a method of regulating foreign trade, with the intent of safeguarding domestic industries. Along with import and export quotas, tariffs are among the most common methods of protectionism.

Almost unanimously, economists agree that steep tariffs have a negative effect on economic growth, ultimately harming the domestic industries they’re meant to protect through rising costs and retaliatory tariffs from competing countries. The economic burden of tariffs typically falls to the importer, who then most often passes on those costs to the consumer. 

What is the Current Tariff Situation in the United States?

Between January and April 2025, President Donald Trump enacted a series of tariffs, impacting nearly all goods imported to the United States. Over this period, the average tariff rate rose from 2.5% to approximately 27%, representing the highest effective tariff level in the US in over a century. 

These new tariffs have resulted in retaliation from countries affected by the regulations. For instance, tariff levels of products from China rose to a baseline of 145%. In response, China imposed a 125% tariff on US goods and restricted exports of rare-earth metals critical to technology manufacturing. Additionally, the administration started a trade war with Canada and Mexico, imposing a 25% tariff on both countries, but later issued an indefinite exemption for goods compliant with the USMCA, the 2020 free-trade agreement which replaced NAFTA. 

Below is a chart showing the effective tariff rate for some of the United States’ largest trading partners: 

Additionally, the United States government has imposed additional, product-specific tariffs, which apply to goods worldwide: 

Other products on which the administration has considered imposing tariffs include lumber, agricultural products, integrated circuits, copper, movies, oil and gas, pharmaceutical products, minerals, semi-conductors, and trucks. 

How do Tariffs Impact Supply Chains?

Tariffs can have a multitude of impacts on supply chains and individual vendors. These can include:

Shifts in Sourcing

One of the consequences of an ever-more-globalized supply chain is that it encourages offshoring, as overseas manufacturing can often be much cheaper than making products domestically. Recently, there has also been a trend of nearshoring, in which companies have been relocating their overseas manufacturing and distribution facilities to neighboring countries, providing the benefits of offshoring along with geographic proximity and a familiarity with local culture and customs. 

Tariffs can change a supplier’s options with regards to offshoring, creating situations in which the cost benefits of overseas manufacturing are outweighed by the impacts of having to pay significant tariffs. Suppliers should take sourcing shifts into account when calculating how much a tariff might cost their business. 

Increased Costs

Tariffs raise the cost of imported finished goods, components, and raw materials. The burden of this cost is typically held by the importer, who then usually passes those costs onto the consumer in the form of higher prices. 

Increased costs associated with tariffs can usually be anticipated, and many companies have started to employ tariff mitigation strategies to strengthen their supply chains in the face of changes in trade regulations. However, these strategies can be costly, and while they frequently reduce the worst financial impacts of tariffs, they provide no protection against future disruptions. 

Decreased Export Competitiveness

Just as tariffs increase costs associated with imports, they can also result in higher export costs, as many countries respond to tariffs with retaliatory regulations of their own. Additionally, domestic producers are often doubly affected by tariffs, as both the raw materials they import and the components and/or finished products they export can be subject to tariffs. 

Issues with Inventory Storage

In anticipation of tariffs, many companies have started to stockpile their goods before the additional fees take effect. For instance, the Bureau of Economic Analysis reported that in December 2024, imports increased compared to previous months in anticipation of tariffs. However, stockpiling inventory can result in extra warehousing costs and is not feasible for all products, such as perishables and seasonal goods. 

Trade Retaliation

Tariffs are considered to frequently result in trade wars, as countries targeted by tariffs often respond with retaliatory tariffs of their own. These retaliatory tariffs can cause the original country to raise their own tariff rates, resulting in a self-fulfilling cycle and an overall increase in tension. 

Increased Domestic Production

The intent of tariffs is typically to encourage domestic manufacturing, since the increased costs of importing goods can reduce the economic viability of offshoring. As a result, many companies have started to implement reshoring policies, which is when companies return their production processes to their country of origin. Reshoring is often part of a larger supply chain restructuring, as companies begin strategically placing their facilities in various regional locations to maximize revenue and reduce regulatory burden. 

Additional Bureaucratic Complexity 

Tariffs result in greater supply chain complexity for producers and vendors, since extra regulations require additional bureaucratic complexity to ensure a company is fully compliant. This complexity often results in higher overhead costs, as additional labor is often required to guarantee compliance and avoid fines.  

How Might Suppliers Mitigate Tariff Impacts?

Tariffs can have negative effects on a supplier’s bottom line. As a result, investing in tariff mitigation strategies could be a smart decision to alleviate the resulting financial burden.

Below are some tried-and-true strategies to prepare for future tariffs:

Accurately Assess Risks and Vulnerabilities

To know how best to handle increased regulation, it’s important for vendors to have accurate and reliable knowledge of the specific financial impacts of tariffs. In addition, other metrics can take on further importance. For instance, an accurate demand forecast can help suppliers understand how much of their financial burden can be absorbed by end consumers.

Create a Resilient and Diversified Supply Chain

One of the most important ways of mitigating the effect of tariffs is to create a supply chain that can withstand the shifting political landscape. Sourcing from multiple regions, countries, and manufacturers results in a flexible supply chain that can withstand unexpected pressures. On the other hand, if suppliers overinvest in a certain region or manufacturer, they can end up disproportionately affected by tariffs compared to their competitors. 

Strategically modifying product designs and/or sourcing alternate raw materials can lower a supplier’s tariff obligations. In order to optimize revenue, it’s recommended that vendors work with trade experts, who can help to ensure regulatory compliance while maximizing profits. 

Leverage Trade Agreements

Free trade agreements (FTAs) often provide reduced or eliminated tariffs for certain goods. For instance, under the rules of the USMCA, goods from Canada or Mexico that meet the rules of origin are exempt from the blanket 25% tariff imposed on imported goods from those countries. 

Companies can utilize foreign trade zones (FTZs) to store or assemble products before they officially enter the domestic market, reducing overall import costs. Suppliers should make sure to utilize these FTAs to reduce their regulatory burden while maintaining full compliance with tariffs. 

Switch to Local Manufacturing

If suppliers have the opportunity, switching to domestic manufacturers can reduce the extra tariff costs associated with imported goods and raw materials. Along with addressing tariffs, reshoring can result in quicker product development times, shorter lead times, and the opportunity to consider product redesigns. However, reshoring efforts can result in further costs themselves, as they require an initial investment of capital along with greater labor costs and adjustments in the supply chain.

Suppliers should calculate the cost of reshoring and compare this figure to the cost of tariff compliance to determine whether switching to local manufacturers will result in overall cost savings. 

Invest in Digitization and Automation

An investment in digitization and automation can help to future-proof a supplier against escalating tariffs and other costs. Automation and digitization can improve a supply chain’s visibility and result in more informed decision-making by stakeholders. This investment can also allow a company to respond more quickly and decisively to a changing tariff landscape, helping to alleviate negative impacts. 

Related Reading: What is Global Logistics Network Optimization?

Conclusion

Tariffs can represent a significant burden for suppliers, especially those dealing with importing and exporting goods and raw materials. As a result, it’s important for suppliers to understand the specific impact that ever-shifting tariffs will have on their business. In order to respond to tariffs effectively, suppliers should stay flexible and experimental, exploring various mitigation strategies to generate the greatest possible savings.  

Recover Your Revenue with SupplyPike

The supply chain is complicated, and things don’t always go as planned. When unplanned expenses start eating into your profits, SupplyPike is here to help. Our platform streamlines the deduction recovery process, helping you identify and reclaim lost revenue so you can refocus on growing your business.

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