The new administration’s approach to tariffs
As the supply chain industry prepares for a new administration, tariffs are at the forefront of many conversations.
China tariffs
China-related tariffs are almost certain to increase because there are a variety of tools the administration can use to address commodity-specific unfair trade practices, country-wide unfair trade practices, and national security related to inputs for the production of fentanyl.
It is still unclear how much these tariffs will increase, but it seems likely a 10–50% increase (especially on specific commodities) is possible. In terms of timing, different iterations and tools will likely be rolled out over the course of the next few years, similar to the approach by the Biden administration. These most likely could be implemented as early as March 2025.
Canada and Mexico tariffs
Increased tariffs threatened on Canada and Mexico are aimed at increasing border security from both illegal migration and illicit drugs. There appears to be more room for compromise and negotiation to avoid tariff increases from Canada and Mexico than there is room for negotiation with China.
Supply chain integration across North America would also likely require significant exclusion processes to avoid disruption in key industries like automotive and fresh produce. With the USMCA review process starting in 2025, it is likely many of these issues can be addressed through that process while tariff threats remain a backdrop.
In 2019, 5% tariffs on goods from Mexico were threatened in negotiations to improve border security, but ultimately never became a formal draft proposal.
Universal tariffs
Finally, a universal 10% or 20% tariff on all imported goods would most likely require action from the full Congress. As the congressional debate around the expiration of the Tax Cuts and Jobs Act of 2017 takes center stage later this year, this topic will be a part of the debate.
It remains to be seen what kind of appetite the full Congress will have to raise revenue through tariff increases compared to other tools like corporate or personal income taxes. Timing of this debate is likely to be late summer or into early fall 2025.
Expect 2025 to be a very unsettled environment regarding tariffs. Be prepared to continually update contingency planning around tariffs. Many proposals may not come to fruition; however, some tariffs will certainly increase.