4 Ways Manufacturers Can Respond Strategically to the Impact of Tariffs
Tariffs (government-imposed duties on imported goods) can introduce volatility and uncertainty, especially if your manufacturing company’s operations rely on global sourcing. To be successful in the current marketplace, it’s critical to understand the implications of today’s tariffs and develop strategic responses.
Tariff Executive Orders: A Recent Timeline of Key Actions for Manufacturers
As of March 7, 2025, imports from Mexico and Canada are subject to a 25% tariff—although energy, energy products and potash imported from those countries are only subject to a 10% tariff, and some products are eligible for a 0% tariff if they fall under the United States-Mexico-Canada Agreement (USMCA).
On March 12, 2025, a 25% tariff on steel imports and a 10% tariff on aluminum imports was reinstated for most countries, and the tariff on aluminum was raised to 25% for all countries.
On April 2, “reciprocal tariffs” were announced on imports from around 90 nations on top of a 10% across-the-board tax applied to all imports to the U.S. Some nations face only the 10% universal tariff, while imports from other countries face a higher specific reciprocal import levy. For example, China-made products are now subject to an import duty of 145%. Some products, including smartphones, laptops, semiconductors and flat-panel displays, are temporarily excluded from the tariffs.
On April 10, 2025, President Trump announced a 90-day pause on most tariffs other than the 10% universal tariff. However, tariffs on imports of Chinese products don’t qualify for the 90-day exemption.
Impact of Tariffs on Manufacturing Costs
While tariff activity is ultimately conducted by governments, manufacturers are certainly among the first to feel the impact.
Tariffs directly increase the cost of imported raw materials, which has a cascading effect throughout the manufacturing process. The added duties inflate input costs and reduce profit margins if you rely heavily on foreign steel, aluminum, electronic components or machinery. And these cost increases can be difficult to absorb.
For example, if you source aluminum components from Canada, a new 10% tariff could lead you to raise prices or find cost-saving measures elsewhere. Both options can impact competitiveness and long-term customer relationships.
Beyond pricing, tariffs can introduce inefficiencies into the supply chain. Manufacturers may look to alternative domestic suppliers, which can result in delays, higher logistics costs and challenges with maintaining product quality or consistency.
Plus, when tariffs are introduced suddenly, manufacturing businesses don’t have the lead time to renegotiate contracts or shift suppliers quickly. This reactive posture can create financial strain and disrupt production schedules.
Strategic Responses To Maintain Profit Margins and Adjust Supply Chains
So, how can manufacturing companies smartly respond to new tariffs and their implications for business?
Taking a proactive approach can alleviate the impact of tariffs and help you maintain operations. Here are four steps for responding strategically.
Diversify Your Supply Chain
One of the most effective strategies for manufacturers responding to tariffs is to reduce reliance on a single country or supplier. Concentration risk—particularly on imports from targeted countries—exposes you to sudden cost increases and regulatory disruption.
Expand your supplier base to include domestic sources or countries with favorable trade agreements to create leverage and improve supply chain continuity.
Renegotiate Supplier Agreements
Tariff changes provide a compelling reason to revisit existing supplier contracts. You may be able to negotiate better payment terms, volume discounts or cost-sharing arrangements to help offset the financial burden of import duties. Transparent communication about mutual challenges and long-term partnership goals fosters collaboration.
Pursue Operational Cost-Saving Measures
Improving internal efficiency is another critical lever. Lean manufacturing principles like reducing waste, streamlining workflows and adopting automation may create room in the budget to absorb rising input costs.
Optimize your inventory management by improving demand forecasting and limiting excess stock. This allows you to minimize carrying costs and avoid over-ordering tariffed goods.
Optimize Tax Planning and Compliance
As a part of your cost of goods sold, tariffs are deductible for federal income tax purposes. However, their treatment for sales and use tax varies widely by jurisdiction. Some states exclude tariffs from the taxable base, while others include them. This creates compliance complexity.
It’s crucial to consider how tariffs affect your tax liabilities across jurisdictions to avoid overpayment or underreporting. Thoroughly reviewing tax policies and properly documenting tariff charges on invoices can safeguard against noncompliance and penalties.
Chart a Smart Path Through Tariff Turbulence
Tariffs introduce complexity and cost, but manufacturing companies can weather the storm by adjusting supply chains, improving efficiency and managing tax exposure.
To evaluate your organization’s financial health and to create a strategic and compliant plan, reach out to a Warren Averett advisor for tailored guidance and support.
This article reflects our views at the time this article was written and should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.