During his Inauguration Day speech, President Donald Trump said he planned an immediate overhaul of the U.S. trade system in an effort to protect American workers and families. Many of these tariffs went into effect in early March of this year.
Since then, the topic of tariffs has been widely debated. Much of the media has been focused on the potential pros and cons of such tariffs placed on certain countries or certain products as well as retail consumers. Critics say that tariffs are simply added costs companies will pass on to customers, which contributes to further inflation. However, some wonder whether new tariffs could mark a real tipping point for a U.S. manufacturing resurgence.
What Are the Tariffs Being Levied?
In January, President Trump announced the U.S. would impose 25 percent tariffs on Canada and Mexico as part of a negotiation for support at U.S. borders to combat drug smuggling. The next day, after Mexico and Canada both agreed to invest more resources at their U.S. borders, the respective tariffs were put on hold. While the information has been changing rapidly, the message to the market was clear as both Samsung and LG announced they were considering moving some production from Mexico to the U.S. in response to “changes in the market.”
The following month, Trump administration announced a new “Fair and Reciprocal Plan” to evaluate potential reciprocal tariffs on imports from countries that impose barriers or higher tariffs on U.S. exports. The plan included a 180-day review period before recommendations on specific tariff implementation but also noted the possibility of certain tariffs being announced sooner if the administration identifies more immediate concerns with certain industries or trading partners. Early indications of some of these industry sector targets include automotive, pharmaceuticals and semiconductors which hold some of the largest trade deficits. China is also in the crosshairs as a target for U.S. import tariffs as the US trade deficit was nearly $300 billion in 2024.
In addition, the administration has moved to reinstate tariffs on steel and aluminum imports using Section 232 of the Trade Expansion Act of 1962. The administration has made it clear that growing U.S. manufacturing is one of his priorities, citing that previous tariffs on these products supported reinvestment in the American steel industry during his first term.
While it is too soon to predict which tariffs will be levied, based on the activities of the Trump Administration so far, two themes are clear:
1.) Tariffs will be used as a negotiation tool for both defense and economic purposes.
2.) Growth of the U.S. manufacturing sector is a priority for this administration.
The Impact of Tariffs on the U.S. Economy
The macroeconomic impact of tariffs is hotly debated. Critics of U.S. import tariffs argue that they drive up costs for manufacturers relying on imported supplies and for companies distributing imports, ultimately leading to higher prices for consumers in both b-to-b and retail settings. Meanwhile, proponents of tariffs believe they’re the only way to balance an unfair competitive landscape.
Overall, the the end result of tariffs is yet to be determined, but the impact to individual companies will depend on that company’s supply chain, industry sector and customer markets. Some potential effects include the following:
• Importers with a high proportion of U.S. sales or supply chains largely outside the U.S. face the highest risk. According to a January 2025 BCG report, these companies could see material impact on their EBITDA margins under various scenarios, from negative six percentage points to nearly 14 points, depending on industry and supply chain footprint.
• Retaliatory tariffs could be problematic for U.S. exporters. For example, Canada and Mexico both threatened retaliatory tariffs on imported products from the U.S. in response to Trump’s initial 25 percent blanket tariff threat. Canada announced it would institute a 25 percent tax on a total of $155 billion worth of U.S. imports and Mexico’s counter threat included tariffs ranging from five percent to 20 percent on food, steel and aluminum, but noted that the auto industry would initially be exempt.
• For U.S.-based companies looking to grow their businesses domestically, the impact of tariffs is likely a net positive as it may create more competitive pricing of their products in the market.
• Companies that have already repositioned their global manufacturing footprints to use a more regional approach (for example, a U.S. plant serving the U.S., an Asian plant serving Asia) may not be directly affected by U.S. tariffs, provided their supply chains are also largely domestic.
For some, the added costs for importing products (and the uncertainty of future tariffs) may prompt new U.S. manufacturing investments to avoid tariffs altogether. However, any new investment takes time to become operational, and new domestic supply chains may also need to be established. In the meantime, unless granted an exception, tariffs will likely impact a company’s bottom line or increase costs for customers, which will directly affect the domestic retail industry. For U.S.-based companies looking to grow domestically, the impact of tariffs may be a net positive.
The Effects of Tariffs in the Retail Sector
Beyond manufacturing, potential tariffs could have a significant impact on the retail sector by increasing the costs of imported goods. Retailers may either have to absorb these expenses or pass them on to consumers through higher prices, which may lead to a decrease in consumer spending. Additionally, tariffs could disrupt supply chains, prompting retailers to explore alternative sourcing strategies. However, these alternatives often come with added costs, delays or logistical challenges. Ultimately, these pressures may compel retailers to rethink their pricing strategies, supply chain management and business models in order to remain competitive.
Consumer sentiment is soft at the moment, and tariffs that result in higher retail prices may lead to more pressure on the average consumer, which affects economic and political repercussions.
The Reshoring Tipping Point History
The topic of “reshoring,” or shifting manufacturing capacity from offshore to the United States, has been discussed for well over a decade. A 2011 Boston Consulting Group study entitled, “Made in America, Again” concluded that U.S. manufacturing would become increasingly competitive with China, reaching a “tipping point” around 2015.
The rationale for that prediction centered on rising wages in China and increasing shipping costs, which eroded the price advantage of producing goods overseas. Improvements in automation also reduced the importance of low-cost manual labor, and locating closer to the U.S. enabled faster order fulfillment, quicker speed to market and greater agility in responding to changing preferences.
At that time, BCG identified sectors most likely to reshore such as higher value products, large products that were difficult to ship and products that are less suited to full automation. These included furniture, appliances, machinery, electronics and transportation of goods.
In 2020, when the COVID-19 pandemic hit, supply chain disruption was suddenly front and center for many U.S. companies, including retailers who weren’t able to source products. Medications such as Tylenol were unavailable because the active pharmaceutical ingredient (API) was primarily sourced from China, which locked down exports due to their own in-country needs. There were shortages of medical equipment and protective gear such as masks and gloves, also primarily sourced from China. The supply chain disruptions from the pandemic, as well as natural disasters, labor strikes and other issues over the past few years have exposed overreliance on imports to the U.S., contributing to a strong business case for domestic manufacturing investment.
It is important to note that the reshoring prediction from the BCG study or others since have never concluded that companies will completely vacate China, which has grown its own local consumer base. Rather, the portion of manufacturing products destined for U.S. customers is the strong candidate for reshoring to the U.S., thus beginning a shift away from one mega plant serving the globe to a more regional manufacturing footprint strategy.
Tailwinds for Reshoring
Supply chain risk mitigation, spurred by pandemic-related disruptions, natural disasters and other factors, continues to be top of mind for manufacturers, providing momentum for U.S. reshoring. Additionally, bipartisan legislation passed during the Biden Administration including the CHIPS and Science Act has induced more companies to invest in U.S. manufacturing. Examples include Taiwan Semiconductor in Arizona and Samsung Semiconductor in Texas. The Inflation Reduction Act has also encouraged a number of automotive investment projects for electric vehicles and battery production, including the Ford BlueOval City in Tennessee.
Due to the shortages of critical items to companies, retailers and consumers during the pandemic, the federal government also began providing funding support through the Department of Defense to help expedite reshoring investment.
For some, adding the threat of new tariffs on imported products to the U.S. makes an even stronger business case for reshoring. According to the Reshoring Initiative, which maintains a Total Cost of Ownership Estimator tool loaded with data to test scenarios related to comparing costs of production in the U.S. versus other countries, a 25 percent tariff imposed on Chinese imports would make U.S. production costs by comparison more competitive for over $100 billion in goods.
Headwinds for Reshoring
The increased manufacturing investment activity over the past few years, combined with an increased demand for data centers to meet rapidly developing technology and AI processing as well as storage needs, have put a lot of pressure on the industrial real estate market in the U.S. The following challenges to site selection for new manufacturing investment have emerged as a result:
1. Lack of shovel ready industrial sites. Many of the sites that had been prepped for industrial development prior to 2020 have been gobbled up by new investment over the past few years. The time required to assemble new land sites, conduct due diligence studies, clear and grade any major topography challenges and plan infrastructure can take years, not to mention cost hundreds of thousands of dollars. Although many states and local communities are working to address this issue, there is currently a shortage of ready-to-develop industrial sites on the market across the country.
2. Electric power infrastructure challenges. The rise of automation and advanced equipment in modern manufacturing plants is driving increased electric power demand for new developments, just as massive mega data centers, with even greater power needs, are emerging across the country. This sharp increase in electric infrastructure and capacity demand is putting stress on electric power grids across the country and making it difficult to find available capacity to meet investment needs.
3. Workforce skills gap and availability concerns. Although most new manufacturing operations in the U.S. contain a high degree of automation, the need for skilled workers is imperative to operate and maintain this equipment. Many communities have been investing in training programs and apprenticeships, but there is still a shortage of these skills in the market. In addition, construction labor, critical to meeting development timelines, is also struggling to meet demands.
4. Rising construction costs.
Construction costs have already risen significantly since 2020 due to inflation and supply-demand issues for materials. A rise in even more construction for new manufacturing plants will require considerable amount of steel. So the question is posed: Do U.S. steel manufacturers have enough production capacity to meet these increased demands? If not, added tariffs to these goods could cause even higher costs, potentially impacting on the viability of the project overall.
What Should Companies Do Now?
For companies, both manufacturers and retailers, particularly those that rely on imported goods or supplies, it will be important to first understand their exposure to potential tariffs. Run potential scenarios of impacts based on tariffs that have been proposed by asking: What are the direct impacts to the business?
If the exposure is material, what strategies are available to mitigate exposure? Are there alternative suppliers in the U.S. or other low-risk countries to consider? Location-based operating cost variables, such as transportation, labor, utilities, taxes and real estate, will be important to test these scenarios.
For companies with an established U.S. customer base that have been importing products to the U.S. and are considering investing in a domestic plant, now may be the right time to further explore this option. Retailers may wish to evaluate their own suppliers and determine what the risk of tariffs is to those suppliers.
The decision to change footprints should not be driven by tariffs (or the threat of tariffs) alone, however. Companies should also take into account the additional benefits of localized production and sourcing, including more resilient supply chains, speed to market, faster response time to customers and reduced geopolitical risk.
Despite some of the near-term challenges and uncertainties that tariffs bring to the global market, the reshoring drivers to date combined with today’s bipartisan mandate to rebuild the U.S. manufacturing sector and a bipartisan trend towards greater protectionism, may just add up to be the real tipping point for a domestic manufacturing resurgence. T&ID
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