The U.S. administration’s rapidly shifting trade tariffs and other countries’ responses have shocked global supply chains. These tariffs are likely to impose significant costs on companies that rely on overseas production and multi-national supplier networks. Because tariffs apply at the point of entry, they increase the cost of goods immediately, impacting margins, pricing, and competitiveness. For many firms, these added costs cannot be passed on to customers, especially in price-sensitive markets.
The Fragility of Global Supply Chains
Over the past few decades, globalisation and technological advancements have enabled companies to build supply chains that span the globe. Today’s supply chains are intricate, interconnected webs designed for efficiency, specialization, cost savings, and improving overall competitiveness. For example, components might be sourced from China, assembled in Mexico, and sold in the U.S.
Long, multi-tiered supply chains are inherently susceptible to disruptions. The efficiency—and complexity—of these systems comes at a cost: fragility. A flood in Southeast Asia can delay shipments of critical components. A pandemic can grind manufacturing hubs to a halt. A single policy decision—such as a new tariff—can sharply increase costs and upend supplier relationships. The challenge for companies is navigating such external shocks and keeping them from disrupting business operations or threatening profitability. All this makes resilience just as important as efficiency.
In the current environment, the question facing business leaders is clear: What must my business do now to mitigate the impact of tariffs while building a more resilient, sustainable supply chain for the future?
The answer lies in both short-term tactical responses and long-term strategic shifts. Let’s explore both—with real examples from major companies.
Short-Term Actions: Tactical Mitigation
Companies must act quickly to buffer the likely negative financial blow of tariffs. These short-term tactics can help mitigate immediate impacts.
1. Build Inventories Ahead of Deadlines
Given the 90-day pause on most new tariffs announced by the Trump administration in April 2025, there may be a window for importers to accelerate shipments and stockpile goods at lower cost. While this strategy increases holding costs and ties up working capital, it has the potential to provide a buffer against possible cost increases.
Example: In response to earlier waves of U.S.-China tariffs, Home Depot proactively increased its inventories of tariff-affected products to avoid cost increases. The company’s CFO noted in earnings calls that they accelerated some shipments ahead of tariff deadlines to mitigate financial impacts and ensure stock availability during key sales seasons.
2. Negotiate Across the Value Chain
Businesses can work collaboratively with suppliers, manufacturers, and distributors to share the pain tariffs bring. Rather than absorbing the resulting higher costs alone, companies can renegotiate terms, seek temporary cost-sharing agreements, or push for discounts. In some cases, contracts may include tariff-related clauses that enable such discussions.
Example: Ford Motor Company has faced tariff-related cost pressures, especially around steel and aluminium. Rather than absorb all costs or pass them to consumers, Ford initiated renegotiations with some suppliers to share the burden. They also reviewed contracts with upstream providers to revisit pricing models tied to raw material costs.
3. Diversify and Shift Suppliers
Where tariffs are country-specific, shifting procurement to suppliers in other nations—whether in Southeast Asia, Eastern Europe, or Latin America—can provide immediate or partial relief. While not always simple (due to regulatory, quality, or capacity issues), even a partial shift in sourcing may help dilute the impact of tariffs.
Example: Apple, highly dependent on Chinese manufacturing, has been shifting parts of its supply chain to other countries like India and Vietnam. For instance, iPhone production has increasingly moved to Foxconn and Pegatron facilities in India to reduce exposure to tariffs on goods made in China and other geopolitical risks.
Long-Term Strategies: Building Resilient Supply Chains
While tactical responses provide breathing room, the long-term goal must be to build supply chains that are not just efficient, but resilient to a range of supply chain disruptions. Here are some ways companies can make supply chains more resilient and more sustainable.
Circular supply chains focus on minimizing waste, reusing materials, and extending product lifecycles. By designing products for reuse, remanufacturing, and recycling, companies can reduce dependence on raw material imports that may be subject to tariffs or scarcity.
Implementing circular business models naturally drives reshoring and nearshoring strategies by bringing manufacturing closer to end markets. While labour and manufacturing costs per unit may be higher in domestic or nearshore locations, advancements in automation, robotics, and additive manufacturing as well as the avoidance of tariffs can help offset these expenses. Shorter supply chains also reduce lead times, transportation costs, and exposure to geopolitical risks. Moreover, they make your business more resistant to supply chain shocks that can incur significant one-off financial impact like additional (express) transport costs, lost sales, and the cost of switching suppliers at short notice. It is critical that companies consider these risks and costs along with their profitability pursuit and take a broader strategic perspective.
Example: Philips has embraced circular economy principles across several product lines. By designing medical devices for remanufacturing and reuse, they reduce dependency on virgin raw materials—some of which are subject to geopolitical or tariff-related risk. This not only cuts environmental impact but also strengthens supply security.
Reimagining your supply chain can build the resilience required to weather unpredictable times while increasing its sustainability.
Trade tariffs serve as a reminder of how interconnected and exposed the global economy can be. While the immediate effects of tariffs are financial—higher costs, margin pressure, and sourcing challenges—the broader lesson is strategic.
Businesses with global supply chains must move beyond a narrow focus on cost efficiency at the unit level under normal operating circumstances to embrace circularity, responsibility, and resiliency as core principles that can help mitigate severe negative financial impacts from supply chain shocks. It is our strong belief at ERM that those who adapt quickly in the short term, while investing in long-term resilience through circular business models, will not only weather the current tariff storm but thrive in the volatile, uncertain global economy that lies ahead.
