The latest round of U.S. tariffs has sent ripples through industrial manufacturing, significantly impacting production costs, supply chains, and overall competitiveness in the machinery and industrial equipment sector.
With the recent implementation of an additional 10% tariff on Chinese imports, the suspension of de minimis exemptions for Chinese shipments, and newly announced 25% tariffs on imports from Mexico and Canada, manufacturers must adapt swiftly to mitigate potential cost spikes and supply disruptions.
While substantial uncertainty remains about which tariff policies will ultimately be implemented, change is certain, and we will experience a period of uncertainty for some time. Uncertainty is the enemy of efficient and low-cost supply chain operations, so industrial manufacturers now face a double burden: higher raw material costs and the need for rapid reconfiguration.
Below I outline how tariffs might reshape the industry, key risks to manage, and actionable strategies for companies to stay competitive.
Rising Costs & Supply Chain Shifts
The first-order impact of new tariffs is straightforward: higher costs for imported components and raw materials. This is particularly acute in industrial manufacturing, where steel, aluminum, machinery parts, and electronic components form the backbone of production. Steel and aluminum tariffs are increasing the cost of industrial machinery, construction equipment, and transportation infrastructure. U.S. manufacturers of heavy machinery, like Caterpillar and John Deere, are now facing higher input costs for essential materials.
Many industrial components, such as precision gears, hydraulic systems, and control modules are heavily sourced from China. Manufacturers relying on imported industrial motors from China may now see substantial cost increases, forcing them to either pass the cost to buyers or absorb the hit to margins.
A significant number of U.S. companies are considering relocating operations due to escalating geopolitical tensions. Approximately 30% of respondents in a recent survey are exploring moving their manufacturing and sourcing outside China, with developing Asian countries emerging as popular destinations, but this is not a short-term fix. Moving supply chains takes years and requires significant capital investment.
Recent data indicates a significant increase in U.S. manufacturing investments. Eli Lilly & Co. announced a $27 billion investment to expand its U.S. manufacturing capabilities, creating 13,000 high-wage jobs.
Similarly, Apple has pledged to invest $500 billion and create 20,000 jobs, including a new facility in Texas. Mexico, previously a nearshoring winner, may lose its advantage if trade tensions result in new tariffs. Boardrooms are taking a closer-than-ever look at not only their supply chain structure and exposure but also their competitors. While controlling costs is a key issue, we are seeing companies competing based on their supply chain geographic cost positioning, which can turn winners into losers with the stroke of a tariff pen.
Sector-Specific Impacts
Heavy machinery and equipment manufacturers are highly vulnerable to tariffs due to their reliance on metal components, and many are evaluating the costs and feasibility of relocating supply chains from China following recent actions. Many may find relocation too expensive due to established relationships with compliant manufacturers, leading them to negotiate costs with suppliers to mitigate tariff impacts rather than stockpiling parts. Some are passing costs downstream, leading to higher prices for infrastructure projects and capital equipment buyers, which spells potentially lower demand.
The automotive and transportation sectors are also at risk. Tariffs on industrial electronics and automotive parts will ripple through supply chains. Electric vehicle battery supply chains, previously benefiting from Mexico-based manufacturing, may need rapid restructuring. Cost increases could slow fleet replacement cycles and investment in new transportation infrastructure.
Energy and industrial infrastructure will feel the impact as well. Equipment used in energy production, including drilling rigs, turbines, and grid components, is highly exposed to tariff-related cost increases. The industrial sector will likely see capital project delays due to budget constraints caused by rising costs.
Mitigation Strategies
Faced with uncertainty and rising costs, industrial companies must move quickly. Many are renegotiating supplier contracts to lock in long-term pricing before tariff increases take effect. Nearshoring and regional sourcing are being explored as companies consider alternative production hubs in Vietnam, India, and other locations.
Some firms are engaging in tariff engineering by shifting classification codes or assembling products in low-tariff regions to minimize exposure. Moreover, inventory and supply chain visibility are becoming critical, with many firms stockpiling critical components ahead of tariff changes while also investing in real-time supply chain monitoring to react faster.
Companies are moving with a greater sense of urgency on these actions as they continue to engage in advocacy and policy discussions with limited indications of exemptions being granted.
The Road Ahead
The visible hand of government intervention is stronger than ever.
Companies that prepare proactively—rather than reactively—will emerge as the winners in this new industrial landscape and be better positioned for the shifts and disruptions the future may hold beyond this current round of tariff actions.