Trump’s Tariffs Draw Mixed-to-Dreary Reviews from Industry
On April 2, President Donald Trump announced sweeping tariffs, calling the day "Liberation Day." He referred to the tariffs as “reciprocal.” The goal was to match US tariffs with an individual country’s tariffs on US goods. If a country’s tariff’s on the US were 50%, the US tariffs on that country's goods will be 25%. He also declared an overall 10% tariff for countries that didn’t warrant a reciprocal tariff. He noted that the tariffs would go into effect at midnight.
In his Substack blog, Nobel laureate economist Paul Krugman challenged the veracity of the tariffs that other countries charge on US goods. “The left column shows the tariffs others are supposedly charging on US products – and it’s completely crazy,” wrote Krugman. “Focus on the European Union. The EU, like the United States, has generally low tariffs; the average tariff it charges on US goods is less than 3%.”
The tariffs target a wide range of imports, including cars, steel, aluminum, and much more. While many economists warn that such tariffs could lead to higher consumer prices and inflation, Trump argued that the tariffs would incentivize companies to relocate manufacturing to the US, boosting domestic production. Critics pointed out the risks of strained international relations and economic uncertainty.
Financial institutions respond
Financial institutions have raised increased concerns of a recession in response to Trump’s trade policies. Goldman Sachs raised the probability of a US recession to 35% from 20% on March 31, saying that it expects more rate cuts by the Federal Reserve as Trump's tariffs create uncertainty about the global economy. J.P. Morgan Research has raised the probability of a global recession taking hold in 2025 to 40%, up from 30% at the start of the year.
Goldman Sachs Research noted that financial markets have whipsawed amid tariff negotiations between the US and its major trade partners. If the US implements sustained taxes on exports similar to those that have recently been proposed, it would likely cut S&P 500 Index earnings per share by 2-3%.
Industry associations speak up
The United Auto Workers said its members support the tariffs. Domestic manufacturers of critical medical supplies and personal protective equipment (PPE) applauded Trump’s announcement. The American Medical Manufacturers Association noted in a statement that “Trump's plans to implement targeted, reciprocal tariffs on imports are critical to rebuilding America’s manufacturing base, safeguarding public health, and ensuring national security.”
Yet many other organizations voiced concern. IPC took an opposing view. The global electronics industry association noted in a statement that “IPC has worked to restore US leadership in electronics manufacturing, urging the government to recognize its strategic importance and invest in rebuilding critical domestic capabilities.”
The statement then went on to say that “Tariffs will not achieve this goal. A strong US electronics industry requires a comprehensive approach – one that pairs targeted investments and incentives with policies that enhance mutually beneficial trade partnerships.” IPC went on to say that “tariffs risk raising costs for American businesses and further driving production offshore.”
Analysts weigh in
In general, analysts expressed concern over the tariffs. Many warned of potential economic repercussions such as increased consumer prices, strained international relations, and a possible global trade war. Some analysts noted that tariffs could lead to inflation and dampen economic growth. While Trump claims the tariffs will boost domestic manufacturing, experts caution that retaliatory actions from other nations may escalate tensions and negatively impact the US economy.
One concern mentioned by more than one analyst firm challenged the notion that tariffs will spur domestic investment in manufacturing facilities. It takes three to five years to build a production plant in the US. Many analysts expect that a new administration in 2029 will abolish the tariffs, thus ending the need for new US-based facilities. The assumption is that manufacturers will wait out the tariffs rather than change production plans.
Deloitte weighed in with a full report. Here are the highlights:
Following a period of growth, the US manufacturing industry is now facing a new wave of change ushered by policies that could bring additional disruption to an already turbulent supply chain. Deloitte’s latest report, Prioritizing Supply Chain Resilience and Agility: Strategies for US Manufacturing in a New Era of Industrial Policy, examines the impact of the current market on manufacturing companies in the US, and identifies a three-pronged strategy for companies looking to adapt.
Key findings from Deloitte:
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US manufacturing has been navigating significant growth and an already volatile supply chain. US manufacturing establishments grew by 40% between 2013 and 2024, while manufacturing construction spending increased by $181 billion in the same time period. Amid that growth, many CEOs (71%) already have plans to alter their supply chains over the next 3 to 5 years.
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A focus on domestic manufacturing adds supply chain uncertainty. Incentivizing domestic manufacturing seems to be a centerpiece of the Trump administration’s policy priorities, which could impact supply chain strategies. Fifty six percent of respondents cited trade uncertainties, including tariffs and negotiations, as their top business challenge, up from 36% the quarter before.
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Tariffs on products from top trade partners are set to have the biggest impact. The International Trade Administration found that in 2023, Mexico surpassed China as the leading US import partner for manufactured goods, followed by China and Canada. Motor vehicles are the top imports from Mexico and Canada, while communications equipment tops China imports.
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Changes impacting domestic supply chains could shape domestic manufacturing strategies. The top 10 largest US manufacturing subsectors produced nearly 1.5 times more output per production worker compared to the remaining six subsectors in 2023 – which could be significantly affected by tariffs on imported steel and aluminum.
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To position for growth despite volatility, manufacturers can leverage a three-pronged approach. Companies should assess supply chain exposure and risk, consider near-term tariff mitigation approaches, then explore longer-term strategies to minimize cost and empathize resilience to strongly navigate the uncertainties ahead.