Supply chain managers face multiple uncertainties and disruptions in their systems, from labor strikes to war and terrorist attacks on cargo ships. Their aim is always “de-risking” the global supply chain — they strive to build resiliency and agility into their systems, reinforcing their supply chains against disruptions.
A potential challenge for global supply chains has emerged with the recent election of President Donald Trump, who has made tariffs on imported goods a central focus of his second administration. (The first round of tariffs, on Mexico, Canada and China, went into effect March 4, 2025.) This policy shift raises the risk of trade wars, which could disrupt international commerce and create significant uncertainty for businesses worldwide. In light of this development, Tom Goldsby, Dee and Jimmy Haslam Chair in Supply Chain and David P. Perrot Supply Chain Management Faculty Fellow with the University of Tennessee, Knoxville, Haslam College of Business, shares his insights on how tariffs and trade wars could impact supply chains, supply chain leaders’ response and consumers’ concerns.
What are tariffs?
Tariffs are taxes paid by American importers on goods purchased from abroad. They are rarely paid by the exporter at the (foreign) point of origin. Tariffs are intended to artificially raise the price of goods coming into the country to encourage buyers to select domestic options, instead. This prompts the question, why aren’t U.S. companies buying from American suppliers already? Likely answers are that such domestic suppliers do not exist or that they cost more than international sources.
What are the main effects on American supply chains when the U.S. imposes tariffs and other countries retaliate?
Imposing tariffs is portrayed as “leveling the playing field.” While a few companies may absorb some of the increased costs of tariff-affected imported goods, they generally try to maintain profit margins by passing along those costs to their customers, who pass them on to end users and consumers in the form of higher prices. These price hikes could push inflation higher, spreading the pain.
You can count on other nations to respond in kind and to target American industries and U.S. imports into their countries. Those counter-tariffs artificially raise the prices of U.S. goods abroad and discourage customers abroad from buying our goods.
It has been expressed that, “No one wins a trade war.” It generally hurts all affected economies. Ultimately, the question becomes “Who blinks first?” — as no party wants to find themselves in a trade war on a sustained basis.
What could be indirect or less-obvious impacts on U.S. supply chains of such a trade war?
If the intended purpose of tariffs is to deter companies from importing materials and products from international sources, what happens if there are no domestic suppliers of those materials or products? Imposing tariffs in the absence of domestic supplies is loaded with a host of unintended consequences.
For example, sourcing shifts to other locations, but not to the U.S. This has been a common result from the tariffs placed on Chinese goods during the first Trump administration and maintained through the Biden administration. A vast number of companies implemented a “China-Plus-One” strategy, where they maintained some share of their supply sources in China, but explored the globe for an additional setting that did not face tariffs. Very little production returned to the U.S. Instead, common destinations included Vietnam, Cambodia, India and Mexico, among other nations.
What do you foresee happening with supply chains in response to the U.S. imposing new tariffs?
We expect to see more regionalizing of supply chains to reduce the vagaries of distance. Mexico and the balance of Latin America — as well as Caribbean nations — could be the biggest beneficiaries of trade wars among the global giants. Also, watch Chinese foreign direct investment in these locations. China has established quite a foothold in Mexico and looks to be expanding its presence there and elsewhere in the Western hemisphere. We could also see highly automated manufacturing make its way back to U.S., but that doesn’t impact labor and jobs much.
What steps can supply chain managers take to prepare for or lessen trade wars’ impact?
Supply chain managers have been preloading their businesses with inventory for several months now, because of worries of a West Coast port strike, which only lasted three days last October. However, the surge has been extended with the fears of heightened tariffs. This can look like good business in the short term, but it can result in a drought of goods on the far side of the surge. If tariffs are substantial enough, companies will try to delay purchases in hopes that they will be suspended eventually.
What do new tariffs mean for the businesses supply chains serve?
Even the mere threat of tariffs introduces uncertainty. Uncertainty is the antithesis of investment and growth. While chaos might play well on reality TV, business decision-makers do not embrace it, and it can stifle investment.
Tariffs garner a lot of attention and might engender some measure of favorable reaction from adversaries in the near term, but it is not a practice that one can resort to time and again. Going forward, I suspect tariffs will be threatened far more than they are actually implemented. If business earnings forecasts continue to be downgraded and key economic indicators (GDP, trade imbalance, unemployment, stock indexes) react adversely, I suspect tariffs to fade in prevalence. As an example, Walmart recently announced that it expects sales growth and profits to slow in 2025, which lowered its stock price by six percent in that morning’s trading.
What can American consumers expect from a trade war, and can they take any actions in the face of it?
Companies, by and large, will continue to try to serve the American consumer, and they will continue to rely on international sources to do it. There should be no disruption in supply attributed to the tariffs, but consumers will pay higher prices for tariff-affected goods, which will result in escalating inflation for those goods.
Consumers would be wise to remain informed and agile. Some products could be affected rather immediately, especially those that are imported for direct use in the U.S. Others could take a little longer to matriculate through the system. Consider, for instance, raw materials imported into the U.S. for manufacturing and construction. Those may not result in immediate pricing increases, but over time, consumers and homebuyers might see that escalation as affected companies look to pass along those higher costs.
It might also mean that American consumers substitute, delay or go without — all actions that Americans don’t eagerly accept.
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CONTACT:
Scott McNutt, business writer/publicist, rmcnutt4@utk.edu
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