US-Imposed Tariffs on Imports
On February 1, 2025, US President Donald Trump announced tariffs on all imports from Mexico, Canada, and China. Though later paused as Mexico and Canada agreed to create plans to keep illegal immigrants and drugs from crossing the border, the threat of tariffs spells out significant changes for companies that import to the US.
The tech sector is set to be heavily impacted since consumer electronics are the largest category of Chinese exports to the US. Americans may also soon be paying more for cars and household items such as clothing, furniture, and cookware, which are all common imports.
Companies looking to avoid paying tariffs are now shifting operations. Some will reshore in the US or continue to manufacture offshore but in a different region. Others might absorb costs in the short term, hoping it will pay off in the long term.
Challenges for Companies Manufacturing Outside the US
The biggest challenge when tariffs are introduced is higher costs. This incentivizes domestic manufacturing, which would provide a boost to local economies. Reshoring offers security because there will never be import taxes on domestic goods. Businesses that do not want to find a new manufacturing site but do want to avoid tariffs can reroute shipments, though that can still raise the prices of end products due to additional costs in logistics and transportation. Small companies are the most affected by tariffs because they have smaller profit margins, and shifting operations, especially domestically, is expensive.
Supply Chain Disruptions
A company may manufacture in the US but source components from abroad. This can lead to supply chain disruptions since it will cost more for American manufacturers to get components or create delays while a domestic supplier is found.
Along with the tariffs, President Trump also announced the end of the de minimis tax rule, which exempted shipments with a retail value under $800 from US import taxes, for packages from China and Hong Kong. This subjects small enterprises and companies that shipped direct from China to American consumers, like fast-fashion brand Shein, to import taxes. The new guidance also creates longer shipping times. Under de minimis, US Customs and Border Control had the power to inspect packages for any reason. Now, all packages are checked, which creates a longer time to destination.
In early February, the US Postal Service suspended shipments from China. Although the stoppage ended 12 hours later, companies may be wary of future suspensions that could delay shipments.
For some, keeping operations the same makes the most sense, but running a cost analysis still takes time and money. Even so, companies must keep systems adaptable so that they can quickly adjust to future operational risks brought on by geopolitics.
How Companies are Adapting
As discussed, companies are moving operations or rerouting supply chains to avoid tariffs. Shein is refocusing operations in Vietnam, which has not been subjected to President Trump’s tariffs. Restructuring supply chains can involve broadening networks to include suppliers in their own country, free trade regions, or countries with lower tariffs than Mexico, Canada, and China.
Automation and AI
One of the primary reasons why American companies offshored in the first place was lower labor costs abroad. However, with automation, repetitive tasks are done by machines, which also compensates for labor shortages.
AI has revolutionized planning and operations management. Predictive AI has been used to optimize processes and detect potential disruptions. In these situations, AI creates plans and implements them without delay. These same capabilities can be applied to tariffs. AI can provide solutions based on real-time information on new policies and knowledge of company operations.
Benefits of Shifting to US-Based Manufacturing
Currently, the most significant benefit of shifting to US-based manufacturing is the lack of or potential for tariffs. Companies that are already sourcing from and manufacturing in the US are at an advantage because they are not rerouting supply chains or moving operations. These companies are also not facing delays caused by new international shipping regulations.
However, there have been benefits to reshoring since before the announcement of tariffs. Companies that supply and manufacture in the US have lower shipping and transport costs and greater supply chain control. Additionally, everything they produce is subject to the same regulations. Strong regulations help ensure that a product will be safe and functional, protecting consumers and businesses.
Government Incentives and Grants for US Manufacturing
Manufacturers in the US earn billions of dollars per year in incentives and grants. The Advanced Manufacturing Investment Credit gives semiconductor manufacturers 25% of their qualified investment for the taxable year. Many other incentives and grants exist throughout the country from the federal, state, and local levels of government.
Alternatives to US Manufacturing
Despite the long-term benefits of reshoring, there are still many viable offshore manufacturing options. Guatemala, which has free trade with the US, has lower labor and production costs. While not having free trade, the Philippines is categorized by the US government as a most favored nation, with an average tariff of 5.5% for non-agricultural products exported to the US. The Philippines is also home to Pivot International’s largest manufacturing facility, Pivot-Hawks Manila. This FDA-registered facility has mirrored SMT lines with one of our US-based facilities, EDM, so that projects can be easily transferred between sites if needed.
The Future of US Manufacturing
Ultimately, the proposed tariffs on Mexico, Canada, and China have led companies to rethink their manufacturing and supply chain strategies. Some are reshoring to the US to avoid import taxes, while others are shifting operations to countries with lower tariffs or free trade agreements. Businesses dependent on imports face higher costs, supply chain disruptions, and logistical challenges. Automation and AI are playing a growing role in offsetting labor expenses and improving efficiency, making it easier for companies to manufacture in the US than in the past. Companies must remain flexible, continuously assessing risks and opportunities in an evolving trade environment. Whether through domestic expansion, regional diversification, or AI-driven solutions, businesses that adapt quickly will be best positioned to navigate the uncertainties brought on by new trade policies.
Pivot International has five US-based manufacturing facilities specializing in PCB, surface mount electric, and industrial controls manufacturing. Pivot-Hawks Manila offers 78,500 square feet of manufacturing space in Southeast Asia, providing a good alternative to Chinese manufacturing while staying in the same region. Our global supply chain team, headquartered in Kansas City, can work with you to find components domestically or internationally. Contact us today to learn more about our capabilities.
