With the U.S. imposing new tariffs on key trade partners, including a 20% tariff on Chinese  imports and increased duties on goods from Mexico, Canada, and the European Union,  businesses are facing complex supply chain decisions. We spoke with Dr. Madhav Durbha,  Group Vice President of Manufacturing Industry Strategy at RELEX Solutions, about how  companies are responding in both the short and long term.

Read also: Charting a Course Through the Tariff Blitz, Shifting Trade Policies, and Supply Chain Disruptions

1. With the U.S. implementing a 20% tariff on Chinese imports (on top of an existing  10%) while trade policies with Mexico and Canada remain uncertain, how are  businesses adjusting their supply chain strategies in the immediate term? 

Companies are taking a multi-pronged approach to mitigate risk. In the short term, many  are stockpiling inventory – particularly in industries like household goods where  perishability is not a major concern – allowing them to buy time while they assess long term strategies. 

For industries with high exposure to Chinese imports, such as electronics and  pharmaceuticals, businesses are running extensive scenario planning to model cost  impacts and potential supply chain shifts. Several companies are accelerating their “China  plus one” strategy, further diversifying sourcing to countries like Vietnam, India, and  Mexico. 

In contrast, sectors like fresh produce face unique challenges. Items such as avocados,  which are heavily sourced from Mexico, have not many viable alternative due to geographic  and environmental constraints. If the 25% tariff on some imports from Mexico continues,  consumer prices for these goods will likely rise.

2. In sectors like electronics, pharmaceuticals, and packaged goods, what impact do  you anticipate from the 20% tariff on Chinese imports, and how might this affect  consumer prices? 

The impact varies by sector, but across the board, higher tariffs mean higher costs—either  absorbed by companies and/or passed on to consumers.

Electronics: While companies like Apple have already started shifting production to  Vietnam and India, China remains a key supplier. The new tariff could result in higher  prices for smartphones, laptops, and accessories or lead to product shortages if  companies delay shipments to reassess sourcing and pricing strategies. 

Pharmaceuticals: The U.S. depends on China for key starting materials, active  pharmaceutical ingredients (APIs), and finished drugs critical for everyday medications. A  tariff increase could lead to higher drug costs and potential supply chain disruptions, with  ripple effects throughout the healthcare system. 

Packaged Goods: Manufacturers of household products and packaged foods are  stockpiling inventory to delay the impact, but once reserves deplete, price increases will  be inevitable, contributing to overall inflationary pressure.

3. Given the ongoing tariffs of 25% on some imports from Mexico and 10% on energy  products from Canada, what strategies are they considering if tariffs are reinstated? 

Many companies are treating the current trade environment as an impetus to act,  increasing imports from Mexico and Canada while they can. This is especially critical for  automotive and fresh food industries, which rely heavily on Mexico-based production. 

To prepare for potential tariff reinstatement, businesses are exploring three main  strategies: 

Contingency Planning: Companies are modeling different tariff scenarios and adjusting  their sourcing and logistics strategies accordingly. 

Reshoring & Automation: Some businesses are evaluating how to shift production to the  U.S., reducing their reliance on overseas suppliers while also investing in warehouse and  factory automation to offset higher domestic labor costs. 

Optimizing Product Mix: Some manufacturers are prioritizing high-margin products and  premiumization to absorb tariff-related costs more effectively.

4. The ‘China plus one’ strategy has been a topic of discussion. How might the current  tariff situation influence businesses to diversify their sourcing, and which regions are  emerging as viable alternatives?

The “China plus one” strategy began during the first round of tariffs in 2018, and the latest  tariff changes will likely accelerate this shift. 

Vietnam, Cambodia, and India have already seen significant growth in manufacturing,  especially in textiles, apparel, and electronics. Mexico has also benefited from supply  chain diversification, particularly in automotive and industrial manufacturing, due to its  proximity to the U.S. and trade benefits under the USMCA agreement. 

However, not all industries have the flexibility to relocate production quickly.  Pharmaceuticals and semiconductors, for example, require highly specialized  manufacturing processes and regulatory approvals, making them more vulnerable to cost  increases in the near term.

5. Beyond immediate pricing concerns, what longer-term effects could these tariffs  have on supply chain resilience and overall economic stability in North America? 

The longer-term impact extends beyond pricing and sourcing decisions — it will reshape  supply chain strategies for years to come. 

Increased reshoring: More companies where practical are expected to shift production to  the USA, reducing exposure to global trade uncertainties. While this improves supply chain  resilience, it also raises labor and production costs, which may sustain higher consumer  prices over time. 

Inflationary Pressures: Companies facing increased costs will either absorb margin  pressures or pass costs to consumers or a combination of both, adding to inflation  concerns. 

Retaliatory Tariffs: With additional retaliatory tariffs, U.S. exports could suffer, particularly  in agriculture and high-tech industries. 

More Investment in Automation: To counter higher costs, companies are likely to  increase investments in AI and automation, reducing reliance on labor. 

Ultimately, while these tariffs create short-term disruptions, they may drive long-term  innovation and resilience, pushing businesses to rethink traditional supply chain models  and embrace regionalization and automation as core strategies. Progressive companies  can turn adversity into opportunity.