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As President-elect Donald Trump prepares for his second term, industrial and materials companies will face significant challenges and opportunities stemming from his aggressive trade policies. Boards must anticipate potential changes to tariffs and trade strategies and plan accordingly to navigate these shifts.
Key Takeaways:
- Supply chain agility, which was pushed on industrial companies during Trump’s first term and amplified during the global COVID pandemic, will help offset economic losses and can help embed Sustainability, supply chain traceability, and ESG factors
- Boards should recall the trade and tariff landscape and achievements during the first Trump Administration
- Boards can expect impacted global trade and FDI flows and inflationary pressures very early on in the Trump 2.0 administration as he implements tariffs and changes the U.S.’s trade policies
- Board directors should plan to revisit assumptions on input costs, variability in demand factors, and a recurring need for reassessment of business strategy and operational planning
What were the Trade and Tariff landscape and achievements during the first Trump Administration?
During President Trump’s first term (2017–2021), his administration implemented a series of tariffs, primarily targeting China, which had a significant impact on industries, global supply chains, and U.S. trade relationships.
Principal tariffs and effects:
- China tariffs. The administration imposed 25% tariffs on $50 billion of Chinese imports, later escalating to 25% on an additional $200 billion worth of goods, impacting key industrial sectors like machinery, electronics, and chemicals
- Sector-specific tariffs. Tariffs were also placed on goods like washing machines, solar panels, and certain steel and aluminum products, aiming to support domestic production
- Supply chain disruptions. These tariffs led to higher costs for downstream industries, such as automotive and construction, which depend on steel and aluminum. U.S. steel prices rose significantly above global levels, putting U.S. manufacturers at a disadvantage in some cases
- Enhanced supply chain agility. Trump’s push on tariffs, along with the global pandemic, caused leading industrial and mining companies to improve their agility – their ability to quickly adjust their operations, production, and inventory management to respond to the changing market demands and regulatory conditions, material shortages, consumer preferences
While some industries, like domestic steel and aluminum, benefited from the tariffs, the broader economic effects were mixed. The tariffs provided temporary relief to certain sectors but also raised costs, reducing U.S. competitiveness in others.
Unintended Consequences:
- Increased costs for manufacturers and consumers. Tariffs raised the cost of raw materials like steel and aluminum, leading to higher prices for manufactured goods and, ultimately, American consumers. The Federal Reserve found that U.S. manufacturers ended up facing higher costs for raw materials they imported, as well as from retaliatory tariffs from other nations
- Job losses in some sectors. While tariffs helped domestic producers, they also led to job losses in sectors reliant on these materials, such as automotive and construction. According to the Tax Foundation, tariffs contributed to job displacement across these industries
- Escalating trade tensions: Retaliatory tariffs from countries like China, the EU, and Canada impacted U.S. agricultural exports, including soybeans and pork, harming farmers despite government subsidies
What can we expect from a Trump 2.0 administration for tariffs and trade policies?
Should President Trump’s policies continue in a second term, boards should prepare for a more aggressive trade stance with expanded tariffs and stricter enforcement measures. Expected developments include:
- Universal Tariff. Trump has proposed a blanket 10% tariff on all imports, aimed at boosting domestic manufacturing and reducing reliance on foreign goods. This would mark a significant escalation of protectionist policies compared to his first term
- Punitive Tariffs on China. There is also a plan to impose tariffs as high as 60% on Chinese imports, designed to decouple U.S. supply chains from China and address ongoing trade and geopolitical concerns. However, these measures could prompt severe retaliation from China, especially in sectors like agriculture and technology
- Strained relationships with allies. Trump’s administration could extend tariffs to traditional allies, such as Canada and the EU, similar to the steel and aluminum tariffs imposed in his first term under national security justifications. This could exacerbate trade tensions and further strain international relations
- Supply chain shifts. These policies are expected to accelerate trends like the “China+1” strategy, where companies diversify supply chains away from China to mitigate risks, though such diversification often comes with higher costs and logistical challenges
- Increased enforcement. The administration may intensify enforcement of trade policies, such as the Uyghur Forced Labor Prevention Act, which would increase scrutiny of imports and create additional compliance complexities for global supply chains
These policies will likely lead to higher costs for both businesses and consumers, further destabilizing global trade relations. However, certain domestic industries may benefit from reduced foreign competition and government incentives designed to support reshoring efforts.
What should board of directors plan for in the new administration?
To navigate a potential Trump 2.0 administration, industrial and materials company boards should consider the following strategies:
- Assess supply chain risks. Evaluate exposure to imports, especially from China, and explore diversifying suppliers or relocating production to tariff-exempt regions (e.g., Mexico and Canada under USMCA). Adopting a “China+1” strategy should be a top priority
- Engage in pre-competitive advocacy. Work with industry groups and trade associations to advocate for policy changes or exclusions for critical materials that may be disproportionately impacted by tariffs
- Monitor pricing strategies. Assess the ability to pass on increased costs to customers without sacrificing market share. Price elasticity will be a key factor in maintaining competitiveness
- Optimize operations and agility. Invest in lean manufacturing processes, automation, and other operational efficiencies to absorb rising material costs and reduce dependency on tariff-affected products
- Ensure supply chain traceability. Use technology to ensure compliance with evolving trade laws and to track materials through the supply chain, minimizing risks associated with forced labor or other compliance issues
- Develop geopolitical scenarios. Incorporate trade war risks and potential tariff escalations into enterprise risk management frameworks, ensuring boards are prepared for volatile international trade dynamics
- Strengthen resilience. Explore nearshoring and dual-sourcing strategies to mitigate geopolitical risks and create more resilient supply chains that can withstand disruptions
- Evaluate U.S. investments. Identify opportunities to expand U.S.-based manufacturing facilities to take advantage of government incentives for reshoring critical industries.
- Leverage government incentives. Actively engage with government agencies to secure subsidies or tax breaks aimed at reshoring manufacturing and bolstering domestic production capabilities.
- Invest in workforce development. Focus on upskilling the workforce to adopt new manufacturing technologies, including those aligned with sustainability goals, ensuring long-term competitiveness.
By proactively addressing these areas, boards can position their companies to not only mitigate risks but also capitalize on opportunities arising from the evolving trade policies under a Trump 2.0 administration.
Additional Telesto Resources:
Adapting to new trade realities: The impact of USMCA on CPG company board’s priorities
- How CSOs can navigate the “Gray” in CSRD implementation
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- Prism, our ESG benchmarking tool, helps your organization to rapidly strengthen its sustainability, climate, and ESG performance and disclosures through in-depth benchmarking of industry peers and identification of gaps and areas of distinction.
