Strategies in Flux: The C-suite responds to shifting tariff policies

These are difficult times for businesses that import any finished products, parts, or raw materials. On-again, off-again tariffs, pauses, delays, decreases, and increases make business planning extremely challenging. So, how are companies responding?

The Reshoring Institute recently conducted a series of interviews with 18 C-level executives across the country to ask how their businesses are responding now to the Trump tariffs. Some of their answers were as expected, and others were quite surprising.

We interviewed executives from Upstate New York, New York City, Minneapolis, Toronto, Portland, Maine, Los Angeles, San Diego, and Silicon Valley. These executives represented diverse industries, including semiconductors, machining, power generation, consumer electronics, audio equipment, medical devices, printing, fuel cells, and sports equipment.

Capital investment and hiring are frozen

These executives indicated that their capital investment and hiring are mostly frozen until the tariffs and the economic outlook are stabilized. This is bad news for recession watchers and those hoping that investment in U.S. manufacturing would be ignited by the tariffs. It could be months or years before the tariff environment stabilizes, and investments move forward.

Uncertainty in tariffs and geopolitics is creating chaos in global operations, especially in the electronics industry’s imports from China. One executive said that his company was not willing to make a billion-dollar investment in building a new factory in America when everything may change in three and a half years when a new President is elected.

His company will continue to manufacture overseas or in Mexico. Others told us they were planning to move out of China, but the destination countries were still undecided. There are pros and cons to every alternative. Here are some of the aggregated responses:                       

• 94% of the companies are importing finished goods or intermediate goods/spare parts: Nearly every company was importing goods from China. This was a higher percentage than we had expected. Even the companies that told us they were not importing foreign parts were using test equipment and production machines made in China. They were importing from other countries too, including Mexico, Vietnam, Taiwan, and the Philippines.
• Importing companies are mostly passing tariff costs on to customers through higher prices while some are absorbing costs (82% and 74%): In fact, most were planning to do both. A majority of the companies were absorbing some costs from the older 2018 tariffs and passing the rest on to their customers through higher prices. They expected to do the same with the new tariffs. Some are increasing prices to cover all of the tariff costs—and not absorbing any.
• 67% are developing or identifying domestic sources: The majority of the companies are attempting to find domestic sources for parts and raw materials. Several executives mentioned that some parts and materials they need are not made in the U.S., so they have no choice but to import them. Redeveloping suppliers in the U.S., and sourcing here if it’s possible, could take 18 months to 24 months. Some raw materials are simply not found in the U.S.
• 28% are using Foreign Trade Zones to delay tariff payments: A smaller portion of the companies are using “Privileged FTZ Entries” to avoid paying higher duty rates that may be applied in the future. However, this tactic is temporary and requires a build-up of inventory held in the FTZ—which results in tying up working capital. If tariffs are raised during the FTZ hold period, then a privileged entry will be charged at the higher rate. Given the unpredictability of tariffs, this is a risky strategy.
• 78% are seeking alternate supply sources—mostly in the U.S.: More domestic sourcing was a popular idea among the executives we interviewed. Instead of building new factories, most companies are trying hard to find or develop new suppliers in America and depend less on foreign suppliers. If this strategy works, we should see a real boom in domestic supplier manufacturing within 12 months to 18 months. The executives acknowledged that domestic sources are likely to be 50% to 75% more expensive than an Asian supplier, and that the increased cost would have to be passed on to their customers. They were worried about what effect the higher prices would have on customer demand  
• 44% are moving out of China—mostly to India, Mexico, and Vietnam: Nearly half of the executives said they are moving out of China, but they’re looking for other low-cost countries to manufacture products—not the U.S.  These executives are still seeking low-cost manufacturing operations, as has been the case for the last 25 years. Alternatives to China that were often mentioned were Mexico, India, and Vietnam. Mexico was a very popular alternative because of the prospect of bringing goods Made in Mexico into the U.S. tariff-free under USMCA. This, too, may be a risky venture as the USMCA Treaty is up for renegotiation in 2026.
• 22% are redesigning their products to avoid foreign parts: Some executives have given a mandate to their design engineers to redesign products to eliminate the need for foreign parts. Some were skeptical that this could be achieved but thought it was at least worth a try.

Other pressing concerns

Topping the list of concerns is retaliatory tariffs by foreign countries in reaction to the Trump tariffs. The concern is over damage to export markets that will affect companies’ bottom line.

Second was cybersecurity, a constant issue in supply chain management. Every time a shipment is passed from one supply chain or logistics partner to another, risk and vulnerability are introduced.

Concern over sole sourcing of parts and materials is also high on the list, especially after the pandemic, when exposure to disruption in supply chains for sole-sourced materials was extraordinarily high. Many companies are actively moving away from sole-source strategies.

Dealing with worker shortages was also high on the list. With at least some manufacturing coming back to America, persistent worker shortages will continue to be a major problem.

Overall, the executives we interviewed were in a holding pattern until the tariffs and the economy stabilize. Meanwhile, they’re planning alternative strategies for surviving in these turbulent times.

Rosemary Coates is the executive director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She can be reached at [email protected].