It was my intention to write another blog about the tariffs last week yet the constant changes to US tariff policy meant that I had to go and rewrite blog again and again. The topics continued to vary from the lessons of the Smoot-Hawley tariffs of 1930 to the long-term implications of the tariff efforts. I mentioned many of these in my blog on Liberation Day from April 4th, 2025. We will still cover those topics. Understanding the history of tariffs in the United States and globally is important as we navigate our way through this difficult new time.
Yet… that’s not what we will discuss today. Instead, we will focus on the immediate concerns, i.e., what should you and your company do? In the long term, understanding tariffs so we can restructure our operations is an important consideration, but the current situation demands immediate action. This blog will be dedicated to what can be done now.
Questions and Answers
Nearly every single client and new lead comes to us and asks “What do I do about tariffs? How can I reshore or move to a new location? When will this situation stabilize?” The short answers to each of these questions are:
- You find ways to mitigate their impact by lowering costs with your current manufacturing, intelligently relocating or reshoring.
- It depends on what you are trying to accomplish.
- It will stabilize in the long run but in the long run we are all dead (as John Maynard Keynes so eloquently put it) so let’s figure out what to do now.
Hard Facts about Costs
The first aspect of tariffs that any company should understand about tariffs is that there is almost no situation that will result in reduced costs than the previous situation. Costs may eventually decrease; however, the short-term costs will be higher. Let’s take reshoring to the US. If you are a smaller company, you can reshore to a highly efficient American supplier that produces excellent work and delivers on-time. Unless it is a highly automated process in the right industry, those products are almost certainly going to be more expensive than the current products. Moving manufacturing to a new country may eventually lead to the same or lower prices yet there are still the costs and downtime associated with moving and the high likelihood that some of the parts will still be produced in China.
Notice that there are almost no situations where the result will reduce costs. It is still possible that a new manufacturing location in a lower cost country will result in lower cost products and that will be a better situation for all parties involved. That is not the normal case. Companies should hope for the best and be prepared for the worse.
Where Do You See Your Company?
The biggest question that you need to ask yourself is how you want your company to operate after making the changes required by tariffs. Recently, I spoke with the owner of a niche personal medical products company that wanted to move its manufacturing out of China. He did not want to own the manufacturing. He saw his company as primarily as a marketing and design company and not a manufacturer. A C-suite individual from a different company asked how they could start producing their products again in North America rather than its network of manufacturers in China. It is also possible to partner with your current manufacturer in a new location (like Vietnam or Mexico), find a new 3rd party supplier, or combination of these methods.
Any of these solutions are potentially viable. It is also not necessary to know the best choice for your business at this exact moment. Many companies were caught by surprised at the harshness and instability of the current tariff regimes. Determining the best course of action that is aligned with your business goals should be your first priority.
Our advice is to breathe and assess the situation either by yourself or with the assistance of the 3rd party before rushing to action. This would take the form of a feasibility study. The study will look at the current state of operations and plan out various options on how to go forward including pricing, costs, set up structure, and time.
Feasibility Study
The level of depth can vary from a high-level version that looks at pricing across regions to more in-depth studies that will plan out various scenarios in detail to get a full picture of the various options. The feasibility study can take the form that it needs to better understand the option for any particular operation.
For example, MTG has a client that wanted to compare multiple manufacturing locations across the world including Europe, East Asia, and South America. The feasibility focused primarily on the costs associated with each location and the availability of the necessary raw materials for its products.
For other companies, the high-level analysis is just the start. After a location is decided, the company will deduct a feasibility to determine how best to organize its operations in the new location and which components to produce themselves and which components to buy from a third party. The analysis requires gathering quotes from suppliers and comparing those with the purchase price of equipment and the operational costs.
The high degree of uncertainty and risk right now requires careful consideration of the available options and planning. It may seem counterintuitive that during times of tightening belt and rapid change to spend the time and energy necessary to deliberate on a path forward rather than moving quickly. While the price of delays can be high, it is not nearly as high as making a quick and foolish decision that needs to be reversed. Stay calm and plan.
What can MTG do to help you improve your operations?
