President Trump promised to impose tariffs of 25 percent on all imports from Canada and Mexico, and an additional 10 percent on all imports from China when he took office. Over the last couple of weeks these measures been used as both bargaining chips and threats, but no guarantees have been provided to U.S. manufacturing.
The steel and metal industry in particular provides a worrying case in point. Around 60 percent of America’s imported aluminum, and one-quarter of its imported steel comes from Canada, while large volumes of steel are also imported from Mexico. So, should the tariffs hit, the price of steel for American manufacturers could increase by 15-20 percent (Citigroup). The Aluminum Association has gone so far as to confirm that, while they welcome policies tackling “unfair” international trade, exemptions for Canadian aluminum were “vitally important,” due to U.S. dependence on Canadian aluminum.
The “America First Trade Policy” memorandum of January 20 specifies the objective of strengthening existing duties applied to steel and aluminum goods under Section 232 of the Trade Expansion Act of 1962, and examining additional 232 actions. Another piece of legislation that the tariffs could come to loggerheads with is the 2020 US-Mexico-Canada Agreement (USMCA) which substituted the North America Free Trade Agreement (NAFTA).
The same memorandum therefore requires that: “The United States Trade Representative shall commence the public consultation process set out in section 4611(b) of title 19, United States Code, with respect to the United States-Mexico-Canada Agreement (USMCA) in preparation for the July 2026 review of the USMCA.”
Energy Transition Industries
Increases in prices for U.S. manufacturers in emerging energy transition industries, including battery production and defense, will be an inevitable consequence of the proposed tariffs. This is partially due to the reliance of battery makers on nickel, which is only found in one mine in the U.S. (the Eagle Mine, in western Marquette County of Michigan’s Upper Peninsula). Canada supplies the U.S. with half of the nickel it requires, so tariffs on Canada could hit EV battery makers, and, as a knock-on effect, the EV automotive sector, hard.
Procurement teams have most likely been stockpiling as much as possible in the interim, but this is not a sustainable solution. They should be exploring alternative suppliers. One nickel exporting country they could turn to is Indonesia, where, however, nickel production is dominated by China, putting manufacturers at risk of even higher tariffs.
Raising prices on raw materials could also make the vehicle-making industry less competitive and raise prices. Mexico and Canada currently provide more than half of the pickup trucks sold by General Motors on American soil. Similarly, the car parts market is heavily reliant on Mexico and Canada. GlobalData reports that GM is expected to import more than 750,000 vehicles from Canada or Mexico, but tariffs would also damage other manufacturers with production facilities in Mexico and Canada, such as Stellantis and Ford. Knock-on effects on the consumer will be significant, and may drive up inflation.
Higher tariffs will impact the profitability of original equipment manufacturers at a time when revenue capacity is already under pressure. For example, while the Mercedes subsidiary AMG mainly has EU production facilities, which may help escape production tariffs, neither Porsche nor Audi are produced in the U.S. This could lead to a greater proportion of production being shifted to the U.S., as hoped by the new President, whose pledge to “take other countries’ jobs” is specifically targeted at favoring the local manufacturing sector. Whether producers embrace this costly and lengthy transition, and consumers accept higher priced goods, is yet to be seen.
While the 2020 USMCA already introduced the requirement that 75 percent of all parts used in auto manufacturing come from North American companies, the potential impacts of a 25 percent tariff could prove devastating to a sector already fighting for its survival. These tariffs, combined with an executive order to end EV subsidies, could hit the automotive industry extremely hard.
The Battery Sector
The EV sector faces an additional challenge to an end of subsidies, posed by the potential effect of tariffs on raw materials such as graphite. In fact, graphite is necessary for the production of lithium-ion batteries which in turn are critical to the EV vehicle market. Currently, however, this material is sourced mainly from China, which faces potential tariff hikes.
Tariffs on steel will also affect the wider energy transition market by raising costs for components used to build solar farms, geothermal plants, nuclear facilities and transmission lines. Long extraction times and higher costs for copper, lithium and cobalt used for batteries, tellurium in solar panels, and neodymium used in wind power generation may dampen the appetite for green energy among businesses and consumers alike.[9]
It is therefore imperative that businesses affected by tariffs, and especially those on steel and metals, leverage technology-driven solutions to help them lower the impact of price hikes. They must be positioned to rapidly and cost-effectively find alternative sources for parts, components and raw materials and draw up mutually beneficial agreements with a broad and diversified range of suppliers.
Businesses choosing to relocate production will need to reconfigure their supply chains in response to changing trade dynamics, but every business will need to tackle the inflationary pressures that tariffs are likely to trigger. This can be achieved through tighter control of costs by automating purchase orders, implementing approval workflows, and providing spend visibility.
Similarly, all manufacturers will have to ensure that their procurement systems are able to accurately and transparently monitor changes within their supply chain, regardless of where they source from, once existing stockpiles are depleted. More specifically, businesses will need to ensure that they leverage all sources of information available to help them improve supply chain visibility.
Whether this means rapidly pivoting to different markets to benefit from lower tariffs, or striking more efficient deals with local producers, a transparent view of the supply chain is key to staying flexible and competitive. Most companies still struggle to extend visibility beyond Tier 1 suppliers, leaving them exposed to potential bottlenecks or noncompliance among Tier 2 and Tier 3 suppliers.
AI-driven intelligence can help businesses achieve this level of insight-based, predictive analysis while also handling huge amounts of supplier and market data in real-time to help mitigate risks, optimize costs, improve collaboration with partners and meet long-term strategic goals.
Supply chain management technology can help manufacturers quickly adapt their supply chains, control costs, ensure compliance, and build resilience, ultimately maximizing the value of these policy changes. Supplier relationship management will therefore play an increasingly important role in helping businesses stay flexible and competitive in a volatile environment where tariffs are used as pollical bargaining chips.
[1] The Economist, December 3rd 2024, How Painful will Trump Tariffs be for American Businesses?, https://www.economist.com/business/2024/12/03/how-painful-will-trumps-tariffs-be-for-american-businesses
[2] Ibid.
[3] Standard & Poors December 5th 2024, Major Copper Discoveries, https://www.spglobal.com/marketintelligence/en/news-insights/blog/major-copper-discoveries
[4] Ibid.
[5] Whitehouse.gov, Presidential Actions, America First Trade Policy, 20th January 2025, https://www.whitehouse.gov/presidential-actions/2025/01/america-first-trade-policy/
[6] Ibid.
[7] The Economist, December 3rd 2024, How Painful will Trump Tariffs be for American Businesses?, https://www.economist.com/business/2024/12/03/how-painful-will-trumps-tariffs-be-for-american-businesses
[8] Reuters, November 15th 2024, Exclusive: Trump‘s transition team aims to kill Biden EV tax credit, https://www.reuters.com/business/autos-transportation/trumps-transition-team-aims-kill-biden-ev-tax-credit-2024-11-14/
[9] Yahoo Finance, 12.29.2023, World’s Largest Lithium Reserve Discovered Beneath California’s Salton Sea, https://finance.yahoo.com/news/worlds-largest-lithium-discovered-beneath-230000787.html; Science Alert, 10.25.2024A Giant Hidden Source of Lithium Was Just Discovered in Arkansas, https://www.sciencealert.com/a-giant-hidden-source-of-lithium-was-just-discovered-in-arkansas
