Trump re-election signals need for businesses to prepare for impending global trade shifts

In brief

What happened?

The November 5 election results have positioned former President Donald J. Trump to become the 47th President of the United States. Republicans have gained a 53 to 47 seat majority in the Senate, pending potential recounts in two races, and are projected to retain a slim majority in the House. 

Why is it relevant?

President-elect Trump has proposed substantial tariffs aimed at reshaping US trade relations and encouraging domestic manufacturing. His proposals include a general 10% to 20% tariff on all imports, with a potential 60+% tariff specifically targeting Chinese origin imports. Additionally, Trump has proposed significant tariffs of 100% to 200% on vehicles manufactured in Mexico, and as his campaign concluded he proposed a broad 25% tariff on all Mexico-origin goods coming into the United States. Each of these proposed measures could have a major impact on companies reliant on Mexican Maquiladora operations.  

Observation: Tariff impact will be driven by sourcing and manufacturing locations and may drive cost increases across supply chains. President-elect Trump’s tax proposals, which include lowering corporate tax rates to encourage domestic production, will also need to be considered. While the president can impose tariffs unilaterally in some cases, Congressional action may be required for certain of his tariff proposals and ultimately for revenue to be counted toward offsetting costs in a tax reform bill. Consequently, Republican control of the White House and Congress and the legislative environment could significantly affect these proposals. 

Action to consider:

The anticipated trade landscape of 2025 will likely involve substantial disruption and uncertainty. To navigate this environment, companies should start by conducting a modeling exercise to understand their tariff impact. Companies should also assess production and sourcing strategies, integrate customs and tax planning, and monitor potential retaliatory actions. A modeling exercise is particularly relevant for companies that are reliant on foreign-sourced materials or trade structures like the Maquiladora program. With recent tariff changes in Mexico and changes to Maquiladora rules, companies may risk unnecessarily overpaying tariffs into the United States-Mexico-Canada Agreement (USMCA) territory. Additionally, unifying customs and tax strategies can help businesses manage financial impacts across various tariff scenarios and build resilience into supply chains.