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Battle of Tariffs: Why Procurement Teams Need to Prepare for Disruption
Apr 10
8 min read
3
51
Index:
1. Introduction
The rising cost of imported goods has emerged as a pivotal challenge for procurement teams worldwide. What was once a secondary concern tied to geopolitical shifts has now become a core issue impacting margins, supplier strategies, and competitiveness. With trade tensions escalating and tariffs on the rise, businesses are being forced to reassess how they source, price, and manage their goods. As tariffs continue to rise, procurement teams must prepare for the disruption they bring to supply chains and cost structures.
This disruption is not a passing storm but a long-term change, with tariffs affecting everything from production costs to supply chain reliability. As trade policies shift, procurement teams must make smarter, more strategic decisions to ensure they maintain profitability and continue to meet customer expectations. In this article, we explore how these developments are impacting global procurement and what strategies businesses can adopt to mitigate these challenges.
2. The Tariff Surge: A Global Procurement Disruption
Tariffs - taxes imposed on imported goods - have disrupted global supply chains, beginning with a series of aggressive tariff measures introduced by the U.S. government, affecting around 90 countries worldwide. The initial wave of tariffs was primarily driven by trade tensions and efforts to address trade imbalances, particularly with major trade partners like China and the European Union (EU). These tariffs have escalated over time, creating widespread economic uncertainty. For instance, U.S. tariffs on Chinese goods continue to strain global supply chains, now reaching 145% following the latest increases. China has responded with matching tariffs of 125% on American products, in addition to restricting exports of critical minerals essential to industries such as automotive and semiconductors. These tariffs intensified the ongoing trade war between the two nations, further escalating tensions. The European Union, while having approved retaliatory tariffs of 25% on €21 billion worth of U.S. goods, has temporarily suspended these measures for 90 days to allow space for diplomatic negotiations. These developments have further intensified global trade tensions, impacting not only the directly involved countries but also contributing to broader economic uncertainty across the world. As reported by recent news sources like El País and HuffPost, these tariff measures have led to heightened trade disputes, with retaliatory actions from China adding further complexity to the global economic landscape. As a result, businesses around the world are facing significant cost increases driven by both direct tariff fees and indirect costs such as logistics, storage, and compliance. For procurement teams, this presents a critical challenge: whether to absorb these rising costs or pass them on to consumers. This decision is key to maintaining competitive advantage in an increasingly volatile marketplace. The economic ripple effects are undeniable, and companies must adopt strategic measures to navigate this challenging environment, including rethinking sourcing strategies, supply chain diversification, and leveraging technological solutions to mitigate these disruptions.
3. Industries Most Affected
While certain industries have been early casualties of increased tariffs, the impact has now rippled through many other sectors.
Here’s a closer look at the most affected industries:
Automotive Industry: The automotive sector has long been at the forefront of the trade war, and recent tariff measures have only intensified the pressure. U.S. tariffs on European automotive exports and key components have forced manufacturers to rethink production strategies. German automakers, for example, are now grappling with rising costs for critical parts such as semiconductors and batteries. This not only delays production schedules but also squeezes profit margins and undermines competitiveness in both domestic and international markets.
Electronics Manufacturing: The electronics sector has similarly been disturbed by tariff increases, especially on imported components. Tariffs on semiconductors, memory chips, and other key electronic parts have caused supply chain disruptions, forcing companies to seek alternative suppliers or relocate production facilities. This surge in costs has led to higher consumer prices for everything from smartphones to household appliances.
Pharmaceutical Industry: Pharmaceutical companies, which heavily depend on imported active pharmaceutical ingredients (APIs) and raw materials, are also reeling from the impact of tariffs. U.S. tariffs on products from China and India have raised production costs, and several European-based companies are now considering relocating production facilities or investing in local manufacturing to avoid higher import fees. This shift comes at a critical time as the pharmaceutical sector faces increased global demand for essential medications.
Construction & Infrastructure: Industries such as construction and infrastructure have been severely impacted by tariffs on imported metals like steel and aluminum. These raw materials are essential for building projects, and the added cost has resulted in increased prices, project delays, and tighter profit margins for construction firms. Reports from Reuters have shown that rising steel prices, partly driven by tariff-induced supply chain disruptions, are contributing to an overall inflationary trend in the construction sector.
Retail & Consumer Goods: Retailers and consumer goods companies are facing unprecedented cost pressures due to tariffs on imported items. Products such as furniture, home appliances, and even toys have become more expensive to source, leading to reduced profit margins. As companies strive to maintain competitive pricing, many are forced to pass these costs on to consumers, risking a loss of market share. Bloomberg have highlighted the impact on retail sectors, emphasizing that increased import costs are causing widespread price hikes and forcing companies to reexamine their supply chain strategies.
Fashion & Textiles: The fashion and textiles industry, which largely relies on imports from Asia, has been hit hard by these tariff measures. Increased tariffs on garments, fabrics, and footwear have compelled many major brands to shift production to alternative low-tariff regions. This strategic move is aimed at preserving profit margins but comes with its own set of challenges, including reestablishing supply chains and ensuring consistent quality. Reuters recently reported that leading fashion houses are actively exploring new sourcing opportunities to counteract the tariff-driven cost increases.
Renewable Energy: Tariffs are also impeding the growth of renewable energy sectors by increasing the costs of imported components like solar panels and battery systems. The heightened prices have delayed several renewable energy projects, as developers struggle to secure affordable supplies amid rising tariffs. This slowdown in the renewable energy industry, not only hinders the global shift toward sustainable energy, but also impacts the long-term cost savings associated with green technologies.
Food & Beverage: Products such as wine, cheese, olive oil, seafood, chocolate, coffee, and rice which are frequently imported from regions involved in trade disputes, have experienced steep price increases. This rise in costs directly affects both producers and consumers, leading to tighter margins for retailers and higher retail prices. These industries are scrambling to adjust their sourcing models, looking for new suppliers or alternative locations for production to mitigate the impact of these tariff hikes. Procurement teams are reassessing their supplier relationships, geographic diversification, and even considering reshoring production to reduce reliance on high-tariff regions.
4. The Strategic Dilemma: Absorb or Pass On?
A key dilemma facing procurement teams is whether to absorb the higher costs associated with tariffs or pass them on to consumers. Absorbing the cost may be beneficial in the short term to maintain customer loyalty and avoid price-sensitive customers from moving to competitors. However, doing so can erode profit margins and lead to unsustainable business practices in the long run.
On the other hand, passing the increased costs onto consumers could lead to customer dissatisfaction, price resistance, and potentially a loss of market share, especially in highly competitive industries. This is a particularly difficult decision for companies in sectors where consumers are highly price-sensitive, such as retail and food services.
To navigate this challenge, procurement teams need to carefully analyze cost structures, monitor customer behavior, and evaluate the pricing elasticity of their products. The ability to maintain a balance between profitability and customer satisfaction will determine the long-term success of a company facing rising tariffs.
5. How AI-Powered Spend Analytics Can Help
In this volatile environment, procurement teams need to be more data-driven and strategic than ever. This is where AI-powered spend analytics solutions, like Sievo come into play. By providing real-time visibility into spending data, these platforms can help procurement leaders make informed decisions about how to handle rising tariffs.
With tools like Sievo, businesses can:
Identify tariff exposure: By tracking where tariffs are having the most significant impact, procurement teams can make informed decisions about where to source materials and components from.
Quantify cost increases: Real-time data allows businesses to see how tariffs are affecting costs across different regions, suppliers, and products.
Simulate sourcing scenarios: Sievo enables procurement teams to simulate “what-if” scenarios, helping them assess the potential impact of different sourcing strategies.
Prioritize savings initiatives: Predictive modeling helps businesses focus on the most effective cost-saving opportunities, improving efficiency and boosting profitability.
Adopting AI-powered spend analytics is essential for procurement teams looking to stay ahead of market disruptions, particularly when dealing with tariff fluctuations and trade policy uncertainty. As these tools enable more strategic decision-making, they empower businesses to build more resilient supply chains and improve cost management.
6. Tactical Solutions for Procurement Leaders
Supplier Diversification: Expanding the supplier base to include countries with favorable tariff rates - such as Mexico, Vietnam, and Eastern European nation - can help reduce exposure to region-specific risks. For example, a recent McKinsey report highlights how diversifying suppliers not only mitigates geopolitical risks but also delivers significant cost savings over time.
Nearshoring & Reshoring: Shifting production closer to key markets minimizes logistical challenges and reduces tariff exposure. Reuters has detailed how companies relocating their production closer to consumer markets are experiencing enhanced flexibility, lower transportation costs, and improved supply chain resilience.
Bulk Purchasing & Forward Buying: Purchasing larger quantities of critical goods before anticipated tariff increases can provide short-term cost savings. However, this strategy requires careful inventory management to balance the risks of excess stock. Holding excess inventory can lead to higher storage costs and difficulties in managing stock levels. Additionally, if consumer demand does not meet expectations, businesses may face difficulties in moving the accumulated stock. It's essential to balance the benefits of securing lower prices against the potential downsides of overstocking.
Contract Renegotiation: Contract renegotiation enables businesses to adapt to tariff-induced cost changes by revisiting supplier agreements to incorporate flexible pricing mechanisms, clear tariff responsibility definitions, and clauses that allow for adjustments in response to regulatory shifts, thereby mitigating financial impacts and maintaining supply chain stability.
By combining these tactical strategies with insights gained from advanced analytics tools, such as AI-powered spend analytics platforms, procurement leaders can proactively manage the challenges posed by rising tariffs. This integrated approach not only helps to mitigate financial risks but also supports long-term competitiveness in an ever-changing global trade landscape.
7. The Path Forward: Adaptability and Intelligence
The procurement landscape is amid a major transformation. With tariffs continuing to rise and trade tensions showing no signs of abating, procurement teams must focus on adaptability and intelligence to thrive. By embracing new technologies and strategic sourcing models, businesses can turn these challenges into opportunities.
AI-powered tools, such as Sievo, combined with strategic shifts in supplier relationships and procurement tactics, will be key in helping organizations adapt to this evolving landscape. Businesses that remain agile, well-informed, and data-driven will be best positioned to survive and prosper in a world where tariffs are an ever-present factor.
To leverage the power of AI and optimize your procurement strategies, take advantage of our Procurement Excellence service, in collaboration with Sievo. Discover how this Procurement Excellence service can help you navigate rising tariffs and enhance your supply chain resilience. Curious about how you can turn your company challenges into success? Download our white paper to learn about our 5-week Spend Analytics project that will help you tackle your procurement challenges. Contact us today to discuss how we can support your business with tailored procurement solutions.
