Tariff policy is once again at the forefront of economic discussion in the United States. Following President Donald Trump’s announcement of potential increases in tariffs on goods from China, Mexico, and Canada starting in early 2025, U.S.-based companies are understandably seeking clarity on how these plans might impact their operations.
At OMI, as a trusted supplier to many U.S. businesses, we are often asked to share our insights on economic developments like these. While no one can predict precisely how tariff changes will unfold, our analysis provides a grounded perspective on what to expect and how businesses can strategically prepare.
Here’s where we stand regarding potential changes to tariff policy and the rationale behind our position.
What We Predict Under the New Tariff Policy
Based on our analysis, here’s what we expect to unfold regarding tariff changes under Trump’s administration.
1. Tariffs on Goods from China Could Increase by 10%
It’s likely we’ll see moderate tariff hikes of up to 10% on a wide array of Chinese goods. However, claims about imposing sweeping 100% tariff increases feel overly ambitious. Why? Such drastic measures come with significant inflationary risks and consumer pushback. Americans expect affordable goods, and doubling prices would shake the very core of their spending habits. Select items may see steep hikes for symbolism, but there won’t be wide-reaching 100% tariffs across the board.
2. No New Tariffs on Mexico and Canada
There’s been much posturing around imposing new major tariffs on our North American neighbors. Despite these threats, we don’t foresee large-scale changes targeting Mexico or Canada. For context, these countries together export goods to the U.S. valued at more than double what we import from China. Adding steep tariffs here could have disastrous economic consequences for all three nations.
Instead, Trump’s focus will likely be on securing partnerships with Canada and Mexico to deter circumvention of tariffs by China, curb illicit drug movements, and manage undocumented immigration. The leverage of tariff threats may aim to deliver bargaining power rather than material changes to trade policy with these nations.
3. Token High Tariffs on Select Items
Trump successfully utilized symbolic tariffs in his first administration, and we expect more of the same. For example, a handful of items may face sharp tariff increases (up to 100%) as a strategic move to show action. Why? It offers a chance to claim victory in standing up to trade disparities without wreaking havoc on the broader economy.
4. Short-Term vs Long-Term Timing
While President Trump will move to announce changes very quickly after taking office, realistically any new tariffs will face challenges, including legal disputes questioning their legitimacy. These processes can delay implementation and introduce uncertainty into the timeline. For instance, Section 301 of the Trade Act of 1974 has been used in the past but requires evidence-based investigations. Trump previously considered using the International Emergency Economic Powers Act (IEEPA) in his last presidency even though it has never been used in this way. He ultimately decided this wasn’t the path forward. Either way, Congress and the U.S. courts, as seen before, will likely become involved in validating tariffs, prolonging the process.
The Numbers Behind Trade Relations
To understand the stakes, consider the trading relationships between the U.S. and these countries in 2023 (as per U.S. Census Bureau data):
- China
U.S. imports from China totaled $426.9 billion in 2023, a 20.4% decrease from 2022. While still significant, imposing steep and wide-spread tariffs on this volume of trade could inflate consumer prices—an unpopular outcome for American buyers.
- Mexico
Mexico exported $475.2 billion worth of goods to the United States in 2023, up 5.1% from 2022. With this growing economic interdependence, tariffs could introduce major disruptions to industries like automotive, agriculture, and electronics manufacturing.
- Canada
Canadian exports to the U.S. totaled $418.6 billion in 2023, reflecting a 4.3% decrease from 2022. Canada’s close trade ties with the U.S. under the USMCA free trade agreement would make sweeping tariffs difficult to justify both economically and legally.
Broad-based tariff increases across these economies would not only trigger retaliatory actions but also threaten domestic economic stability in the U.S.
Why We Expect Negotiation Over Action
History as a Guide
During Trump’s first term, tariff threats were frequently leveraged as part of larger negotiation strategies. For example, despite bold initial proposals, the promised tariffs on Mexico and Canada were eventually replaced with the U.S.-Mexico-Canada Agreement (USMCA), which prioritized collaboration over division.
This historical precedent indicates that while threats of tariffs get attention, they don’t necessarily translate into long-term policy, especially when weighed against economic risks.
Economic Realities
Imposing 100% tariffs broadly on Chinese products would double costs on items Americans rely on daily—everything from electronics to clothing. Such measures would likely drive significant inflation and face strong backlash from consumers, businesses, and policymakers alike.
Similarly, imposing tariffs on imports from Mexico and Canada—together accounting for more than twice the total value of imports from China—would ripple through U.S. industries, from agriculture to manufacturing, making them less competitive globally.
Incentives for Strategic Cooperation
Instead of outright confrontation, the administration may use tariff threats to seek enhanced cooperation from Mexico and Canada on key issues, such as controlling illicit drug trafficking and curbing unauthorized immigration. These goals align with broader geopolitical strategies but don’t require sweeping economic measures that could dampen growth.
Thus, we expect these negotiations to result in strategic adjustments rather than the imposition of broad tariffs.
Proactive Preparation Pays Off
While we can’t fully predict the future, what we can do is prepare. At OMI, we’ve already taken action to mitigate potential trade disruptions. Through strategic foresight, we executed a bold diversification plan throughout 2024.
Our approach included opening a new manufacturing facility in Mexico, creating a robust supply chain ecosystem to support our North American clients. Why Mexico?
- Low Risk of Tariffs: With regional trade agreements in place and close economic ties to the U.S., Mexico remains a low-risk, high-reward option for manufacturing.
- Affordability: Mexico offers cost-effective production, helping us maintain competitive pricing for our clients and their end customers, even if low-level tariffs eventually take hold.
- Proximity to Market: Manufacturing within North America significantly reduces lead times, avoids supply chain disruptions, and improves customer support compared to traditional Asian manufacturing.
These decisions weren’t made hastily; they were a deliberate effort to build resilience and maintain our commitment to high-quality engineering and manufacturing services. OMI’s American roots mean we also provide U.S.-based technical, sales, and warehousing support, ensuring our clients get the best of both worlds.
Now is the time for businesses to assess their own supply chain strategies. With potential trade changes on the horizon, acting proactively—rather than reactively—can ensure smooth operations and competitive advantage.
What Businesses Should Do Now
Here are a few steps to help your business prepare for potential tariff changes and foster long-term stability in your operations.
- Review Supply Chain Vulnerabilities: Audit your current suppliers and manufacturing locations to understand your exposure to potential tariffs.
- Explore Nearshoring Options: Look into relocating parts of your supply chain closer to your main customer base.
- Plan for Inflationary Risks: Factor in potential cost increases when setting budgets and pricing strategies for 2025. While price hikes are unpopular, they will be necessary if goods are taxed through new tariffs.
- Stay Agile: If tariffs are implemented, the legal challenges that follow could take months to sort out, giving businesses time to adapt. However, flexibility will be key.
At OMI, we’re proud to lead by example. Our investment in North American production is more than a shift in operations; it’s a commitment to ensuring stability for our clients. While tariff rhetoric may cause uncertainty, preparation and diversification remain the best antidotes.
Tariff Policies Bring Challenges—and Opportunities for the Prepared
While heightened tariffs remain a possibility under President Trump, businesses that invest in proactive strategies today can minimize disruptions tomorrow. Whether it’s rethinking your supply chain, exploring nearshoring opportunities, or securing reliable partnerships, there’s no time like the present to strengthen your competitive edge.
As a U.S.-based company ourselves, we at OMI are committed to be a trusted partner to other U.S.-based companies by continually adapting to market realities and providing reliable, efficient engineering and manufacturing solutions. Interested in learning more? Contact us to see how OMI’s robust North American infrastructure can work for your business.
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