Following the announcement of sweeping global tariffs, a historic trade war is imminent. Read more about how your business can remain competitive!
Trade tariffs, especially those put in place during the first Trump administration, have affected the global industrial manufacturing industry. Tariffs on steel, aluminum, and important machine parts have led to higher costs, problems with the supply chain, and pricing challenges for businesses around the world. These import tariffs are not a one-time thing related to the Trump presidency, but an ongoing issue. Let's look at what we learned from the first "Tariff Wars", what might happen with the new trade barriers, and how machine manufacturers can adapt to stay competitive.
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Initially for the first round of tariffs in 2018, many thought these would help U.S. manufacturing, particularly Sections 232 and 301 on steel and aluminum. But what became clear was that the increased cost of raw materials reduced profit margins and led to higher end product prices within the U.S. and for their trading partners, too. For example, major local companies like Ford and General Motors had to raise vehicle prices to offset the higher material costs which in turn reduced consumer demand.
The broader impact was felt by exporters, too. Particularly U.S. agricultural exports lost over $27 billion in 2018 and 2019 with exports to China suffering the biggest losses. This shows that while tariffs are meant to protect domestic industries, they also hurt U.S. exporters, raise costs and invite retaliatory tariffs from trading partners.
The economic impact of tariffs was felt beyond the industries directly targeted. There are different ways to calculate and numbers to discuss, but it is clear that more jobs were lost by downstream effects than were saved in the steel industry, with estimates suggesting a cost of $650,000/job created in this industry. These actions had additional negative downstream effects, such as higher costs and lower productivity in certain highly affected sectors, experiencing an annual $3.4 billion loss in production over the span of 2018 to 2021. This illustrates the interconnectedness of global supply chains and the significant economic harm tariffs can inflict.
The world is facing new trade tensions. The initial impact of the announced tariffs is obvious: higher costs for imported components and raw materials and major supply chain disruptions. This poses a significant challenge for OEMs and machine manufacturers, as materials like steel, aluminum, and electronic components are fundamental to industrial production. The ripple effect of these tariffs will be felt across industries that use these materials, including construction, automotive, and heavy machinery manufacturing. Companies producing heavy machinery like Caterpillar and John Deere, which rely on steel and aluminum, will see production costs go up. Tariffs will also cause price hikes at other places because supply chains for these materials span multiple countries.
“With tariffs now imposed on Canada and Mexico, we expect significant disruption in the region. S&P Global Mobility sees potential for North American production to drop by up 20,000 units per day within a week.” - S&P Global Mobility
In 2024, roughly half of the vehicles sold in America were imported, primarily from Canada, Mexico, South Korea, Japan, and Germany. Furthermore, 60% of the parts in U.S.-manufactured cars are imported. The newly announced 25% tariffs on automotive imports and parts will increase the cost of vehicles and automotive components in the U.S., disrupting vehicle production and sales. The impact of tariffs isn't limited to finished goods. Tariffs will also drive up the prices of essential parts, such as semiconductors and construction materials, for machine manufacturers.
The Kiel Institute's KITE model predicts that announced international trade tariffs will cause economic turmoil in both the EU and the United States, driving inflationary pressures. European exports to the U.S. would experience a sharp decline in the first year with an average reduction of around 15%. The manufacturing sector, particularly the automotive industry, would be the hardest hit, with production potentially falling by as much as 4% alone in Germany.
With Trump's announcement of further global tariffs on all imports on so-called “Liberation Day”, a new phase of escalation has begun. The European Commission as well as other trade partners are already planning to respond strongly against the announced newly trade barriers. This uncertainty creates concerns about prolonged economic instability, as businesses struggle with long-term planning and investment due to the unpredictability of global trade policies. Economic experts agree that these newly announced tariffs will have an even worse impact on all affected economies and will lead to bankruptcies and layoffs in various industries.
The main takeaway from the first trade war was clear: tariffs for Europe, China and other countries lead to higher costs for all parties involved. American manufacturers and their foreign competitors must now once again face the challenge of absorbing these costs or passing them on to consumers to an even greater extent than before. It might be the case that certain sectors will benefit from tariffs, while most others will be negatively impacted.
Machine manufacturers are facing a clear challenge in the new tariff reality: how to maintain competitiveness when raw material costs are rising, and supply chains are becoming more unpredictable.
Diversifying the supply chain is a critical strategy. By sourcing materials from multiple suppliers across different regions, machine manufacturers can minimize the impact of tariffs and prevent bottlenecks in production. This approach is not a short-term fix. It requires significant investment in building relationships with suppliers and adapting to a more complex, global supply network. The same is true for relocating and investing in production facilities within the U.S.
Pricing is another key consideration. Tariffs will inevitably raise input costs, so machine manufacturers need to think strategically about how they adjust their prices. The goal is to increase prices where necessary, but without alienating customers. Market intelligence and AI-driven pricing solutions, like those offered by MARKT-PILOT, are essential tools in achieving this.
The increasing complexity of global trade means that traditional cost-plus pricing strategies are no longer sufficient. Blindly passing on the full burden of tariffs to customers can price business out of the market, especially when competitors are better positioned to absorb some of the costs.
Manufacturers need to gain understanding of which products can sustain higher prices without losing customers. Having a granular view of competitors' price adjustments and current market conditions allows companies to make informed decisions on where and how much to raise prices for parts and products. A dynamic, data-driven approach is the key for staying competitive, passing through tariffs, and protecting margins without pricing yourself out of the market.
The increased cost of raw materials and components will likely result in manufacturers raising the price of new machines to maintain a minimum margin. However, spare parts – usually a business with higher profit margins than the machines themselves – offer an untapped opportunity for price optimization.
Did you know that around 96% of an average spare parts portfolio is mispriced – even before the impact of tariffs? By using AI-powered market intelligence tools, companies can assess their spare parts portfolios, track the actions of their competitors, identify parts that can possibly absorb the tariff increase, and determine which parts require less adjustment to maintain competitiveness. These tools will also identify unique parts that face minimal competition, allowing companies to justify price increases without losing customer loyalty.
This strategic approach enables pricing teams to optimize spare parts pricing and maintain profitability while staying competitive in a volatile market.
In addition to pricing, machine manufacturers could consider the impact of tariffs on their supply chain. For companies still relying on a narrow range of suppliers or specific trade routes, the new tariffs could be a wake-up call.
AI-powered software can provide insights into competitor pricing, lead times, and spare parts availability, which can be valuable when it comes to identifying areas for supply chain improvement. By focusing on these key areas, companies can use this as a starting point to renegotiate with suppliers and diversify sourcing strategies to reduce the risk of being caught off guard by new tariffs.
Price management is a complex task, made even more challenging by new tariffs and uncertainty in international trade. Digitalization and advanced forecasting simulations powered by AI are essential.
Using advanced pricing tools, pricing managers can simulate various scenarios to prepare for potential tariff shifts. By modeling different outcomes and tracking competitor prices in real time, you can develop a contingent pricing strategy and make timely adjustments to defend or even gain market share.
The new wave of tariffs presents a significant challenge for the global economy, but it also offers an opportunity to establish more strategic, automated and data-driven decision-making. There is no easy solution and a lot of uncertainty in the market as we are entering a new era of international trade. Therefore, we are not implying that the increased tariffs won’t have a negative impact on the global economy and international machine manufacturing in specific or that they can completely be managed by pricing optimization. But by using market intelligence tools, optimizing pricing strategies, and diversifying supply chains, machine manufacturers can mitigate the impact of tariffs while strengthening for the future.
And when it comes to passing on the costs of tariffs to customers, transparency is key. It’s crucial to communicate openly about why prices are increasing and how tariffs are affecting your cost structure. At MARKT-PILOT, we provide insights and tools to support you in managing these challenges in an uncertain market environment. Work with data built on over 10,000 online and offline sources and benefit from individual AI-powered and expert-validated price recommendations.
Curious to learn more? Request your personalized demo with one of our experts and discover why a market-based pricing strategy is the right tool to meet these challenges in international trade
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