As the global manufacturing landscape braces for a second Trump presidency, Original Equipment Manufacturers (OEMs) around the world are facing a period of commercial uncertainty. With proposed tariffs and potential trade wars looming, the need for adaptable mechatronic manufacturing solutions and supply chains has never been more pressing.
So, what are the challenges and opportunities that Trump 2.0 presents for OEMs around the world? And how can they prepare for the potential effects of a new era of ‘America First’ politics?
What do we know about Trump’s manufacturing plans?
Trump is famously unpredictable, but he has been quite consistent in declaring his deep commitment to a protectionist "America First" agenda in manufacturing. With the appointment of arch-Trump loyalist Peter Navarro to the top trade job in his administration, it now seems possible that the most extreme of his threats are more likely to be realised.
What trade policies has Trump actually promised?
Tariffs and trade barriers
A cornerstone of Trump's economic policy during his first term was the implementation of tariffs.
In a second term, he has promised an expansion of this approach:
- A proposed universal 10-20% tariff on all imports.
- Potential tariffs of up to 60% on Chinese goods.
- A suggested 25% tariff on imports from Mexico and Canada.
These measures, aimed at protecting U.S. industries and encouraging reshoring, could trigger retaliation and significantly impact global supply chains. It’s possible it will increase production costs and challenges for many OEMs around the world who rely on frictionless, international manufacturing supply chains.
Further US uncoupling from China
Trump's approach to China is expected to intensify the decoupling efforts initiated during the Biden administration.
While Trump's stance represents a continuation of Biden's policy towards China in many ways, it is likely to be more aggressive and far-reaching:
- Trump has proposed universal baseline tariffs on most imported foreign goods, with potential increases for countries deemed to engage in unfair trading practices (e.g. China).
- He has pledged to "end reliance on China" through various trade barriers, including the possibility of revoking China's most-favoured-nation (MFN) status.
- The Trump administration may push for a four-year plan to phase out Chinese imports of essential goods, including electronics, steel, and pharmaceuticals.
CHIPS for America Act under scrutiny
Trump has expressed dissatisfaction with the U.S. CHIPS Act, preferring tariffs over subsidies to incentivise domestic semiconductor production:
"We put up billions of dollars for rich companies to come in and borrow the money and build chip companies here... that's not the way... You didn't have to put up 10 cents, you could have done it with a series of tariffs." Source: Joe Rogan podcast.
Trump will also likely be pushing countries and companies to further sanction and boycott Chinese tech suppliers as he escalates his war on the Asian tiger.
What are the potential effects of Trump 2.0 on OEMs?
The ripple effects of U.S. tariffs on the wider global supply chain and other country's trading prospects are likely to be significant.
Disruptions to worldwide manufacturing supply chains
Trump's proposed tariffs could severely disrupt global manufacturing supply chains, leading to increased production costs, supply chain reconfigurations, and reduced efficiency for companies all over the world. Key impacts include potential inventory stockpiling, disruptions in cross-border co-operation, and a possible slowdown in innovation due to increased costs and market uncertainties.
Disruption to rare mineral sourcing
An unintended consequence of Trump’s policies may be the further disruption of the flow of raw materials and components vital to electronics manufacturing. Oxford Economics highlights that China's recent embargo on critical minerals like gallium and germanium in response to U.S. export controls will likely ramp up if Trump makes good on his promises.
Wider trade wars and realignments
The prospect of the U.S. adopting a more protectionist stance under Trump could compel other nations to realign their trade priorities. For example, the UK faces a dilemma as it navigates its post-Brexit landscape. Experts suggest that the UK may be forced to choose between strengthening ties with the U.S. or its relationship with the EU, damaging both parties.
New opportunities outside the U.S.
But there may be opportunities emerging from the chaos, too. Trump’s policies may encourage OEMs in America and elsewhere to focus on new markets and outsourcing relationships.
Shift in manufacturing locations
Rather than fully reshoring to the U.S., many companies may seek alternative manufacturing locations with lower production costs and less exposure to U.S. tariffs. As noted by Oxford Economics, firms might look to Southeast Asia or South America as alternative supply bases. This trend is already evident, with North American brands shifting their supply chains to China's neighbours, increasing sourcing from countries like India and Malaysia.
Finding competitive advantage in new global markets
If U.S. manufacturers face higher costs due to tariffs on imported components, EU companies might be able to gain a competitive edge:
- EU manufacturers could potentially offer more competitive prices in global markets compared to their U.S. counterparts.
- This advantage could be particularly significant in sectors where the EU already has a strong presence, such as automotive and pharmaceuticals.
Finding opportunities in market diversification
EU manufacturers may accelerate efforts to expand into new markets, reducing their dependence on the U.S. market:
- The EU is already pursuing trade agreements with various partners, including the recent EU-Mercosur agreement, which could open new opportunities for European exporters.
- Asian markets, particularly Southeast Asian countries, could become more attractive destinations for EU exports.
- This diversification could help EU companies mitigate risks associated with U.S. trade policies and reduce overall market concentration.
Will it all actually happen?
For some, Trump threatens international chaos:
“Trump 2.0 heralds a period of considerable international economic instability, tensions and change. Trade policy will continue to become more politicised and protectionist. Firms will have to spend more resources to comply and navigate diverging policy requirements across jurisdictions, while consumers may pick up the bill in the form of inflation and unemployment.” Source: Robert Basedow, LSE.
Is Trump all bark and no bite?
For others, his threats to world trade are just posturing:
Geoffrey Gertz, a senior fellow at the Center for a New American Security (CNAS), suggests that Trump's tariff threats may be more of a negotiating tactic than a serious policy proposal. Gertz states, "My sense is here it's more the idea of using tariffs as a negotiation leverage.”
But whether he means any of it or not, one thing is for certain. Trump is capricious, unpredictable and now unshackled from the advisors of his previous administration who were more wedded to the ‘rules based’ order of international trading.
How do OEMs prepare for 4 years of uncertainty in their sector?
In this environment, anything could happen - for example, Trump demanding the return of the Panama Canal to US control! And as this article in Manufacturing Today points out, to weather the storm of potential trade wars and tariffs:
“For many manufacturers, the path forward will require a careful balance of cost control, supply chain optimisation, and innovation.”
Strategies for OEMs facing an uncertain future
- Diversify supply chains: Reduce reliance on any single geography to minimise exposure to geopolitical tensions.
- Invest in agility: Develop flexible manufacturing capabilities to quickly adapt to changing market demands or regulatory requirements.
- Find new strategic partnerships: Collaborate with EMS suppliers experienced in navigating complex, high-tech production transitions across different regions.
- Regulatory vigilance: Stay informed about evolving trade policies and their potential impacts on your specific industry and supply chain.
OEMs should be looking for supply chain partners who can help them extend their reach, conquer new markets, optimise costs and pivot quickly - whenever the need arises.