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?
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.
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:
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.
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 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.
The ripple effects of U.S. tariffs on the wider global supply chain and other country's trading prospects are likely to be significant.
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.
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.
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.
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.
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.
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 may accelerate efforts to expand into new markets, reducing their dependence on the U.S. market:
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.
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.
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.”
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.