In our weekly management meeting, MES Director of Sales Mike Dent asked this: “What are we doing to mitigate tariffs?”
My answer? Nothing—and everything.
Back in October when President Donald Trump was in a close race with then Vice-President Kamala Harris, we embarked on an extensive search for suppliers in India, Malaysia and Mexico. We knew then (and now) that MES sourcing, sales, and operations must prepare for “everything.”
1. Remaining Tariffs. Customer tariffs are down by 70%+ across the entire spend over last six years; however, there’s still 30% remain. Already, we have planned how we’ll resource many of these components.
2. Sourcing Suppliers. With past tariffs, many hard-to-find process suppliers were not moved. As a result, some companies have been paying tariffs on these processes for past six years. To help our customers, we vowed to ready suppliers for potential large-project kickoffs in these hard-to-find processes:
• Die-castings with press requirements of more than 600T up to 2000T
• Powder coating
• Gravity cast
• Certain grades of forgings
• Copper components
We’ve already engaged sourcing and suppliers, obtaining competitive pricing and readying tooling plans so when our customers are ready, we are, too. We have many quotes available and can kick off quickly based on customer approvals for Design and Tooling.
3. Tariff Threats. If China tariffs increase by more than 10% (for a total of 35%), we expect customers to quickly pull the trigger to resource most of their China-sourced business. President Trump imposed 10% and is talking about increasing the tariffs to 25%.
Based on our estimates and his pre-election promise to damage China’s economy, we believe he will increase tariffs to 60%. Chinese resiliency hasn’t been what we expected so only time will tell if further tariffs cause more pain in the U.S. or in China.
Regardless, in September 2018 with the first round of tariffs, we kicked off 37 new parts within first month. This action enabled us to mitigate tariffs and successfully reduce our exposure by almost 40% in the very first year. If China tariffs continue, we’re well prepared for customer kickoffs by April or May.
4. Impact on Aluminum and Steel. There’s a real possibility of a 25% import tariff on aluminum and steel as early as March 12, 2025.
This could have a crippling effect on:
• North American Exports: Canada exports 65% of U.S. aluminum imports ($9.5 billion worth) and Mexico 15% ($685 million). With 25% of the market, Canada is also the largest exporter of steel at $11.4 billion. With 15%, Mexico is second at $6.5 billion.Without question, tariffs on steel and aluminum from Canada and Mexico will have a devastating effect on many industries, especially auto, housing, and appliances.
• All Countries: Tariffs on all countries for steel and aluminum will have a tremendous impact on castings, forgings, machined parts that are imported from other parts of the world.So, this where my answer “nothing” comes into play.This is far too widespread of an issue for any organization. Tariffs cannot be avoided. Further, these extra costs will have passed on to consumers and other customers.
When this happens, within 90 days we’ll see far-reaching impact on automobile and EV prices, housing starts, and food prices. Consumption will go down, layoffs will begin almost immediately, and the U.S. economy will come to screeching halt.In our opinion, no amount of work will be enough to mitigate it. For us and our customers, the best way to handle this is to focus on building supply chain resiliency with a long-term solution in mind.
5. Offsetting with India. If tariffs are imposed on all countries, India’s imports also will be affected. However, in one of the first State visits initiated by the Trump administration, Prime Minister Modi and President Trump have built upon a framework to expand the relationship.
India is the best offset against Chinese aggression in the South China Sea.
This includes:
• Expanding trade between India and the U.S. to $500 billion (up from $100 billion) by 2023 (Mission 500).
• Increasing existing Defense agreements (LEMOA, COMCASA and ISA) and adding more sensitive military technologies and equipment to India.
• Enhancing defense cooperation with a joint training agreement between India defense personnel and the U.S. in San Diego.
• Collaborating on reciprocal tariffs to achieve a more balance trade by reducing India’s tariffs on American bourbon, motorcycles, information and communication technology, food, and some meat products—ensuring that India will be poised to grow meaningfully over next few years.
If tariffs are imposed on aluminum and steel, and on Mexican and Canadian goods overall, our team is ready to kick off many new products based on supplier readiness as we’ve already been doing the last few months.
In other words, MES is prepared for “everything.”
We have prepared contingency plans to source many components and assemblies to offset tariffs and provide a long-term supply chain resiliency solution for our customers—and you.
Things will become clearer in next month or two and MES stands at the ready.
So, Mike (and everyone else), for the next month, we are doing “nothing,” yet we are prepared to do “everything.”
References:
• WashingtonPost.com. (2023, January 31). U.S. and India launch initiative on critical and emerging technologies. https://www.washingtonpost.com/national-security/2023/01/31/india-us-tech-defense/.
• Media.Defense.gov. (2023, June 21). Roadmap for U.S.-India Defense Industrial Cooperation. https://media.defense.gov/2023/Jun/21/2003244834/-1/-1/0/ROADMAP-FOR-US-INDIA-DEFENSE-INDUSTRIAL-COOPERATION-FINAL.PDF.
• Media.Defense.gov. (2023, June 21). India-U.S. Defense Acceleration Ecosystem (Indus-X). https://media.defense.gov/2023/Jun/21/2003244837/-1/-1/0/FACTSHEET-INDUS-X-FINAL.PDF
• U.S. Department of Defense. (2023, May 25). Readout of the Inaugural U.S. – India Advanced Domains Defense Dialogue. https://www.defense.gov/News/Releases/Release/Article/3408336/readout-of-the-inaugural-us-india-advanced-domains-defense-dialogue/
• IndianEmbassyUSA.gov. (2023, June 7). Launch of India-US Strategic Trade Dialogue. https://www.indianembassyusa.gov.in/ArchivesDetails?id=249871
5 Contingency Plans
Here’s a look at some of tariff-related scenarios and the contingency plans we’re recommending for customers focused on supply chain resiliency.1. Remaining Tariffs. Customer tariffs are down by 70%+ across the entire spend over last six years; however, there’s still 30% remain. Already, we have planned how we’ll resource many of these components.
2. Sourcing Suppliers. With past tariffs, many hard-to-find process suppliers were not moved. As a result, some companies have been paying tariffs on these processes for past six years. To help our customers, we vowed to ready suppliers for potential large-project kickoffs in these hard-to-find processes:
• Die-castings with press requirements of more than 600T up to 2000T
• Powder coating
• Gravity cast
• Certain grades of forgings
• Copper components
We’ve already engaged sourcing and suppliers, obtaining competitive pricing and readying tooling plans so when our customers are ready, we are, too. We have many quotes available and can kick off quickly based on customer approvals for Design and Tooling.
3. Tariff Threats. If China tariffs increase by more than 10% (for a total of 35%), we expect customers to quickly pull the trigger to resource most of their China-sourced business. President Trump imposed 10% and is talking about increasing the tariffs to 25%.
Based on our estimates and his pre-election promise to damage China’s economy, we believe he will increase tariffs to 60%. Chinese resiliency hasn’t been what we expected so only time will tell if further tariffs cause more pain in the U.S. or in China.
Regardless, in September 2018 with the first round of tariffs, we kicked off 37 new parts within first month. This action enabled us to mitigate tariffs and successfully reduce our exposure by almost 40% in the very first year. If China tariffs continue, we’re well prepared for customer kickoffs by April or May.
4. Impact on Aluminum and Steel. There’s a real possibility of a 25% import tariff on aluminum and steel as early as March 12, 2025.
This could have a crippling effect on:
• North American Exports: Canada exports 65% of U.S. aluminum imports ($9.5 billion worth) and Mexico 15% ($685 million). With 25% of the market, Canada is also the largest exporter of steel at $11.4 billion. With 15%, Mexico is second at $6.5 billion.Without question, tariffs on steel and aluminum from Canada and Mexico will have a devastating effect on many industries, especially auto, housing, and appliances.
• All Countries: Tariffs on all countries for steel and aluminum will have a tremendous impact on castings, forgings, machined parts that are imported from other parts of the world.So, this where my answer “nothing” comes into play.This is far too widespread of an issue for any organization. Tariffs cannot be avoided. Further, these extra costs will have passed on to consumers and other customers.
When this happens, within 90 days we’ll see far-reaching impact on automobile and EV prices, housing starts, and food prices. Consumption will go down, layoffs will begin almost immediately, and the U.S. economy will come to screeching halt.In our opinion, no amount of work will be enough to mitigate it. For us and our customers, the best way to handle this is to focus on building supply chain resiliency with a long-term solution in mind.
5. Offsetting with India. If tariffs are imposed on all countries, India’s imports also will be affected. However, in one of the first State visits initiated by the Trump administration, Prime Minister Modi and President Trump have built upon a framework to expand the relationship.
India is the best offset against Chinese aggression in the South China Sea.
This includes:
• Expanding trade between India and the U.S. to $500 billion (up from $100 billion) by 2023 (Mission 500).
• Increasing existing Defense agreements (LEMOA, COMCASA and ISA) and adding more sensitive military technologies and equipment to India.
• Enhancing defense cooperation with a joint training agreement between India defense personnel and the U.S. in San Diego.
• Collaborating on reciprocal tariffs to achieve a more balance trade by reducing India’s tariffs on American bourbon, motorcycles, information and communication technology, food, and some meat products—ensuring that India will be poised to grow meaningfully over next few years.
Can Tariffs Be Avoided? (How to Prepare for ‘Everything.’)
Over the last few years, MES has proactively moved and sourced products through India across dozens of processes and technologies for all of our core customers.If tariffs are imposed on aluminum and steel, and on Mexican and Canadian goods overall, our team is ready to kick off many new products based on supplier readiness as we’ve already been doing the last few months.
In other words, MES is prepared for “everything.”
We have prepared contingency plans to source many components and assemblies to offset tariffs and provide a long-term supply chain resiliency solution for our customers—and you.
Things will become clearer in next month or two and MES stands at the ready.
So, Mike (and everyone else), for the next month, we are doing “nothing,” yet we are prepared to do “everything.”
References:
• WashingtonPost.com. (2023, January 31). U.S. and India launch initiative on critical and emerging technologies. https://www.washingtonpost.com/national-security/2023/01/31/india-us-tech-defense/.
• Media.Defense.gov. (2023, June 21). Roadmap for U.S.-India Defense Industrial Cooperation. https://media.defense.gov/2023/Jun/21/2003244834/-1/-1/0/ROADMAP-FOR-US-INDIA-DEFENSE-INDUSTRIAL-COOPERATION-FINAL.PDF.
• Media.Defense.gov. (2023, June 21). India-U.S. Defense Acceleration Ecosystem (Indus-X). https://media.defense.gov/2023/Jun/21/2003244837/-1/-1/0/FACTSHEET-INDUS-X-FINAL.PDF
• U.S. Department of Defense. (2023, May 25). Readout of the Inaugural U.S. – India Advanced Domains Defense Dialogue. https://www.defense.gov/News/Releases/Release/Article/3408336/readout-of-the-inaugural-us-india-advanced-domains-defense-dialogue/
• IndianEmbassyUSA.gov. (2023, June 7). Launch of India-US Strategic Trade Dialogue. https://www.indianembassyusa.gov.in/ArchivesDetails?id=249871