Multi-country manufacturers just can’t seem to catch a break these days. From turning their supply chain strategy on a dime in the COVID era, to managing operations through regional wars, to responding to the waves of tariffs and counter-tariffs being used to make political statements, the COO’s and CFO’s are not going to have any restful nights in the foreseeable future.
The biggest question today that most of our manufacturing clients grapple with is whether they should uproot their manufacturing operations from friendly countries like Canada and Mexico and at least get a break from recalculating margins and efficiencies every morning after watching the news.
To them, we say, hold on.
For now.
Anatomy of a trade war
Trade wars are not new in this world. Even the best of allies and neighbors go through these at some point or the other. Usually the pattern is recognizable:
Figure 1. Trade wars and how they typically play out
| Stage | Description |
| Trigger Event | A country imposes tariffs, duties, or restrictions on imports, citing reasons like national security, unfair subsidies, or protection of domestic industries. |
| Retaliation | The affected country responds with counter-tariffs, targeting politically or economically sensitive industries. |
| Escalation | Both sides increase trade barriers, causing disruptions in supply chains, price increases, and uncertainty in markets. |
| Negotiations | As economic pain sets in, negotiations begin through trade bodies (e.g., WTO) or direct talks to de-escalate tensions. |
| Resolution | A compromise is reached, often involving revised trade agreements, tariff reductions, or policy adjustments. |
Now this is an understandable pattern when it comes to any conflict. In fact, even the countries that are at the brunt of the current trade wars have had, and have, multiple such issues at various stages.
Figure 2. Some ongoing trade conflicts between US, Canada, Mexico, and China
| Tariff Conflict | Countries Involved | Start Year | Issue | Current Stage |
| Softwood Lumber Dispute | U.S. & Canada | 1982 | U.S. claims Canada subsidizes lumber exports, harming U.S. producers. | Ongoing Negotiations – Periodic tariffs and talks, but no long-term resolution. |
| Tomato Tariffs Dispute | U.S. & Mexico | 1996 | U.S. accuses Mexico of dumping tomatoes at low prices. | Negotiations – Regular price agreements, but tensions persist. |
| Tire Tariffs Dispute | U.S. & China | 2009 | U.S. imposed tariffs on Chinese tires to protect domestic industry. | Resolution – Tariffs expired in 2012; some lingering effects on trade. |
| Steel & Aluminum Tariffs (Section 232) | U.S. & Canada/Mexico | 2018 | U.S. imposed tariffs citing national security; retaliation followed. | Resolution – Tariffs lifted in 2019, but disputes over quotas and exemptions continue. |
| U.S.-China Trade War (Section 301 Tariffs) | U.S. & China | 2018 | U.S. imposed tariffs over intellectual property theft and trade imbalances; China retaliated. | Ongoing Escalation & Partial Negotiations – Some tariffs remain, but periodic trade talks occur. |
So, as we can see, contained, industry-specific trade issues are fairly common and do not make headlines every day. They usually reach the negotiation stage before it has a far-reaching impact on the whole economy of either of the countries embroiled in the dispute.
The US dials it up to eleven
The US has taken an aggressive line when it comes to tariffs at the beginning of 2025. For one, the tariffs brought about are not industry or product specific but are across the board. The countries against which these tariffs have been proposed are also swinging into motion with retaliatory statements and decisions.
Figure 3. The tariffs proposed/imposed span all goods categories
| Countries Involved | Tariffs Imposed by U.S. | Retaliation |
| U.S. & China | Additional 10% tariffs on Chinese goods (on top of existing tariffs of up to 25%) | China imposed tariffs on U.S. agriculture, restricted imports of U.S. lumber, and may target U.S. tech firms |
| U.S. & Canada | 25% tariffs on all Canadian goods (except 10% on energy exports) | Canada imposed 25% retaliatory tariffs on U.S. goods |
| U.S. & Mexico | 25% tariffs on all Mexican goods | Mexico announced tariffs and other economic retaliatory measures |
| U.S. & European Union | Planned 25% tariffs on EU goods | EU leaders condemned the move and are preparing counter-tariffs |
But apart from the sweeping nature of inclusions, there are also some other key differences which will have an impact on how this trade war proceeds and what the end game will be.
Figure 4. The 2025 trade war is different from earlier disputes
| Factor | 2025 Trade Wars | Previous Trade Disputes |
| Scope & Scale | Broad, affecting multiple key allies (Canada, Mexico, EU) and China at the same time. | Usually targeted at specific industries (e.g., softwood lumber, steel, agriculture). |
| Justification | National security, illegal immigration, and trade imbalances cited as reasons for tariffs. | Typically focused on anti-dumping measures, subsidies, or WTO violations. |
| Retaliation Risk | Countries with high US trade volume, like China, Canada, and Mexico, are responding with their own tariffs. | More controlled, often resolved through negotiations before large-scale retaliation. |
| Economic Impact | More disruptive, as tariffs target entire economies, not just specific industries. | Industry-specific impact, often negotiated before affecting broader economies. |
| Use of Trade Agreements | Tariffs imposed despite existing trade agreements (e.g., USMCA, WTO rules). | Disputes often resolved within trade agreement frameworks. |
| Negotiation Approach | More aggressive, unilateral moves before negotiations start. | Historically more diplomatic, with negotiations occurring before escalation. |
End game
The US has made tariffs a political issue and as such has made global statements that would be very difficult for any administration to go back on. Except this administration.
We believe that these bombastic statements serve the purpose of disrupting the game when it comes to trade negotiations. The other friendly nations (Canada, Mexico, EU) have also made sweeping retaliations to show that they will also not back down. However, as the reality of the economic impact of the tariffs starts becoming evident and the countries’ populations start protesting the trade war, both parties will come to the negotiating table. We expect both sides to make concessions and seek a middle ground. However, given the extreme starting position of the US and its economic strength, the final tariffs will lean in its favor.
In the case of China, we don’t see as much backing down on either side, primarily because of the political connotations for either of the leaders if they look weak.
So, what does it mean for manufacturing companies?
Let’s get back to the question we started with – should manufacturers move operations from other countries to the US?
At this point in time, we do not recommend any large-scale capital-intensive decisions till the tariff roulette stops spinning (or at least slows down). While we do expect tariffs and other governmental actions to push manufacturers to move operations to the US, the world has evolved from when global manufacturers could afford to be present only in one country. Manufacturing is going to be all about balance, whether it is about managing aggregate costs across all operations, diversifying parts supply chains, or ensuring global distributions.
Our recommendations specific to this question are:
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- Continue to reduce China footprint
Manufacturers should continue to diversify beyond China. While this has been going on for a few years, we expect the most intense trade war to continue between US and China. This will add significant uncertainty in operations for a manufacturer, which, frankly, no global manufacturer can afford in our current environment. One approach could be relocating operations from China to nearshore, and essentially friendly countries (Canada, Mexico) to reduce China exposure, leverage relatively lower costs, and simplify supply chain requirements.
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- Wait and watch before uprooting operations from Canada, Mexico, and EU
Once the posturing dies down, we expect concessions to come from both sides. In all likelihood, the end state will lean in US’ favor. So, we don’t expect significant non-tariff measures to come into place that would make operations in these countries difficult. There could, however, be impact on profitability. Thus, the decision to move operations will depend on traditional cost-benefit analysis, rather than due to external pressure.
Preparing for the decisions ahead
While the trade wars settle down, it is important for manufacturers to focus on operational resilience and efficiency. Strong supply chains and operations will help them absorb any shocks that political and economic disruptions throw their way.
Unfortunately, while most manufacturers understand the importance of agile and rapid decision-making in becoming resilient, they are constrained by poor data management and analytics tools and practices.
Figure 5. Key data challenges prominent amongst manufacturers
| Category | Challenges |
| Data Quality & Integration | – Inconsistent data across systems (ERP, IoT, supply chain) – Data silos between departments – Lack of standardization in data formats and metrics |
| Infrastructure & Technology | – Legacy IT systems unable to process large-scale data – Slow data processing limits real-time insights – Increased cybersecurity risks with greater data usage |
| Analytics & Decision-Making | – Lack of real-time data insights – Poor predictive capabilities due to early-stage AI adoption – Overwhelming data volume leading to “analysis paralysis” |
Thus, the most important step that manufacturers can take is focus on the technology challenges above to ensure they are well positioned to make reliable decisions rapidly as the trade war situation becomes clearer.
A few key steps that we have found useful for our manufacturing clients include:
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- Prepare a comprehensive data and data management strategy to help aggregate standardized data across all parts and applications in the organization
- Accelerate IT-OT integration projects to enable real-time analytics and AI-driven demand sensing to optimize production planning and mitigate potential tariff-driven disruptions
- Focus on zero-trust security and AI-driven threat detection across IT, OT and IIOT networks to effectively block evolving cyber threats
The manufacturing industry will have to prepare for some volatile times as the current trade wars proceed, but it would do well to take immediate steps to strengthen supply chain resilience, diversify sourcing strategies, and develop the technological environment to ensure a successful journey through the turbulent waters ahead.
By Naresh Lachmandas, Partner, Avasant and Swapnil Bhatnagar, Partner, Avasant