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When the UK became the first country to reach a trade agreement with the US in May, after President Donald Trump’s announcement of sweeping “reciprocal” tariffs, it was hailed as a blueprint for other key US trading partners.But almost two months passed before a second country — Vietnam — was able to strike a deal. Meanwhile, details of the UK accord are still unclear, unconfirmed or subject to potential revision.Britain is fighting to secure a carve-out from higher steel tariffs, for example, but Trump’s executive order explicitly reserves the right to reimpose 50 per cent duties if “he determines” the UK is not complying with a promise to reduce the role of China in its supply chains. The headline impacts are already being felt; US tariff revenue surged almost fourfold from a year earlier to a record $24.2bn in May, while imports from China fell 43 per cent from the same month in 2024.But with policymaking so evidently at the caprice of Trump himself, it has become incredibly challenging for businesses to make long-term decisions about supply chains, according to Neil Shearing, chief economist at Capital Economics, a research company.Some content could not load. Check your internet connection or browser settings.“Relocating plants is an eight- to 10-year decision, but when you can’t predict what is happening next week, let alone next year or in five years, mitigation of the status quo is the likely strategy,” he says. The shocking force of Trump’s “liberation day” tariffs announced on April 2 was blunted by his announcement of a 90-day pause within a week. The mood shifted from “extreme panic to qualified concern”, says Heiko Schwarz, global supply chain adviser at risk management technology consultancy Sphera.Now, as countries clamour to strike fresh deals with Trump before the July 9 deadline, deep unease still lingers through global boardrooms and supply chains.Many companies are resorting to holding strategies. “We are seeing an uptick in business looking to diversify sourcing, but there’s still a lot of ‘wait and see’ going on,” says Simon Geale, executive vice-president at Proxima, a supply chain consultancy owned by Bain & Company. Importers are stockpiling goods and increasing their use of bonded warehouses, which allow importers to hold goods for up to five years and only pay tariffs when they are released on to the market. Storage costs for bonded warehousing are now up to four times the cost of non-bonded premises. Another ripple effect is port congestion — ships still carry 90 per cent of global trade — as exporters look to avoid the latest tariffs. At Europe’s largest port, Rotterdam, chief executive Boudewijn Siemons predicts prices for consumers will rise as companies continue to reorient goods flows. “I’m always amazed by how fast supply chains redirect themselves,” he says. “That’s because ships have two distinct features: they have a propeller and a rudder and they can go wherever you want them to.”Some content could not load. Check your internet connection or browser settings.The fallout from the tariff announcement has spread beyond corporate supply chains. Investment decisions are on hold and the uncertainty is also a factor in reduced merger and acquisition volumes.“If you’re directly affected, you might do something around footprint and supply chain organisation,” says Mats Persson, a former UK Treasury adviser who now works at consultancy EY. “But the far greater impact is the freezing effect on deal activity. That’s having a greater chilling effect than holding fire on moving business behind the Trump [tariff] wall.”Whether next week’s deadline for tariff negotiations brings a further reprieve or deepens the uncertainty depends largely on one man, says Shearing. “This is why this crisis is different from the Covid-19 pandemic or the 2008 financial crisis in that key respect — it all comes down to the whims of Donald Trump.” Since Trump first imposed tariffs on China in 2018, a trend towards so-called friendshoring — companies locating or relocating facilities in countries geopolitically and strategically aligned with the US — has been gathering pace.But reshoring is complex and risky. A Bain survey of chief operating officers, conducted before Trump’s re-election last year, found that while 80 per cent were planning to increase supply chain onshoring or reshoring over the next three years — up from 63 per cent in 2022 — only 2 per cent had successfully completed such plans.“Changing suppliers or shifting production is easier said than done,” Geale says, “and because organisations are all looking at the same locations, that is likely to create capacity constraints in terms of skilled labour and factory space.”Some content could not load. Check your internet connection or browser settings.How trade patterns shift varies widely from product to product, depending on how easily alternative sources of supply could be found, according to Olivia White, director of the McKinsey Global Institute. Lithium-ion batteries, for example, are far easier to source outside China than, say, laptops. T-shirts are much simpler than socks. “When you start to go more granular, you see how different dynamics might be playing out for different products and value chains,” White says. “Companies are thinking about how to make sure that their supply chains are more flexible and resilient, even if they’re not making specific bets on individual trade corridors.”Also, tariffs alone have never been a good enough reason for companies to shift supply chains, according to Persson at EY. Regulatory changes — for example, new rules that will require cars sold in the US to contain no Chinese software from 2027 — can be much bigger drivers of change, he says.For highly regulated industries such as pharmaceuticals, industry analysts say that shifting production to the US would be so expensive and disruptive that even relatively high tariffs may not necessarily lead to immediate factory relocations. A worker at a lithium battery factory in Huaibei, eastern China. Lithium-ion batteries could be easier to source from other countries than products such as laptops, analysts suggest More
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