December 9, 2024

Hello everyone, welcome to this episode of TrendsTalk. I’m Michael Feuz, an economist and speaker here at ITR Economics. I’m filling in again for Taylor St. Germain.

Today I want to talk to you about tariffs. Ever since the election, we found out that President Trump will be returning to the White House. We’ve gotten a lot of questions about tariffs, what their impact would be, and if ITR would be updating our forecast or our outlook for tariffs due to the results of the election.

First, we at ITR are very similar to what we’ve been communicating about the election where our outlook was not going to change based on who won. That is similar to our outlook for tariffs. Our macroeconomic outlook is not going to change based on tariffs being implemented. This is because tariffs tend to be more microeconomic than macroeconomic. They’ll help some, they will be more of a challenge or difficult for others.

So again, sounds very similar to 2020 to our outlook for the general election, where we’re not changing our forecast. We are very interested in policy. Any major legislative policy will likely impact 2026 more than 2025, and tariffs, they fall under that bucket of policy. We’re in this wait and see pattern because outside of President Trump’s inner circle, there’s still a lot of uncertainty if we will see the promises he made, that promise being that 10% across the board universal tariff and a up to 60% punitive tariff on China. Is this actually a promise made promise kept type situation or is this more of a negotiating tool? Due to this, we’re gonna play the wait and see game or wait to see what gets enacted and then move from there.

However, it’s likely best to assume we’ll see a faster implementation of tariffs once incoming President Trump is inaugurated in January. With this reality, ITR has three thoughts top of mind for business leaders as we enter 2025 with a new administration in the White House.

First of those three, lessen your exposure to China. Nearshoring, onshoring, friendshoring have already been growing trends coming out of the pandemic where we really felt those supply chain disruptions due to China. At ITR, we recommend a China plus one or a China plus two strategy, meaning diversify your sourcing. Doesn’t mean you have to completely, decouple from China but you want to diversify. If you haven’t already been pursuing this it is not too late. Look to mitigate the threat of tariffs and if those punitive tariffs go into place the likelihood of retaliatory tariffs from China are also very likely on the table.

On top of that with China we see the geopolitical risks, demographic trends as they have a much more aging population a very highly leveraged Chinese economy and their property market busts. All these are looming risks with China that should be all reasons to continue to diversify where you’re sourcing from from China.

Next number two we want to emphasize just caution with Mexico. Mexico has surpassed China as our top trading partner but caution meaning don’t over leverage them as a manufacturing platform. The trade agreement the USMCA between the US Canada and Mexico is up for negotiation or will be negotiated in 2026. 2026 that’s the off-year election that’s where our congress officials representatives and our senators will be up for election this could become a very hot button issue during leading up to the midterm elections.

Number three, be relentless in efficiency gains and cost cutting measures in 2025. Tariffs are an increase in cost to businesses if you can pass those on completely to your customers fantastic but that is easier said than done meaning look to where you can cut costs without impacting negatively your long-term strategy and look to increase your efficiencies improve your labor productivity to protect that bottom line as to help mitigate the the cost that tariffs bring. Additionally look to differentiate yourself with your competitive advantages and a strong brand so that you can justify any needed cost increases that you have to issue because of tariffs.

So overall, IT or economics, we expect a growing U.S. industrial sector in 2025 and in 2026. Revenues, regardless of tariffs, will rise for most businesses over the next five years. Additional tariffs, if imposed, they’ll cause some more challenges for others and offer some opportunity out there for other businesses. So make sure you understand what your strategy is and how you will be impacted by tariffs, what cost cutting measures you can take and efficiency gains and building a strong brand that just makes it easier for you to navigate the environment for the rest of this decade. Obstacles remain, but opportunity does as well.

So with that, I’m Michael Feuz, economist and speaker here at ITR Economics. Thank you for joining me for this episode of TrendsTalk.