Trucks from Mexico are shown entering the United States for inspection at a station in Otay Mesa, California, on April 1, 2025.

Economists warn that adjusting supply chains to President Donald Trump's widespread tariff policies will present challenges for importers. Manufacturers will find it difficult to relocate production to avoid the latest round of tariffs, which target countries such as Vietnam, India, and Mexico. Some companies may opt to absorb higher tariffs rather than moving production, resulting in reduced profit margins as not all additional costs can be passed on to consumers.

Unlike in Trump's first term, manufacturers may struggle to find alternative production locations due to the broad scope of the tariffs. Trump's recent tariff announcement targets imports from various countries, including imposing a 34% tariff on Chinese goods, 26% on Indian goods, and 20% on European Union goods. While Trump aims to reshape global trade and encourage more manufacturing in the U.S., economists believe that rather than relocating, manufacturers may face disruptions in the supply chain.

Deutsche Bank economists and researchers noted that widespread tariffs on global trading partners hinder the ability of the global trading system to adjust, ultimately undermining established global supply chain models. After the initial tariffs on China in 2018, supply chains shifted towards countries like Mexico and Vietnam. However, under the new policy, Vietnam faces a 46% tariff, and Mexico is already subject to a 25% tariff on non-USMCA covered goods.

Reluctant to relocate to the U.S. due to higher labor costs, many manufacturers are left with limited options to avoid the new tariffs. The disparity in labor costs reveals that the U.S. manufacturing workforce earns significantly more than workers in countries like China and India. With limited options for supply chain relocation, importers may find it more economical to pay the tariffs rather than bear the costs of moving production.

Certain industries, such as apparel and automobiles, are more vulnerable to trade disputes and supply chain disruptions. In some cases, companies may opt to pay the tariffs instead of relocating their production facilities, as the changes in the supply chain could prove to be costly.