How is the Industrial Sector being impacted by the tariff uncertainty in the Americas?

Diego Rodríguez Paez
Director of Logistics and Industry Practice
AMI

The industrial sector is facing significant challenges due to the uncertainty caused by shifting tariffs, changing customs regulations, and unpredictable trade policies. These disruptions complicate production forecasting, hinder effective planning, and create logistical challenges, making it difficult for businesses to adapt to changing market conditions. As companies navigate these complexities, many are reevaluating their sourcing strategies, and moving towards logistics service providers that can rapidly adapt to this environment.

Challenges in Production Forecasting and Client Demand

One of the most significant challenges in the industrial sector is the difficulty in production planning, a critical area heavily impacted by tariff uncertainty. According to Facundo Nunez, Global Procurement Director for Honeywell, “the volatility introduced by changing tariffs makes it increasingly difficult for companies to forecast client demand accurately.”

Industrial projects, by nature, are influenced by fluctuating market conditions, and geopolitical factors, as well as tariffs, are key factors in these shifts. The uncertainty surrounding tariff rates—whether they will rise, fall, or change suddenly—has created a challenging environment for planning operations effectively. Companies often struggle to rely on accurate production forecasts, resulting in confusion about resource allocation, inventory management, and production schedules.

Faced with this uncertainty, Facundo stated that “businesses struggle to make long-term decisions regarding investments in production capacity or new projects. This lack of clarity regarding tariffs and trade policies often results in companies hesitating to proceed with production plans or scale operations”.

Based on dozens of conversations with manufacturers that AMI interviewed over the past 2 months, less than 50% of production planning is based on forecasts, while the remainder relies on informal communication from clients. This imbalance, coupled with tariff unpredictability, exacerbates the challenge of making informed decisions, as businesses can no longer depend on stable and reliable forecasts.

Planning becomes particularly challenging when companies must adjust to ever-changing trade tariffs, making it difficult to secure reliable supply chains and guarantee consistent pricing from suppliers. As tariffs change, businesses may also find themselves locked into contracts or purchasing decisions that no longer make financial sense, or they may encounter unexpected cost increases when components and raw materials are subject to new tariffs. This uncertainty forces companies to either accept a higher level of risk or delay their production plans, ultimately impacting both short-term and long-term operational efficiency.

Navigating US Customs: A Growing Challenge

For many industries, the complexities of customs regulations have increased with the imposition of new tariffs and trade restrictions. US customs regulations have become more stringent, especially when it comes to enforcing origin rules. Determining the origin of components and the tariffs associated with them—whether they originate from countries such as China, Mexico, or others—has become a critical factor for companies in navigating customs processes. Faced with strict enforcement of these origin rules, companies are often left to deal with unexpected tariffs that can disrupt their operations and increase costs.

Manufacturers interviewed by AMI emphasized that complying with origin rules has become one of the most significant hurdles for businesses. When the origin of components is questioned, customs can impose tariffs, even if those goods were initially manufactured in another country. The result is often delayed or returned shipments, higher costs, and a more complicated production process. For industrial manufacturers, the challenge is to ensure that components are sourced correctly and that the necessary documentation is in place to avoid penalties and delays.

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The Burden of Tariffs: Who is Paying the Price?

The issue of who bears the brunt of tariffs is a critical concern for many sectors within the industrial market. As prices rise due to the imposition of tariffs, the initial added costs are absorbed by suppliers and manufacturers, while the end consumer sees a jump in the sticker price. The reality is that some manufacturers have less wiggle room to pass these additional costs on to their clients at a slower pace than others.

In some sectors, particularly where manufacturers have limited ability to absorb tariff costs, the impact on consumers is more pronounced. For example, industries like automotive manufacturing and consumer electronics are particularly vulnerable, as the cost of imported components rises, forcing manufacturers to increase prices on their products. In these industries, there is little room for producers to absorb the rising costs.

Logistics Service Level Variations in the Face of Tariff Disruptions

Another key challenge arising from tariff disruptions is the variation in service levels from logistics providers. Not all logistics partners are created equal, with substantial differences in their capabilities that have a direct impact on the operations. Some logistics providers are more proactive in solving problems and adapting quickly to tariff changes, helping to minimize delays and cost increases. In contrast, other providers are less responsive, creating more complications for manufacturers, especially when dealing with customs issues.

The service levels of logistics providers can significantly affect the overall impact of tariff disruptions. A logistics provider that is responsive and adaptable can help businesses navigate customs complexities, reducing the time it takes to clear shipments and avoiding additional costs. For example, logistics providers well-versed in tariff regulations and with established relationships with customs authorities can expedite the clearance process, ensuring shipments arrive on time.

Shifting Sourcing Strategies and the Rise of Argentina

Many companies that have been interviewed are reevaluating their sourcing strategies, particularly for the Latin American market. For instance, in Argentina, currency restrictions are being gradually lifted, and local companies are increasing their imports of machinery and components, as trade data is expected to show in the coming weeks. This move is part of a broader strategy to enhance operational efficiency and reduce costs, as businesses seek to upgrade their infrastructure and increase production capacity, given the strength of the Argentine peso.

For Argentine companies, the lifting of currency restrictions offers a significant opportunity to import the components and machinery needed to modernize their operations. While Argentina faces ongoing economic challenges, such as inflation and currency volatility, we see numerous opportunities for US and European exporters to increase their sales in Argentina.

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Diego Rodríguez Paez Senior Director of the Logistics Practice

Diego Rodríguez is the Director of the logistics and industrial practice at Americas Market Intelligence, handling dozens of market analysis and competitive intelligence studies throughout Latin America. He has also served as a consultant to more than 20 multinational companies.

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