As global trade fractures in 2025, companies face rising tariffs, supply chain turmoil, and shifting economic dynamics.
Geopolitical pressures are reshaping global economic and financial activity leading to what is commonly called a “fractured” global economy. Among other things, a fractured economy is characterized by increased trade barriers and tariffs, geopolitical tensions and shifts to specific trading blocks (like US vs China), changing investment patterns, and supply chain disruptions.
These are not new phenomena, and over time companies have responded by implementing a variety of strategies, such as rationalizing production lines, finding new markets, or near shoring sources of supply to name but a few.
However, 2025 is not business as usual. According to the most recent outlook, in January, by chief economists at the World Economic Forum, this global fragmentation will lead to price increases for consumers and cost increases for business, for the next three years. They also agree that developments in the US will alter the trajectory of the global economy, with the majority saying that US domestic policy will bring a long-term global economic shift rather than a short-term disruption.
Across The Border, Across The Board
In a recent interview, Suzie Petrusic, Senior Analyst in Gartner’s Supply Chain Practice, explains that with respect to US trade policy, the big difference between the way that tariffs have been applied in the past and how they are now, is the sheer scope of the tax.
“In the past it’s usually been like taking a scalpel to the tariffs—market by market,” she said. “But these new tariffs are broadly applied, so it’s actually hard for me to imagine an industry that’s not impacted.”
Impending US tariffs, and the retaliatory protectionism expected from China, the EU, Canada and Mexico will likely have highly complex, long term disruptive effects on traditional supply chains and are expected to impact industries and economies world-wide.
For example, it’s anticipated that US tariffs on EU imports will reduce Europe’s GDP by 1.5% in 2025, US GDP will fall by 1.6%, and a 25% tariff on Canadian exports will push that economy into recession.
Global corporate investment patterns will also be impacted. According to recent research by Ernst & Young, the negative direction of US-China relations (as reflected in the recent US ban of TikTok) will likely prompt high-profile Chinese companies to pursue IPOs in alternative markets like Hong Kong or the European exchanges. (EY Global IPO Trends 2024)
And when it comes to specific sectors, there will be winners and losers. At a recent investor conference, Ford CEO Jim Farley, described the potential impact of these sweeping tariffs on both the US automotive industry in general, and more specifically, the bottom lines of non-American automakers.
“Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen,” Farley said. “Frankly, it gives free rein to South Korean, Japanese and European companies that are bringing 1.5 million to 2 million vehicles into the U.S. that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.” In contrast, upon the announcement of the tax on Canadian producers, American steel maker Alcoa saw a significant bounce in their stock price as investors anticipated higher prices and bloated profit margins for American steel companies.
Levers—Which Levers?
So, what levers will companies pull in 2025 to strategically navigate through this volatile and uncertain environment? As MP Biomedicals CFO Hendry Lim explains, “Companies like ours will continue to adjust sourcing strategies to countries not impacted by the tariff, which allows for diversify of supply and reduction of risk.”
MP Biomedicals—a manufacturer and distributer of life science, fine chemical and diagnostic products with offices and facilities throughout Europe, Asia, Australia and the Americas— has turned its eye to imports from India and Singapore. The company is also rerouting production to their other facilities before entering the US. However, this strategy isn’t clear cut. It’s a complex modelling exercise, Lim explains.
“Of course we’ll have to weigh the freight cost versus the tariff as well as other options, looking at things like geopolitical risk, natural disasters in certain countries, market fluctuations, and then thereafter use financial models to quantify the financial impact and to develop risk mitigation strategies. We then incorporate all these factors into our forecasting. At the end of the day it’s a matter of everyone collaborating and working together to develop a strategy, to actually counteract these risks,” he adds.
While diversifying supply will likely top strategic agendas in 2025, some companies like General Motors and Walmart will be stockpiling inventory in advance of potential input price increases. However, for companies that are only reacting now, Petrusic says, they may not have a whole lot of optionality in terms of what they can do to completely avoid the impact.
“You may see organizations taking the hit on holding additional inventory to avoid more costs later, but it all boils down to lead time,” she says, citing the difficulties companies face in trying to use inventory planning to minimize tariff risk.
“When it comes to risk management, scenario planning is an essential muscle in this environment,” she says. “But it’s especially difficult right now, because it’s a multifaceted, dynamic, multi-year probability risk event.”
Ultimately, companies will need to bring geostrategic risk into the fore of their scenario planning.
“In doing so, the most helpful thing that any C-suite executive can do, is create alignment at the C level and clarity all the way down through the organization. If you can create that clarity and alignment strategically at the C-suite then you’re able to more confidently know that your people are making decisions that are pulling and pushing towards the same goal,” she explains.
Data Beats Cash
The ability to understand risk also boils down to a company’s investment in technology, explains Rizwan Khan, Managing Partner at Acclime Vietnam, and experienced regional CFO, CIO and auditor.
“There are multiple factors that will affect production costs in this region, like Chinese investment in a company or the percentage of Chinese inputs or raw material in their products. So overall, the tariffs that are being imposed pose a significant risk to companies in Southeast Asia as well. Vietnamese companies will need to focus more on cost reducing efficiencies to remain competitive,” Khan says.
Competitors around the world that are exposed to the same tariffs will have to win on cost reductions, he adds. “My focus is making sure companies are utilizing technology in the most productive way to minimize those costs. In the past, we used to say that cash is king—in the current environment, data is king.”
With so much data available, whether it is from the procurement point of view or from the production point of view, corporate strategies in a volatile trade environment require end to end visibility, he adds.
“When it comes to technology innovations, advanced predictive and prescriptive analytic technology can help companies understand the impact of tariff-related disruptions, by helping them quantify the impact across a supply chain, or help identify specific supplier risks, or forecast changes in demand across regions in real time. This type of end-to-end visibility ensures that companies can respond to shifting market dynamics,” he says.
For now, many are still trying to figure out how 2025 will unfold when it comes to the bubbling trade war of the worlds. How companies will fare this year will depend on how quickly they can respond to emerging barriers to trade and a volatile risk environment.
