By Simon Bowes
The impact of the looming US tariffs on European trade and the broader economy is a complex issue which could have significant ramifications not only for European but global trade.
The plan from the US to impose 25% tariffs on imports from the European Union could further strain economic growth in Central Europe and compound existing fiscal challenges.
As European officials voice concerns over the potential impact of the tariffs, key industries like steel, automotive and pharmaceuticals, are likely to feel the most impact of looming tariffs. More broadly, a widespread tariff imposition could lead to a fragmentation of global trade, where, if the US were to impose tariffs on European goods, it could set off a chain reaction where other countries retaliate, implementing tariffs themselves.
Such an environment would limit the ability of companies to leverage the global specialisation and expertise that currently drives much of international trade. For instance, the world’s reliance on Taiwan for semiconductors or Germany’s expertise in automotive engineering would become more complicated if countries erected barriers against each other. The rise of tariffs would likely stifle competition and innovation, and while some industries could benefit from protectionism, others would undoubtedly face higher costs and reduced market access.
The challenges facing key industries
The European automotive sector is one of the most sensitive to the threat of tariffs. Even without tariffs in place, European automotive manufacturers have recently already been grappling with a range of challenges, including a slowdown in the Chinese market, the withdrawal of subsidies for electric vehicles (EVs) in key markets like Germany, and the ongoing transition towards more sustainable production. With all that, the mere threat of tariffs has already exacerbated the sense of uncertainty within the industry, leading some companies to consider factory closures and restructuring.
Although the expected uptick in demand for EVs, as per European sustainability regulations, offers a potential lifeline for manufacturers, the threat of tariffs looms large. The US remains a critical market for many European carmakers – notably for internal combustion engine vehicles (ICEVs). If tariffs were imposed on ICEVs, the resulting cost hikes could make the situation untenable for European manufacturers, adding yet another burden to an already struggling industry.
Another industry just as vulnerable to potential US tariffs are the pharmaceutical and life sciences sectors. Europe holds a strong manufacturing base in this industry, and the imposition of tariffs could make it compelling to companies to shift their production to North America to avoid increased costs. While such a move might mitigate the immediate impact of tariffs, the process is far from simple. Pharmaceutical companies are faced with a difficult decision: bear the cost of relocation or absorb the tariffs and face increased costs for both manufacturers and consumers. This uncertainty poses a significant threat to European pharma companies’ profitability, making flexible supply chain strategies and forward-thinking planning essential.
Preparing for disruption with strategic planning
The uncertainty created by the potential introduction of tariffs highlights once more the need for companies to evaluate and model various scenarios to prepare for possible disruptions. This is where modern supply chain management tools, like AI-driven scenario analysis, become invaluable.
In times where tariffs could be introduced unpredictably, businesses need the flexibility to respond quickly. Tools that support integrated business planning (IBP) can help companies model and predict the effects of tariffs on their operations, from evaluating the impact on demand and costs to considering alternative manufacturing locations or new suppliers. With the ability to simulate various scenarios, companies can prepare a range of responses, from raising prices to absorbing costs, or even shifting production to mitigate tariff impacts.
The role of AI tools
As the global trade environment becomes increasingly volatile, the role of AI in strategic planning will grow more important. The key advantage of AI tools lies in their ability to process vast amounts of data quickly, generating valuable insights and strategic recommendations for businesses to consider. For example, AI can enable companies to model multiple scenarios quickly, considering factors such as supply chain constraints, production costs, and tariff impacts. Similar to how a GPS system evaluates different routes based on criteria like distance, time, and fuel efficiency, AI-driven systems can help companies navigate complex trade environments by offering various pathways and possible solutions to mitigate tariff-related disruptions.
Robust supply chain management
Businesses, especially those in high-tech, pharma and manufacturing industries, need to adopt a flexible, forward-looking approach to their supply chains. This means not only evaluating the direct impact of tariffs but also understanding how shifts in the global trade environment might affect their operations. AI-powered tools and scenario planning should become part of standard strategic processes, enabling businesses to adapt and thrive amid ongoing uncertainty.
While the potential for US tariffs on European trade is a growing concern, companies that invest in robust supply chain management and flexible planning tools will be better positioned to navigate these challenges, ensuring they can continue to meet market demands while minimising the impact of external disruptions.
About the Author
Simon Bowes is the CVP of Manufacturing Industry for Blue Yonder. Having graduated as an Engineer, Simon spent many years working in the engineering industry before joining Blue Yonder. Starting out as a consultant, he has since held Leadership roles in Sales and Marketing. Simon is currently responsible for representing Blue Yonder’s vision for Manufacturing with Customers, Analysts and Partners and also works to drive Blue Yonder R&D with EMEA specific direction for Manufacturers.
