Tariffs and Trump: Opportunities and uncertainties for machine builders and integrators
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During his first term, Trump imposed significant tariffs: 25% on imported steel and 10% on aluminum under Section 232, and 25% on 6,800 Chinese imports and 7.5% on 3,200 shipments from China under Section 301. These tariffs are now considered standard tools in Washington, D.C.
Under these trade laws, the president can fundamentally alter industrial supply chains, penalize trade violators or push partners to negotiate. Early in his second term, Trump declared a national state of emergency, adding to the roughly 40 existing emergencies under the International Emergency Economic Powers Act (IEPPA). This law allows the U.S. government to restrict the movement of goods, revenue or people at the president’s discretion.
A significant action under an IEEPA declaration occurred on February 1, when the White House announced a 25% tariff on imports from Canada and Mexico and a 10% tariff on energy resources from Canada. The same emergency declaration, citing immigration and drug shipments, also imposed an additional 10% tariff on imports from China. This move, a supply chain “force disruptor,” was followed by a one-month delay to allow for negotiations.
Each of Trump’s actions, whether aimed at negotiation or fundamental shifts in global supply chains, prompts reactions from both government and industry. Following the February 1 announcement, Canada imposed tariffs on $106 billion of U.S. goods and Mexico threatened a North American trade war.
Mexico and Canada together account for 29% of all U.S. trade, with China ranking third at 11.8%. The February 2025 actions disrupted trillions in trade, potentially creating opportunities for certain industries and manufacturers.
U.S. manufacturers should view this as an opportunity to collaborate with current, potential and former customers. They can highlight the benefits of sourcing quality products with shorter delivery times and protecting themselves from future disruptions and uncertainties. Believing that tariffs and trade actions are short-lived and limited to a Trump administration is a misjudgment of the current policy environment in Washington.
Foreign trade policies from president to president
Former President Joe Biden initiated zero new trade agreements, implemented a quota system to limit imported steel and aluminum from the European Union, United Kingdom and Japan and more than doubled tariffs on some imports from China. Regardless of the 2028 election outcome, the next president will likely continue using tariffs to influence supply lines. This will mark four consecutive presidential terms utilizing tariffs. The strategies machine builders, automation integrators and their suppliers develop now must be resilient to future uncertainties.
This situation can benefit domestic downstream suppliers. Since 2018, manufacturers have informed their customers that sourcing from China involves a 25% tariff and a lead time of approximately four to six weeks on the water. In a January 2025 survey of U.S. metal stampers, tooling and die manufacturers, 59% reported losing work to low-priced competition from China, while 24% gained new business in 2025 due to the Section 301 tariffs on China.
With the implementation of the combined 35% baseline tariff rate, it’s essential to consider the following questions: Will the combined baseline tariff rate cause machine builders to change their sourcing from China? Will they shift to U.S. suppliers or opt for components, tooling and other inputs from alternate low-cost suppliers? How will this impact U.S. machine builders importing products from China?
In a January 2025 survey of metalworking manufacturers, one in five companies reported importing directly from China and 67% ship to Mexico or their customers export across the Southern border.
We examined a real-life case study with a client concerned about how tariffs would impact their U.S. operations that used Mexico to help fabricate inputs for their machine build. Even before the threat of the 25% tariffs on imports starting February 4, 2025, the company expected to take a loss on the project.
Many U.S.-based businesses would prefer to source domestically rather than import. However, as downstream suppliers to Tier 1 or OEM customers, they often do not have the choice, as these customers dictate the price or supplier. Failing to comply with the customer’s requirements risks more than just a 25% tariff, it could result in losing the business to an overseas competitor who can ship a finished product to the United States at a lower cost than the raw materials purchased by the American manufacturer.
USMCA and upstream country hopping
Those relying on imported goods should collaborate with their suppliers and customers to share the added tariff costs and mitigate exposure. If sourcing from the United States is not feasible, avoid “country hopping” from one low-cost supplier to another. Sources in Washington, D.C. indicate that the Trump administration is adopting a more global approach to tariffs and using trade tools more frequently. The president recently noted that the U.S. has a trade deficit with most of its trading partners, which could lead to tariffs under several trade law provisions, including Section 122, which allows for tariffs due to a trade deficit.
Policymakers on Capitol Hill and in the Trump administration are closely monitoring the practice of trans-shipment goods manufactured in China through other countries to evade tariffs before entering the United States. This strategy, often used by Chinese suppliers, typically involves storing products in a warehouse in a third country in Southeast Asia or Mexico and relabeling their country of origin. Other suppliers in China attempt to reduce tariff exposure by separating production costs from design and other expenses, another form of tariff evasion.
A further guardrail the Trump administration is actively working to address with Mexico is the influx of Chinese manufacturers south of the border. Foreign direct investment (FDI) by Beijing has skyrocketed since imposition of the Section 301 tariffs on China. According to data from the government of Mexico, annual FDI increased from less than $100 million in 2019 to more than $500 million in 2022.
China’s investment has raised concerns in Washington that U.S. manufacturers are now facing competition not from across vast oceans, but just across the border. Products manufactured in Mexico, even by Chinese companies, will bear the label “Made in Mexico” and receive duty-free treatment under the U.S. Mexico Canada Agreement (USMCA) negotiated during Trump’s first term.
On his first day in office, the president released his America First Trade Policy. He directed his agencies to begin a public consultation process by April 1 to renegotiate the USMCA, specifically citing transnational subsidies by China into Mexico. Chinese state-owned enterprises (SOEs) operating in Mexico or providing subsidized material, finances or labor, are all examples of transnational subsidies the Trump administration wants to see the Mexican government curtail as part of the tariff and USMCA negotiations.
Under current law, the United States, Canada and Mexico must review the USMCA starting July 1, 2026. The options are to renew the agreement for an additional 16 years, terminate the agreement in 2035 or engage in annual negotiations to resolve differences. Trump’s election introduces another option—unilaterally leaving the USMCA. Republican leaders on Capitol Hill caution businesses not to underestimate the president’s willingness to leave the North American trade agreement, a move that would be both disruptive and unprecedented.
When considering the reasons for tariffs — negotiations, punitive measures and reorienting supply chains — most in Washington currently view the tariffs on Mexico and Canada as negotiation tools. The January 20 America First Trade Policy action aimed to expedite the 2026 USMCA negotiations by using tariffs to pressure partners to engage, especially on issues related to China.
The president’s strategy to apply tariffs on Mexico and Canada to counter Beijing should prompt manufacturers to scrutinize their supply chains more closely. During the first Trump administration and throughout Biden’s term, the focus was primarily on shipments directly from China. Since 2018, Beijing has sought to evade these tariffs, leading U.S. policymakers to recognize that focusing solely on goods shipped from China is insufficient. The Trump administration will now examine key inputs that originally came from China but are starting to appear from new sources.
The European theater
On February 3, Trump announced that the European Union was “out of line” and that he would impose tariffs on the 27-nation bloc and the United Kingdom “pretty soon.” This move is expected to open a new front in the Trump trade wars.
Machine builders, automation integrators and their suppliers relying on steel and aluminum from Europe could face the resumption of tariffs this year. Upon taking office in 2021, Biden negotiated an agreement with the European Union to suspend the 25% tariff on steel and 10% on aluminum, replacing them with tariff rate quotas for each of the 27 EU countries. Once the importer reached the quota for that product, the Biden administration would impose the tariff. It is widely expected in Washington that Trump will cancel that agreement, which the United States had pledged to honor through December 31.
The steel and aluminum industries have long been a major priority for Trump and will remain so throughout his second term. In the January 2025 metalworking manufacturers survey, 45% reported importing steel or aluminum from Europe, creating significant exposure for their companies should Trump reinstate, and possibly increase, the tariffs.
As seen from recent manufacturing plant tours across the country, the input costs incurred by U.S. manufacturers are evident. For example, a visit to a foundry in the South revealed dozens of robots and collaborative robots (cobots) fulfilling orders. Similarly, an auto supplier in the Midwest recently invested millions in an automation cell. The price of metal, the costs of components and the routes inputs take to the United States are all decisions now influenced by Washington.
Tax and tariff impact on machine builders
The uncertainties and opportunities generated by the president’s trade actions are just one factor for machine builders and automation integrators to consider in their customer relationships. This year, they must also account for the $4 trillion in tax increases slated to begin on January 1, 2026, if Congress does not act by the end of the year.
The Tax Cuts and Jobs Act of 2017 included multiple provisions to incentivize manufacturing in America. However, many of these provisions have begun to phase out or have expired entirely, increasing the cost of doing business in the United States and putting American companies at a global disadvantage. Starting on January 1, 2023, companies could no longer take advantage of 100% expensing under bonus depreciation when purchasing capital equipment. The threshold dropped to 80% that year and further to 40% this January. For customers of machine builders and automation integrators, and those companies themselves, they must place equipment into service by December 31, before the 20% expensing level begins next year.
The impact of tariffs and tax increases could have a combined negative effect on machine builders and automation integrators. Many of these companies have fixed-price projects that do not account for the costs of tariffs in their quotes, leading to reduced profit margins or losses on the job. Adding to this uncertainty are tax investment provisions such as 100% expensing and taxes on research and development (R&D) activities. Machine builders face multiple government-manufactured obstacles in 2025. The same tax law triggered a provision that, starting in 2022, companies must amortize their research and development (R&D) costs and capitalize those activities.
Imported materials facing tariffs used in qualifying R&D activities are also subject to Section 174 capitalization requirements. Therefore, many companies may be out of pocket for both the cost of the tariff and the tax on the capitalization of those costs. For example, a company that pays $100,000 in tariffs and has to capitalize $50,000 of the tariff costs under Section 174 could ultimately be out of pocket an additional $15,000 ($50,000 x 30% tax rate for flow-through entities).
This year, taxes, tariffs and Trump are all intersecting to have a consequential impact on every machine builder and automation integrator in the country. Understanding the tools the president has at his disposal, the reasoning behind his use of tariffs and preparing for the uncertainties and opportunities that trade and tax policy bring is critical to a successful business.
Tax consultants work with companies at all tiers of the supply chain to help foster this understanding. Those who believe the disruptions caused by tax increases and tariffs are temporary should reexamine the political environment in Washington, as all supply lines go through the nation’s capital.