- President Trump’s “Liberation Day” will introduce new tariffs starting on April 2. The tariffs may force companies to rethink supply chain strategies to minimize penalties.
- Offshoring, onshoring, nearshoring and friendshoring are methods to manage production and trade, each with unique benefits and challenges.
- While this strategy worked during Trump’s first term, nearshoring and friendshoring may face complications due to more unpredictable U.S. tariff policies and strained relationships with trade partners.
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President Donald Trump’s “Liberation Day,” when he will roll out a new wave of tariffs, will have companies scrambling to adjust their strategies to limit penalties. To better understand the struggle, here’s how firms maneuver delicate trade-related supply chains.
During Trump’s first term in the White House, companies took steps to protect themselves from the costs associated with tariffs. But those methods may need to be adjusted to account for the administration’s latest tariff campaign.
What is offshoring?
Offshoring is the practice President Trump is trying to reverse. Offshoring is when a company moves some of its production or services overseas but still owns the means of that production. The most basic example is an American company establishing its own factory in China to make its product. This can expand beyond production to customer service as well.
Offshoring is often confused with outsourcing, but there are some distinct differences in the two practices. Outsourcing is when a firm contracts out production to a third party in another country.
An example of outsourcing is Nvidia using Taiwan Semiconductor Manufacturing Company (TSMC) to manufacture chips for its graphics processing units, or Apple using Foxconn to assemble iPhones. Both TSMC and Foxconn have a list of clients outside of Nvidia and Apple, respectively.
What is onshoring?
Onshoring, or reshoring, is moving production back home, in this case, to the United States. It can create high-paying American jobs and reduce dependence on trading partners like China. However, higher American wages create expenses for companies, and those costs are often passed to consumers.
A number of tech companies promised to bring some production back to the U.S. as part of the CHIPS and Science Act passed during the Biden administration.
What is nearshoring and friendshoring?
Nearshoring is when a company moves manufacturing and supply chains to countries close to home, while friendshoring is when the supply chain is routed through countries allied with the U.S., especially ones that have preferable trade agreements. Technically, it’s still offshoring, but it reduces dependency on economic adversaries like China, avoids the high costs of American manufacturing and skirts trade-related levies.
Nearshoring often sees manufacturing moved to countries like Mexico, Vietnam and Malaysia. But it can cause its own set of issues. Vietnam accused Chinese companies of using fake “Made in Vietnam” labels to avoid tariffs during Trump’s first term.
Why nearshoring or friendshoring may backfire this time
“Liberation Day” could throw a wrench in any plans to nearshore or friendshore. As Trump rolls out his tariff policies, which countries might remain viable friendshoring partners is unclear.
He has promised levies across the globe and even next door, frequently targeting Mexico and Canada.
When the tables turn on American companies
Friendshoring isn’t solely for American companies attempting to avoid tariffs imposed by the U.S. In 2018, after the EU placed 25% retaliatory tariffs on Harley-Davidson motorcycles coming into the bloc, the company moved some of its production from the U.S. to Thailand to reduce the impact of those levies. Still, the company ate $166 million due to the trade dispute.
At the time, Trump was critical of the move by the motorcycle company.
“Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag,” the president wrote in a post to Twitter, now X, at the time. “I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade.”
Foreign firms can also use nearshoring to their advantage. After the U.S. put import controls on Chinese technology, some companies shifted production out of the country to still have access to its important American customer base.
