New import tariffs introduced by the United States are shaking the pillars of a longstanding status quo in international trade. All countries will have to pay a 10% tariff on goods shipped to the United States, with rates going higher for countries with larger deficits. Not only is China in this latter group, but nearby Southeast Asian countries—critical to offshoring from China—are also impacted. A notable example is Vietnam’s 46% tariff rate, which will potentially disrupt Apple’s diversification strategy. Needless to say, the global supply chains that manufacturers have been accustomed to for decades are being uprooted, at least for the short term.
The United States is the world’s largest importer of goods, so manufacturers can’t just shift their attention away from the country. Instead, they must carefully plan for how they will address the new reality. Some manufacturing brands, such as Volkswagen, Johnson & Johnson, and TSMC, have invested billions in reshoring projects to help circumvent the pain from tariffs. Others will be compelled to turn to automation and robotics to overcome higher labor costs. One technology area ABI Research anticipates growth for is manufacturing and supply chain software. These digital tools will be instrumental in reducing costs and providing the visibility needed to realign manufacturing supply chains.
Tariff-Induced Challenges for Manufacturing
Under the new tariffs imposed by the Trump administration, anything from a phone accessory to an Artificial Intelligence (AI) server will potentially cost more for the customer. Even if a company successfully reshores production, which can take years, many manufacturers still rely on foreign sourcing of components and raw materials. For example, Hewlett-Packard Enterprise (HPE) is one of the most prominent AI server Original Equipment Manufacturers (OEMs) in the United States. However, if you did a product teardown, you would find components and materials that trace back to Mexico, China, Taiwan, India, Singapore, Malaysia, and other places abroad. Therefore, the 10% (and higher) tariffs on these components and materials will naturally drive up HPE’s production costs. This will likely lead to higher selling prices for the end customer.
It's a similar story for Internet of Things (IoT) hardware, which is built from components supplied by foreign nations. For instance, if an IoT device is made in China at the 145% tariff rate and you replace it every 2 years, then your costs will more than double.
This challenge will be replicated across many manufacturing verticals, leaving organizations scrambling to find ways to lessen margin pressures. On one hand, manufacturers want to maximize the profitability of their goods. But on the other hand, they must be careful not to increase price points past their customers’ threshold. This is especially true if you produce goods with high price elasticity, such as soft drinks, clothing, and electronics, to name a few.
In this sea of macroeconomic uncertainty, ABI Research sees hope in software-based technology solutions alleviating the pain.
How Software Can Dampen the Tariff Impact on Manufacturers
If the U.S. tariffs are here to stay, manufacturers will have two key priorities: reduce operational costs and restructure their supply chain network. Software will act as the bridge for manufacturers to achieve both of these goals.
To walk you through our position, consider Computer-Aided Design (CAD). CAD platforms are where innovative ideas are born, allowing manufacturing engineers and design teams to create detailed digital models of products before physical production. Given its essentiality, manufacturers will not give up investing in CAD amid current macroeconomic headwinds, but they can reduce its cost. Software-as-a-Service (SaaS)-based CAD solutions are, on average, 31% cheaper than their on-premises equivalents. While ABI Research already forecast the SaaS-based CAD market to outpace on-premises solutions over the next decade, the U.S. tariffs will expedite the former’s adoption. Top CAD software providers like Autodesk, Dassault Systèmes, Siemens, and PTC will be big beneficiaries of the accelerated investment growth in SaaS-based offerings.
Industry Analyst James Iversen foresees the new tariffs generating momentum for lightweight and flexible CAD software. He stresses that manufacturers will prioritize solutions that allow them to easily scale up or down the number of user seats they have, thereby controlling costs. Beyond this, many industrial firms will be more open to CAD solutions with less functionality, but lower costs. Iversen cautions that these “lightweight” CAD offerings will not be popular among advanced manufacturing industries like automotive and heavy machinery due to their necessity for best-of-breed technology. However, pharmaceuticals, Consumer Packaged Goods (CPGs), and others are expected to switch to lightweight CAD software.
Next, the addition of AI in supply chain management software is helping manufacturers minimize the financial impact of the new U.S. tariffs. Supply chain software providers have been increasingly integrating AI features into their offerings to improve visibility and draw meaningful insights from logistical data. Case in point, Palantir Foundry began promoting its Artificial Intelligence Platform (AIP) once the Trump tariffs were announced. The platform factors in disparate company data to assess how tariffs impact supply routes, contracts, and costs of materials/components. From there, Large Language Models (LLMs) provide recommendations regarding new sourcing opportunities, inventory rebalancing, and product price modifications.
ABI Research Senior Analyst Ryan Wiggin also notes how startup freight broker Nuvocargo leverages AI in its supply chain software. Specifically, he reports on the value of its AI-driven outcomes in cross-border logistics. He says, “Nuvocargo has seen a stark increase in demand for services since tariffs were announced, as companies have turned to the company’s AI-powered digital platform to help with cross-border freight forwarding between Mexico and the United States.” With new tariffs, changing regulations, and increased theft at the U.S.-Mexico border, Nuvocargo provides much-needed visibility and automation for the manufacturing space. The company claims its platform allows manufacturers to get their goods through customs 34% faster, while reducing customs fees by up to 20%. These time and cost savings are a game-changer when dealing with the economic impact of tariffs.
AI’s more evolved variant, Generative Artificial Intelligence (Gen AI), is providing cost savings for Product Lifecycle Management (PLM) software applications. As previously mentioned, selecting new supply chain partners will be vital for manufacturers to successfully navigate tariffs. PLM software that has Gen AI features integrated into it will assist industrial organizations in this process. Gen AI can analyze sourcing data in the PLM system and suggest temporary alternative suppliers, identify bottlenecks, or highlight risks. It can also scan product materials and documentation to ensure compliance with local regulations, reducing the risk of fines or recalls. Although pre-tariff prices are unlikely to be found, Gen AI’s fusion with PLM software will provide temporary relief for manufacturers. It identifies the second-best supplier of new parts, components, or raw materials based on price, lead time, quality, and expected tariff rate.
Facing Tariff Uncertainty, Preparation Is Key
The fluctuating nature of tariffs makes it difficult to take out the crystal ball and make absolute predictions regarding their impact on manufacturing. At least in the short term, supply chain leaders will need to seriously re-evaluate their network and begin identifying areas where they can pivot operations. While there is no guarantee that these tariffs will be mainstays, you don’t want to be left unprepared.
Software solutions such as SaaS-based CAD and AI-powered platforms have a crucial role to play in this potential transition. Simulation software, which has not yet been discussed, is another technology at the disposal of manufacturers to alleviate the impact of tariffs. Solutions such as Coupa’s Supply Chain Design & Planning platform allow companies to run multiple simulations of their reshoring projects. This is highly relevant during the current geopolitical environment.
ABI Research anticipates boosted spending in SaaS-based CAD and supply chain software technologies as manufacturers adjust to potentially long-term trade norms. These digital tools empower manufacturers to reconfigure their supply chains, analyze potential partners, plan reshoring projects, and identify cost-cutting measures.
Before closing, the reader should be mindful that software providers alone cannot save the day for manufacturers facing supply chain uncertainty. However, its ability to reduce Capital Expenditure (CAPEX) and streamline decision-making will certainly help take a load off their shoulders.
For an in-depth study on how the Trump tariffs may impact technology supply chains, download ABI Research’s whitepaper, Navigating Tariff Turbulence In The Technology Sector. In this informative report, 21 of our analysts provide strategic guidance in their respective focus areas to help organizations gauge the severity of the tariff impact and how best to move forward.
