What Are Tariffs and How Do They Work?
A tariff is a government-imposed tax on imported goods or services designed to make foreign products more expensive and less competitive compared to locally produced alternatives. Governments use tariffs to protect domestic industries from international competition, generate revenue, and gain leverage in trade negotiations.
There are a few key types:
- Ad valorem tariffs: Based on the value of the imported good (e.g., 10% of total cost).
- Specific tariffs: A flat fee per unit of good (e.g., $0.25 per pound).
- Mixed tariffs: A combination of the above.
Though taxes are intended to support local industries, they can have wide-reaching effects—altering prices, supply chains, and consumer behavior across the economy.
The Impact of Tariffs on Manufacturing Companies
For large manufacturers, tariffs create cost volatility across their global supply chains. Most large-scale manufacturing operations—especially in sectors like automotive, electronics, and consumer goods—rely on imported materials, components, or finished products to maintain their operations at scale.
Key Impacts Include:
- Higher input costs: Especially for imported raw materials like steel, aluminum, or semiconductors.
- Disrupted production timelines: Sourcing delays from affected regions can cause bottlenecks.
- Margin pressure: Companies must choose between absorbing increased costs or passing them to consumers.
- Increased financial and strategic complexity: They often change quickly, requiring fast and nimble decision-making.
These factors ultimately affect a manufacturer’s competitiveness in both domestic and international markets.
Real-World Example: Audi, Porsche & Volkswagen
In early 2025, the Trump administration announced a new wave of tariffs targeting European automakers, significantly impacting high-end brands like Porsche, Audi, and Volkswagen. These companies rely on exporting luxury models to the U.S. from European factories, making them particularly vulnerable to increased import taxes.
In response, Porsche confirmed it would raise prices for U.S. buyers, while Audi and Volkswagen began evaluating production options in Mexico and the U.S. to offset the financial impact. This is causing dealers to rase sticker prices, and reduce affordability for consumers.
Tariffs don’t just affect foreign companies—they also create ripple effects throughout the supply chain, impacting local retailers, distributors, and ultimately, end customers. Additionally, they force multinational manufacturers to rethink their production strategies, leading to potential shifts in where products are built and assembled to avoid costly import taxes.
Historical Context: The Dingley Tariff’s Impact
Passed in 1897, the Dingley Tariff Act imposed some of the highest import taxes in U.S. history, with an average rate of 47%. Designed to protect American manufacturers, the law had significant consequences, particularly for the steel industry. U.S. steelmakers, shielded from foreign competition, were able to raise domestic steel prices without external pressure to keep costs low.
While this benefited steel producers, downstream industries such as construction and railroads bore the brunt of rising material costs. Higher steel prices made it more expensive to build infrastructure, slowing the growth of industries that relied on affordable steel. As a result, only a few key domestic players profited, while businesses that depended on steel faced financial strain.
The Dingley Act serves as a historical example of how tariffs can create winners and losers, especially in highly interconnected supply chains. Protectionist measures may strengthen certain domestic industries, but they often lead to inflationary pressures that ripple through the economy, affecting businesses and consumers alike.
Will Tariffs Bring Back Manufacturing?
The idea that tariffs will bring manufacturing back to the U.S. is a central debate in trade and economic policy. The logic seems straightforward: if foreign goods become too expensive due to these additonal taxes, companies will be incentivized to invest in domestic alternatives. In theory, this should lead to more factories, jobs, and economic growth within the country.
However, in practice, this reasoning often falls short. Labor costs in the U.S. remain significantly higher than in countries like Vietnam, Mexico, or China, making domestic production less attractive. Additionally, automation has already replaced millions of traditional manufacturing jobs, reducing the need for large workforces.
Even products labeled “Made in the USA” frequently contain globally sourced components, highlighting the complexity of modern supply chains. While tariffs can encourage some reshoring, the overall impact tends to be gradual rather than transformative. Without parallel investments in infrastructure, innovation, and workforce development, a large-scale manufacturing resurgence remains unlikely.
Who Pays for Tariffs?
Ultimately, the end consumer bears most of the cost. When a government imposes a tariff on a foreign product, the U.S. importer—whether a wholesaler, retailer, or manufacturer—pays the added cost. That importer then has to decide whether to raise prices on consumers, making the product more expensive and potentially reducing demand, absorb the added cost, which directly cuts into profit margins, or seek alternative suppliers and relocate production, a process that can take months or even years.
The 2025 European auto tariffs illustrated this clearly. Unable to absorb the full cost of new import taxes, Porsche increased prices for American buyers. The extra money didn’t come from Germany—it came from consumers at the dealership.
Does Anyone Benefit From Tariffs?
Despite the drawbacks, certain players do benefit:
- Domestic manufacturers in protected industries: Tariffs on steel or aluminum, for example, benefit U.S. producers of those commodities—at least in the short term.
- Politicians and local governments: Can claim to support American industry and jobs.
- Startups and new entrants: Companies that were previously priced out of competing with cheaper imports may now find themselves viable alternatives.
However, these benefits are often temporary and unevenly distributed. The overall economic trade-offs must be carefully considered.
How Workforce Management (WFM) Helps Mitigate Tariff Pressures
When tariffs increase production costs, manufacturers often look for savings elsewhere to stay competitive. One major—but often under-optimized—area is workforce efficiency. This is where Workforce Management (WFM) solutions come in.
WFM tools help manufacturers:
- Right-size labor based on production demand: Avoid costly overstaffing during slowdowns caused by tariff-induced demand fluctuations.
- Enable labor sharing across plants: If one facility is underutilized, workers can be reassigned to another location.
- Avoid compliance risks and fatigue violations: Particularly important when ramping up or down staffing in response to volatile market conditions.
- Minimize idle time: By intelligently forecasting labor needs tied to production schedules, WFM reduces the cost of unnecessary labor hours.
As tariffs make materials more expensive, manufacturers cannot afford inefficiencies elsewhere. Reducing labor waste, aligning schedules to fluctuating demand, and ensuring compliance all contribute to maintaining profitability during disruptive policy changes.
Why Workforce Management Is Essential in the Age of Tariffs
As global trade tensions rise and tariff policies remain unpredictable, manufacturers must adapt to become leaner, more flexible, and strategic. While materials and logistics may be influenced by foreign policy, labor remains an area manufacturers can control—if they have the right systems in place.
Workforce Management (WFM) tools are critical for cost containment and agility. When tariffs increase the cost of imported goods, reducing waste in areas like labor can help preserve profit margins. WFM enables operations leaders to respond in real time to demand fluctuations, minimizing costly overstaffing or underproduction.
By aligning workforce planning with actual production needs, companies ensure that every labor dollar delivers value. WFM also supports shared labor pools across plants, better shift planning, and more efficient compliance management, all of which contribute to stronger bottom-line results.
In a world where global trade policies can change overnight, the manufacturers that thrive will be those who optimize every aspect of their operations, starting with their workforce. Tariffs may be beyond your control, but how you manage your people isn’t. That’s where the battle for profitability will be won. Book a demo with us today to learn how Indeavor’s workforce management solutions can help you stay competitive and agile in these uncertain times.
