Navigating tariff turbulence in the industrial manufacturing sector
Laying the groundwork for resilience and future success through risk management and strategic adjustments
In the face of new US tariff policies, the industrial manufacturing (IM) sector anticipates major disruptions to global supply chains, rising costs, and added complexity in logistics and production planning. Proposed tariffs on specific imports, announced by the Trump administration in April 2025 and now going into effect,1 are prompting companies to reevaluate operations. A May 2025 KPMG LLP survey of C-suite executives found that the sector—central to many global supply chains—is in the early stages of a strategic shift to manage the financial and operational fallout.2
Tariffs’ impact on financial health and operations
Over 40 percent of surveyed IM executives reported a decline of 1 percent to 5 percent in gross margins due to the tariffs—somewhat higher than the 32 percent average across industries. However, gross margins have remained relatively unchanged for a quarter of IM executives (25%).
Rising raw material costs contributed to this decline, cited by 36 percent of respondents—the highest among all sectors. Another driver was lagging sales: 57 percent of IM firms saw declines, above the 45 percent industry average. Foreign markets were particularly affected, with 36 percent of IM execs reporting a 16 percent to 25 percent drop in sales. Still, 32 percent of IM firms reported no change in customer demand.
Planning and investments
Despite the disruption, industrial execs surveyed showed cautious optimism about tariff stability: 47 percent said they were confident in relying on current tariff levels for planning, slightly higher than the 40 percent average across sectors.
At the same time, 57 percent of IM respondents said they were postponing or scaling back investments due to tariff uncertainty—mirroring other sectors. This included 39 percent deferring major capital investments by 7 months to 12 months, with technology, research and development, and product development hit hardest.
Risk preparedness strategies
To navigate ongoing volatility, IM companies are analyzing duty spend more closely. More than one third (36 percent) of IM respondents reported over 75 percent visibility into duty spend in their financial planning and analysis process, versus 19 percent in other industries.
Firms are also investing in better data collection to strengthen supplier and third-party risk management. Almost two thirds (64 percent) of surveyed IM execs have prioritized this effort, which supports both compliance and risk strategy. Similarly, 64 percent agreed that regulatory demands have significantly limited their flexibility in responding to tariffs—on par with cross-industry sentiment.
Mitigation strategies
To offset tariff impacts, 79 percent of sector execs surveyed said their company passed 1 percent to 50 percent of their tariff costs to customers—similar to the 73 percent average across other sectors.
Nearly 65 percent of surveyed IM executives reported that it would take their company one year to two years to bring manufacturing and/or operations to the US, and that product disruption during this transition period was a major concern expressed by 46 percent of them.
Supply chain reconfiguration was cited by 57 percent of IM respondents as the most important mitigation strategy—above the 53 percent cross-industry average—surpassing even operational efficiency (61 percent). Another 24 percent were exploring relocation to foreign sources with lower tariffs, similar to the overall 22 percent.
Nearly half (46 percent) of IM respondents said domestic relocation was “somewhat feasible.” Of those, 64 percent estimated the move would take one to two years, compared to 57 percent overall. However, 46 percent flagged product disruption as a major challenge—among the highest across some sectors and not even a top-three hurdle in others.
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While tariffs are reshaping the IM landscape, the sector’s response has blended caution with strategic adaptation. By investing in supply chain remodeling and operational agility, IM firms are positioning for continued growth despite the shifting trade environment—laying the foundation for stronger risk management and long-term competitiveness.
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