Tariffs :: The Primary Supply Chain Risk in 2025

Introduction In 2025, tariffs have emerged as the single largest change and cause for concern within global supply chains. While supply chains have spent the last six years navigating external challenges such as COVID-19 and regional wars, tariffs have now become the primary driving force. This insight comes from a report by McKinsey & Company, which has conducted annual surveys of global supply chain leaders for six years to track the evolution of risk management and resilience.

Current Challenges and Strategic Shifts The 2025 landscape highlights a significant shift in how companies operate. Rather than focusing on long-term digital transformation, many organizations are pivoting toward immediate tactical manoeuvres, such as increasing inventory or nearshoring, to mitigate the impact of new tariff policies.

The report outlines several critical lessons for global trade and supply chain management in 2025:

Tariffs as the Primary Risk: Geopolitical and economic shifts, specifically tariffs, are now the top challenge. The survey indicates that 82% of companies are being affected by these tariffs, requiring them to be as prepared for policy changes as they are for pandemics or wars.

Tactical Cost Management: While many firms consider passing additional costs onto customers, only about 45% actually do so. Instead, successful companies maintain stability by using other strategies, such as supply chain restructuring and inventory optimization.

Regionalization and Geographical Diversification: To bypass the impact of tariffs, companies are moving their supply chains closer to their home markets. This includes shifting operations away from China toward the United States, Mexico, Eastern Europe, and Southeast Asia. Nearshoring and onshoring have become primary weapons in risk mitigation.

Multi-tier Supplier Visibility: Transparency is no longer just about Tier-1 (direct) suppliers. To comply with legal mandates and understand the true impact of tariffs, it is essential to have visibility into Tier-2 suppliers and beyond, despite the difficulty of obtaining this data.

Immediate Action vs. Long-term Transformation: During crises, companies often prioritize immediate tactics like supplier negotiations over digital growth. However, the sources suggest that firms that quickly transition back to advanced technologies (such as AI or advanced planning systems) will be the most prepared for future disruptions.

The Necessity of Artificial Intelligence (AI): Although the use of AI in supply chain management is still in its early stages, it holds massive potential for demand forecasting and inventory optimization. Modern technology is considered indispensable for building a resilient supply chain in the future.

Conclusion

To thrive in the modern era, companies must look beyond solving immediate issues. Survival depends on focusing on long-term transparency, strategic geographical shifts, and the acquisition of advanced technological capabilities.

Analogy for Better Understanding: Managing a global supply chain today is like navigating a ship through a changing climate. While the crew previously focused on surviving sudden “storms” (like COVID-19 or wars), they must now adjust to a permanent change in the “ocean currents” (tariffs). Simply patching leaks (passing costs to customers) isn’t enough; the captain must find new routes (regionalization), understand exactly what is in the cargo hold’s deepest levels (multi-tier visibility), and use the latest radar technology (AI) to stay ahead of the next shift in the tide.

Source: Supply chain risk pulse 2025: Tariffs reshuffle global trade priorities