Simulating Supply Chain Impacts in Response to US Tariffs
Thu Apr 10 2025
Author
Alok Joshi
As new tariffs come into effect around the world—including the latest wave introduced by Donald Trump— Retailers and manufacturers are beginning to feel the downstream impact. While these policies may be politically motivated abroad, their consequences are very real at home: on prices, operations, sourcing strategies, and ultimately, on consumers.
Here are some scenarios to play out that could potentially reshape the supply chain landscape—and what retailers and manufacturers need to be thinking about to predict, simulate and adapt.
US Demand Will Likely Soften
Tariffs act like a tax on trade—and even if it’s the US imposing them, goods become less attractive due to the increased costs at the point of entry for this market.
This could mean:
- Reduced order volumes,
- Postponed shipments, or
- US buyers actively seeking alternative suppliers all together .
Even high-quality, niche exports—wine, beef, dairy, seafood, wool—could face price resistance or substitution in a more protectionist American market. Forecasting systems for retailers and manufacturers alike will need to adapt to the change in overall demand. This will be crucial for any accurate simulation of potential impacts.
Impact on Staples vs. Cyclicals
Not all goods are impacted equally.
Staple goods—think toilet paper, rice, nappies—have consistent demand no matter what’s going on in the world. Cyclical goods, on the other hand (like electronics, fashion, or designer dog beds), are more sensitive to economic conditions and consumer confidence. When tariffs make things pricier, cyclical goods are usually the first to feel the pinch, as shoppers tighten their belts and prioritise the essentials.
Retailers dealing in discretionary or luxury items should prepare for potential demand dips, while those in staples might see stable volume but thinner margins. To clear stock that’s cyclical, you may need an appropriate pricing strategy to minimise potential wastage or profit erosion. Demand fluctuations from changing prices will impact the amount of inventory to maintain, simulating this impact may allow you to stay one step ahead of where to keep your stock most efficiently.
Domestic Logistics Take on New Significance
As international demand contracts, more product will need to be moved and sold domestically—which isn’t without challenges. Additional strain on domestic freight can come with significant time, cost, and infrastructure complexity. A change may be required to agreements between freight forwarding companies, suddenly impacting the demand in the logistics and spiking cost to serve goods as a result.
A pivot to local distribution will require better forecasting, labour planning, and inventory positioning to better adapt to domestic demand and stay ahead of ways to reduce costs for your business.
Re-Focusing on the Local Customer
The silver lining? A renewed emphasis on the consumer.
Retailers and brands may find opportunity in reshaping messaging and product assortments to align with “Buy Local” sentiment, particularly if previously export-focused products are reintroduced to the domestic market.
However, demand forecasting will need to adjust quickly. Products once tailored for US tastes and price points may require rebranding, resizing, or repositioning to succeed locally. The targeted US consumer may be very different to the local customer. Personalisation and segmentation models can help in clearing stock, targeting the domestic markets with highest demand and allowing supply chains to pivot to ensure inventory is kept in the right locations.
Margins Under Pressure: Limited Ability to Pass On Cost
Just like importers, exporters face cost and margin pressures when demand drops or trade friction increases. Producers may need to discount to retain US market share, or absorb some of the cost to stay competitive. For local markets, there may be a glut as fewer goods are shipped out to the US.
Either way, profitability takes a hit—unless there’s a well-planned pivot strategy, whether that’s:
- Expanding into alternative export markets,
- Re-deploying goods locally, or
- Exploring direct-to-consumer models within Australia
Leveraging AI in optimising pricing and promotions to minimise impacts to margin won't become a tool for competitive advantage but rather a tool for survival as supply chains adapt and potentially increase the cost to serve goods.
Supplier Contracts and Buffers: A New Standard
Suppliers and retailers will be reviewing their contracts closely.
Are volume commitments still realistic?
Is there pricing flexibility to account for sudden tariffs?
Do you have fallback plans if demand collapses?
These aren’t just procurement questions—they’re business continuity questions. Tools that help with better supplier transparency and negotiations can aid in preventing relationships breaking down to contract clauses.
Even the Penguins Can’t Escape
And yes, even the penguins of Heard and McDonald Islands aren’t safe from a 10% tariff these days—though one can only hope their fish are locally sourced.
In all these examples, we ran through a series of potential impacted business processes: demand forecasting, assortment planning, pricing and promotion planning, labour planning, inventory management, logistics optimisation and customer personalisation. To adapt to one process may not be enough - you need a holistic approach to simulate the end to end impact.
At jahan.ai, we have a suite of state of the art AI products from forecasting, assortment, inventory management and labour optimisation, all connected to form an AI Twin of your business to help navigate through the uncertain times ahead. If you are interested in seeing the art of the possible, we’d love to chat. Reach out on info@jahan.ai.
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