Donald Trump’s second term as US President is bringing policies built around the central principle of ‘America First’. In the area of international trade, new and wide-ranging import tariffs are being proposed that would directly impact US trade with many countries. In effect, they raise the cost to US industry and consumers of goods or raw materials sourced from overseas, making domestic sourcing more attractive on price grounds.
A danger is that wide-ranging new trade tariffs imposed by the US on its imports of goods are met with the response of retaliatory import tariffs from other countries around the world. Economists say that a major round of ‘tit-for-tat’ international trade tariffs would reduce overall international trade volumes and negatively impact the world economy.
Industries such as automotive – with its long, complex and internationally-based supply chains – are particularly exposed to such additional taxes as well as the potential additional administrative ‘friction’ generated as parts or finished vehicles cross borders and are subjected to new checks.
Dykema is a US law firm with a practice group that covers the automotive and transport sector. We spoke to Laura Baucus, Dykema’s Automotive Industry Group Director and Supply Chain Counsel, and Mary Beth McGowan, Dykema Government Policy Advisor, to hear more about the potential impact of trade tariffs and risk mitigation measures.
JA: How serious could the consequences of new import tariffs be and where is the potential disruption going to be greatest?
Laura Baucus (LB): Tariffs don’t just raise costs—they have the ability to create contractual chaos. Some supply agreements don’t specify who absorbs the hit, triggering pricing disputes and straining long-term relationships. Industries with deeply intertwined international supply chains may be particularly vulnerable. Tariffs which change—sometimes daily—leave companies unable to plan. In the auto industry, where parts cross borders daily, this unpredictability could impact operations.
JA: How can firms—especially automotive suppliers—mitigate the risks posed by additional trade tariffs?
LB: A proactive legal strategy is key. Businesses should review their contracts to see whether they address tariff-related cost increases, whether price adjustment mechanisms exist, and if alternative sourcing is an option. Pricing clauses and force majeure provisions deserve a close look. Going forward, companies in the auto and other manufacturing industries can manage tariff swings by refining contract terms and building flexibility into sourcing strategies [‘natural hedging’] to keep production moving, no matter how trade policies shift.