How New Tariffs Could Reshape Your Supply Chain Strategy

Global supply chains are being redefined as new U.S. tariffs potentially come into effect. Manufacturers, supply chain managers, and procurement experts now face pressing decisions about how to adapt strategies in response to the developing global tariff situation and their impact.

Historically, tariff policies have periodically disrupted trade, but the latest regulations stand to dramatically shift the manufacturing landscape. As of March 11, the Trump administration is poised to implement a 25% tariff on goods imported from Mexico and Canada. An initial 10% tariff on China went into effect in early February, and then was doubled to 20% on Chinese imports effective March 4. These measures aim to incentivize domestic production of critical components, reduce reliance on foreign supply chains, and strengthen U.S. industry.

For Original Equipment Manufacturers (OEMs) and supply chain professionals, the stakes are high. How do you maintain resilience? How do you stay flexible with regional optionality? Fortunately, there are several geographical alternatives emerging to help businesses maintain competitiveness and offset global disruptions caused by tariffs and trade conflicts..

Why Vietnam is a Solid Alternative to China

China has long been the go-to hub for electronics manufacturing and full assembly solutions. However, as tariffs on Chinese goods increase, Vietnam is rapidly positioning itself as one of the most attractive alternatives for advanced manufacturing. In fact, the country has been building its manufacturing infrastructure and competitive strategies for the last few decades.

Advantages of Manufacturing in Vietnam

1. Cost-Effective Labor
   Vietnam’s labor costs are significantly lower than China’s, with average monthly wages for manufacturing employees in Vietnam ranging from $250 to $350, compared to $600 to $1,000 in China. Despite the lower costs, Vietnam offers a highly skilled workforce, particularly in the electronics sector, with plans to train 50,000 semiconductor engineers by 2030. This combination of affordability and expertise provides excellent value for companies seeking electronics production capabilities.
2. 2. Rapidly Growing Manufacturing Infrastructure
   Over the past decade, investments in Vietnam’s industrial zones have surged, transforming the country into a major hub for electronics manufacturing. Companies such as Samsung and Foxconn have established large-scale operations, leveraging Vietnam’s skilled labor force, competitive costs, and strategic location near key markets. Samsung alone has invested billions of dollars in smartphone production facilities, making Vietnam one of its largest manufacturing bases. Meanwhile, Foxconn, a key supplier for Apple, has expanded its operations to produce components for various electronic devices. This rapid growth is further supported by government initiatives to attract foreign direct investment and improve infrastructure, solidifying Vietnam’s role in global supply chains for electronics.
3. Favorable Trade Agreements
   Vietnam has actively participated in trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These agreements lower tariffs and simplify trade relationships for businesses operating there. For example, under current trade policies, electronics imports from Vietnam into the United States face significantly lower tariffs compared to those from China, where tariffs on many electronics can range from 7% to 25% due to ongoing trade tensions. This gives Vietnam a competitive edge in exporting electronics to the U.S. market.

How Costa Rica Competes with Manufacturing in Mexico

Mexico has been a key player in manufacturing supply chains for U.S. businesses, particularly due to proximity and longstanding partnerships through agreements like the USMCA. However, the introduction of a 25% tariff on Mexican imports adds strain to this relationship. Costa Rica, on the other hand, is emerging as a viable alternative that combines skilled labor, strategic location, and cost advantages.

Key Benefits of Manufacturing in Costa Rica

1. Political Stability and Free Trade Agreements
   Costa Rica is recognized for its stable government and business-friendly environment, providing a secure and predictable setting for operations. A key advantage is its place as Central America's leader in free trade agreements, including those with major economies like China, the United States, and Mexico. These agreements significantly reduce tariffs, particularly on electronics imports, making Costa Rica an attractive hub for manufacturing and trade. For example, under its agreement with China, electronics imports face tariffs as low as 0-5%, while its deal with the U.S. ensures duty-free access for many tech products. In comparison, the U.S. imposed a 10% tariff on electronics imports from Mexico in 2025, highlighting Costa Rica as a more cost-efficient alternative for global trade and supply chain operations.
2. Highly Educated Workforce
   Costa Rica invests heavily in education, particularly in technical and engineering disciplines, ensuring businesses have access to a skilled workforce capable of meeting high manufacturing standards. In 2023, over 6,000 engineers entered the workforce, supporting the country’s growing manufacturing sector. Additionally, the government is making significant investments in advanced research facilities, industry-specific training programs, and partnerships with global companies to solidify Costa Rica’s position as a leading manufacturing destination.
3. Proximity to the U.S.
   Like Mexico, Costa Rica benefits from proximity to the U.S., allowing shorter shipping timelines and reduced logistical expenses. On average, shipping lead times from Costa Rica to the U.S. range from 2 to 7 days, depending on the shipping method and destination, making it an efficient option for businesses. Additionally, Costa Rica is within the same time zone as many U.S. cities, facilitating easier communication and coordination between teams.

Reshoring Manufacturing to the United States

While exploring foreign markets provides substantial relief from tariffs, reshoring part of your supply chain to the U.S. has also become a practical option as policies increasingly incentivize domestic production. Companies leveraging manufacturing services providers for electronic products, in particular, may want to assess these opportunities.

Considerations for Reshoring

1. Government Incentives
   Initiatives like the CHIPS Act and investment tax credits provide funding assistance for reshoring manufacturing processes involving critical technologies.
2. Enhanced Supply Chain Resilience
   Keeping production local reduces exposure to disruptions such as transportation delays, geopolitical uncertainties, and fluctuating foreign trade regulations.
3. Higher Labor Costs
   One of the main challenges of reshoring is the higher cost of labor in the United States. However, this can be offset by automation and lean manufacturing practices to achieve cost efficiency in the long run.
4. Closer Collaboration
   Having production facilities closer to home allows for tighter collaboration between manufacturing and product development teams. This proximity is advantageous for accelerating prototyping and reducing time-to-market for innovative products.

Reshoring won’t work for all companies, but for those with specific needs for quality assurance, intellectual property protection, or proximity to their end market, it may provide unmatched long-term benefits in a shifting global landscape.

Diversification as a Risk Management Strategy

While exploring alternative manufacturing options may be a viable short-term solution for businesses seeking to minimize disruption from trade tensions, long-term risk management strategies should also focus on diversifying supply chain operations. This includes building relationships with multiple suppliers in different regions to mitigate potential risks and reduce reliance on any single source. As the landscape of manufacturing continues to evolve, diversification will be key in mitigating risk and ensuring sustainable growth for businesses. So, it is essential for businesses to continuously assess and adapt their supply chain strategies to remain competitive in the global marketplace.

Positioning for Tomorrow’s Supply Chain

The potential tariffs and trade conflicts represent a seismic shift in how businesses will operate their supply chains, but these changes also present opportunities to build more resilient and efficient manufacturing programs. Vietnam and Costa Rica offer flexible and cost-effective alternatives for manufacturing outside traditional hubs, while reshoring certain operations to the U.S. could yield long-term advantages for companies heavily reliant on contract manufacturing.

The key is to act now. Evaluate your current supply chain vulnerabilities, explore the regions best suited for your business needs, and adapt to this new era of global trade dynamics. Organizations that respond with agility and innovation stand to lead—not just survive—in the face of changing policies.