On February 1, 2025, President Trump signed three executive orders imposing tariffs on Canada, Mexico, and China. While he later granted a 30-day suspension for Canada and Mexico, a 10 percent tariff on all imports from China took effect on February 4. Shortly after, on February 10, 2025, he signed two proclamations expanding the existing Section 232 tariffs on steel and aluminium. These new orders eliminate all previous exemptions, broaden the list of derivative articles subject to tariffs, and increase the aluminium tariff rate from 10 percent to 25 percent. The changes are set to take effect on March 12, 2025. In response, China announced retaliatory tariffs on approximately $21.2 billion worth of U.S. exports, with rates of 10 percent and 15 percent, effective immediately on February 10.

These escalating trade measures could have significant implications for multinational enterprises (MNEs), including increased costs, supply chain disruptions, and heightened regulatory scrutiny. This article explores the key challenges, explains why MNEs must act now, and provides strategic guidance on how to navigate these changes.

This article is written by Juan Dosal ([email protected]) and Jaouad Bantal ([email protected]). Juan and Jaouad are part of RSM Netherlands International Consulting Services with a focus on Global Supply Chain Management.  

Implications on Businesses

Simply put, a tariff is a tax on imports that raises the price of foreign goods, making them more expensive for consumers and businesses. Tariffs are often used to protect domestic industries from foreign competition. On Monday, February 10, President Trump signed a proclamation imposing a 25% tariff on all steel and aluminum imports, regardless of their country of origin, set to take effect on March 12. While tariffs on these materials were already in place, certain countries, including the UK and EU, had previously been granted exemptions. However, under these expanded measures, the 25% tariff will now apply universally, including to all third countries, such as the EU.

The new tariffs imposed under Trump 2.0 are set to have far-reaching consequences for multinational businesses, particularly those reliant on international trade and complex supply chains. One of the most immediate impacts will be a rise in costs for US companies that import goods from China, Canada, Mexico, and the EU. Industries that depend heavily on raw materials such as steel and aluminium will be hit the hardest, as the increased tariff rates will drive up production expenses. Manufacturers, particularly in the iron, steel automotive and construction sectors, will struggle with higher input costs, potentially making U.S.-made products less competitive in the global market.

Beyond cost concerns, supply chains will face significant disruptions. Businesses that have spent years optimizing global sourcing strategies may now need to find alternative suppliers or shift production to different regions. This will lead to inefficiencies, delays, and increased operational complexity. The situation is further compounded by China’s swift retaliatory tariffs on U.S. exports, which threaten key American industries such as agriculture, technology, and consumer goods. U.S. farmers, for example, could see major setbacks in soybean, pork, and dairy exports, while tech companies that rely on Chinese components—such as semiconductors and circuit boards—may face sourcing difficulties and rising prices.

The impact will not be limited to the U.S. economy. European businesses handling iron and steel are already struggling with increased regulatory burdens and rising carbon costs under the EU’s Carbon Border Adjustment Mechanism (CBAM). The introduction of new U.S. trade barriers will only add to their challenges. In particular, the European steel industry is at risk of being squeezed between escalating trade wars and stringent climate regulations.  

During Trump’s first administration, Washington and Brussels clashed over a 25 percent tariff on steel and a 10 percent tariff on aluminium, impacting 6.4 billion euros worth of European exports. In the new term, according to EUROFER, when product exemptions and Tariff Rate Quotas are removed, the EU could lose up to 3.7 million tonnes of steel exports to the U.S., its second-biggest export market, which accounted for 16% of total EU steel exports in 2024. Replacing this lost trade will be extremely difficult. At the same time, the move risks causing significant trade flow shifts. In 2024, the U.S. imported about 23 million tonnes of steel from third countries, and these volumes are now likely to be redirected to the EU market. This will exacerbate the already fragile situation in Europe, where overcapacity and cheap imports from Asia, North Africa, and the Middle East are putting severe pressure on the industry. Overall, the loss of access to the U.S. market, combined with an influx of cheaper steel from other regions, could lead to overcapacity in Europe, further weakening investment in green transition initiatives and accelerating deindustrialization.

Therefore, for multinational corporations, navigating this evolving trade landscape will require swift strategic adjustments. Companies will need to reassess their supply chains, explore alternative sourcing options, and develop contingency plans to mitigate rising costs. At the same time, they must closely monitor global trade policies, as regulatory requirements continue to shift. Businesses will also need to rethink their transfer pricing and indirect tax strategies, ensuring compliance with new trade rules while optimizing tax efficiency. In an environment of growing protectionism, companies that can quickly adapt to these changes will gain a competitive advantage, while those that fail to adjust may struggle to maintain profitability in an increasingly uncertain global market.

The EU’s Response

The European Union has strongly opposed President Trump’s proposed "reciprocal" trade policy, calling it an unjustified and regressive move. In a firm statement, the European Commission made it clear that any tariff increases imposed by the U.S. would be met with an immediate and decisive response. The EU argues that its trade policies are already among the most open in the world, with over 70% of imports entering the bloc tariff-free, and sees no valid reason for heightened U.S. tariffs on European exports.

The Commission has positioned itself as a defender of free and fair trade, emphasizing that it will not tolerate protectionist measures that create barriers to global commerce. It has vowed to take retaliatory action against any unjustified tariffs that disrupt trade flows or target legally established and non-discriminatory policies. This signals the potential for escalating trade tensions between the EU and the U.S., with Brussels likely to impose countermeasures to protect European industries from economic harm.

Meanwhile, acknowledging the risks, the European Commission will present a Steel and Metals Action Plan in Spring 2025 under the Competitiveness Compass to address investment needs, access to raw materials, trade defense, and long-term safeguard measures for iron and steel sectors. With global competitors like the U.S. and China providing heavy subsidies and support to their industries, the EU is also reviewing CBAM under the Compass to potentially expand its scope to more sectors and downstream products. Therefore, while the Commission aims to water down several ESG regulations, such as CSRD, CSDDD, and the EU Taxonomy, in a bid to ease the burden on businesses, the EU’s decarbonization ambitions remain unchanged, as they are seen as crucial for reducing dependencies on foreign energy and raw materials.

Why Companies Need to Act

Failing to address the impact of these tariffs can expose businesses to significant financial, operational, and regulatory risks. One of the most immediate concerns is profitability erosion, as traditional transfer pricing models may no longer reflect the new cost structures imposed by tariffs. Without adjustments, companies could see shrinking margins—or even outright losses—as they struggle to absorb higher import costs while remaining competitive in key markets.

Beyond financial strain, regulatory scrutiny is set to intensify. Tax authorities and customs officials will closely examine intercompany transactions, ensuring that valuations align with the new tariff-driven pricing dynamics. MNEs should anticipate increased audits, documentation requirements, and potential disputes over pricing methodologies. Compounding this challenge is the heightened risk of double taxation. As jurisdictions impose unilateral tax adjustments to account for tariff-related price shifts, companies could face conflicting tax obligations, leading to costly disputes and the possibility of being taxed twice on the same income.

Operational disruptions add another layer of complexity. Many businesses will be forced to reassess their supply chain strategies, potentially shifting production to alternative locations or sourcing from new suppliers. These changes may invalidate existing tax structures and pricing models, requiring companies to recalibrate their intercompany agreements to remain compliant and efficient. Without proactive planning, these disruptions could create cascading financial and logistical challenges, further straining resources and limiting a company’s ability to compete effectively in an increasingly protectionist trade environment.

Takeaways for Multinational Enterprises (MNEs)

MNEs must prepare for the possibility of broad-ranging tariffs that could significantly impact their operations. While it remains uncertain whether the U.S. will extend tariffs to all products and trading partners, businesses must act proactively, as further measures could be implemented at short notice. Given the potential for higher costs, disrupted supply chains, and increased regulatory scrutiny, MNEs should conduct scenario planning and adopt strategies to mitigate risks.

One of the most pressing areas for consideration is transfer pricing models. Companies must reassess their intercompany pricing structures to ensure they account for tariff-related cost changes, preventing unintended tax consequences. Closely linked to this is the need to adjust profit allocation, as tariff-induced shifts in cost structures may require modifications to how profits are distributed across jurisdictions to maintain compliance with international tax regulations.

At the same time, customs valuation practices should be carefully reviewed to ensure alignment with transfer pricing policies. Discrepancies between declared customs values and intercompany pricing could trigger audits and lead to costly penalties. To minimize risks, MNEs should enhance their transfer pricing documentation processes, maintaining robust records to justify their pricing methodologies in case of regulatory scrutiny.

Given the unpredictable nature of trade policies, companies may also benefit from Advance Pricing Agreements (APAs), which allow them to lock in approved transfer pricing methodologies with tax authorities, reducing uncertainty and mitigating potential disputes. Furthermore, businesses must stay ahead of regulatory changes, closely monitoring evolving trade policies and adjusting their strategies accordingly to maintain compliance and competitiveness

How to anticipate

Navigating the evolving trade and transfer pricing landscape requires expertise and agility. Our team specializes in helping MNEs manage complex international tax and transfer pricing challenges. We provide:

  • Custom Transfer Pricing Strategies: Tailored approaches to ensure compliance while optimizing tax efficiency in light of new tariffs.
  • Supply Chain Analysis: Strategic recommendations for restructuring supply chains to minimize cost increases and mitigate disruptions.
  • APA Negotiation Support: Assistance in securing agreements with tax authorities to obtain certainty on transfer pricing methodologies.
  • Audit Defence and Compliance Assistance: Guidance on responding to heightened regulatory scrutiny and ensuring documentation readiness.
  • Technology-Driven Solutions: Advanced analytics to assess the financial impact of tariffs and model potential transfer pricing adjustments. 

Forward thinking

The resurgence of trade protectionism under Trump 2.0 presents a complex and uncertain landscape for MNEs. With tariffs escalating and retaliatory measures from key trading partners already in motion, businesses must navigate rising costs, supply chain disruptions, and intensified regulatory scrutiny. The implications extend beyond the U.S. economy, affecting global industries, particularly those dependent on raw materials, manufacturing, and international trade.

As tariffs reshape global trade dynamics, MNEs must take a proactive stance. Companies that reassess their supply chains, adapt their transfer pricing models, and align their customs and tax compliance strategies will be better positioned to weather the storm. Regulatory scrutiny will only intensify, making robust documentation and strategic planning essential to maintaining compliance and avoiding costly disputes.

Moving forward, MNEs must remain agile, continuously monitoring policy changes and anticipating further trade actions. The EU’s firm stance against U.S. tariffs, coupled with potential countermeasures, suggests that trade tensions may escalate further, requiring companies to prepare for additional volatility.

RSM is a thought leader in the field of Supply Chain Management. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.