Tariffs vs sustainability - data, networks and technology can help companies thread the needle

Global supply chains face their greatest test in decades. The sweeping tariffs implemented since January have sent ripples through every industry, creating market volatility and forcing rapid strategic pivots. For sustainability-focused organizations, these disruptions threaten to derail years of careful environmental planning and carbon reduction targets, particularly those that outsource much of their production and sourcing. So, what do tariffs mean for reducing carbon and waste footprints?

With manufacturers and retailers scrambling to recalculate total landed costs, sustainability considerations risk being sidelined for immediate financial survival. Yet the most forward-thinking companies are finding that data-driven approaches can protect both bottom lines and Green initiatives—even as trade patterns undergo realignment (although very little is certain at this stage).

Navigating this is complex and the situation is, of course, evolving.

Leaving aside the unknowns, one of the tariffs’ goals is to boost manufacturing and employment in the US. If successful, the shift will undoubtedly drive a geographic reordering, as companies rearrange their supply chains to avoid the most punitive tariffs. This presents both potential wins and possible setbacks for corporate sustainability efforts.

Navigating uncertainty and complexity

Companies wanting to manage their costs while continuing to meet their sustainability goals will need to consider multiple variables. If they decide to shift their manufacturing to new locations to avoid high import taxes, they will also need to consider whether the energy mix of those locations aligns with their carbon emissions goals.

In a country where most electricity is generated using coal, oil or gas, products manufactured there will have a high carbon intensity compared to those manufactured in a country that relies on renewable energy sources.

For example, given that fossil fuels generate 62% of China’s electricity grid, according to the International Energy Agency, shifting production away from China to countries with cleaner grids and lower tariffs could also present a sustainability win.

On the other hand, while Canada — where renewables make up 67% of total electricity generation – could be a clean place to manufacture goods, it could also be a more expensive one if it is hit by high US import tariffs.

And while Canada as a whole currently has an electricity supply that is cleaner than that of the US, if the US private sector continues to invest in renewables – as it has in recent years – shifting operations away from a higher carbon intensity grid like China to the US might result in a net emissions reduction.

Moreover, given that logistics from freight and warehousing make up more than seven percent of global emissions, according to McKinsey, shifting production back to the US could look even more compelling for companies who are decarbonizing their logistics.

Of course, the tariff-energy nexus is not the only variable companies need to consider when designing or re-designing their sourcing strategies. Some decisions, for example, relate to costs such as higher wages for workers in the US. And, depending on the industry, companies also face geographical constraints for sourcing lower footprint materials.

Some industries could become more constrained by the availability of recycled materials. Footwear and fashion companies outsourcing production to manufacturing facilities overseas, for example, are not only dependent on that factory but also on the sources of raw and secondary materials that cluster around it, including recycled and bio-based material alternatives.

More broadly, a shifting tariff regime could also have an impact on clean energy adoption, since China produces the bulk of the world’s supply of components and technologies needed for renewable energy generation. China has also retaliated to US tariffs by restricting exports of the rare earth minerals needed to manufacture clean energy technologies. All this could therefore slow the US clean transition.

And, of course, if US tariffs succeed in bringing industries back onto American soil, this could increase demand for energy, particularly when it comes to the energy-intense manufacture of materials such steel and aluminum. Energy companies are assessing whether this increased energy demand could be supplied through renewables or would have to be met by turning coal-fired power stations back on. Under the current administration, phasing out coal is likely to slow, as will the adoption of renewable energy.

In some cases, shifts in the US tariff regime might yield sustainability benefits relatively quickly. One example would be the removal of the de minimis exemption, which has implications for sectors such as the fast fashion industry.

E-commerce retailers that ship low-cost items directly to the US – currently avoiding tariffs – have long been blamed for the vast volumes of waste. Closing this loophole threatens this business model, enhancing the cost competitiveness of companies producing higher-quality items that last longer and result in less waste.

As these and other examples demonstrate, for companies trying to navigate a shifting tariff landscape while juggling sustainability goals with raw materials considerations, and labor costs, the path ahead is far from clear.

Data provides clarity on sustainability

This is where technology can provide the insights needed to balance multiple priorities, including total carbon emissions, cost and raw material or production capacity decisions. Data and analytics can, for example, integrate data on sustainability factors such as carbon emissions and waste levels with supply chain data on facilities location and logistics and transportation. This can help companies make difficult decisions that involve multiple factors and complex trade-offs.

As new supplier relationships are built, for example, transportation management technology can help businesses re-draw distribution networks and prioritize both carbon reduction and cost-saving efficiencies.

Being part of a network means businesses can more easily change suppliers as needed, which will be critical as the effects of the tariffs kick in. Real-time communication can keep all involved parties connected and updated, both upstream and downstream.

In near real time, factory-planning technology can assess production and cost changes in factories as companies accommodate new cost constraints – possibly arising from tariff changes – or shifts in the sustainability of operating conditions, including energy generation.

When making planning decisions, Artificial Intelligence and Machine Learning can analyze changing demand patterns and supply availability and balance efficiency, resiliency, and cost with carbon reduction, resource efficiency, and lower inventory waste.

And technology can provide visibility and scenario planning for how the carbon intensity of a variety of products would be affected by shifting manufacturing or distribution center locations. Sustainable supply chain management solutions can also assess the carbon footprint of making other changes such as procurement and inventory management.

Arcadia Cold, a third-party cold storage and logistics company, is a good example of how companies can embed sustainability into the supply chain. By optimizing transportation routes, reducing fuel consumption, and enabling better warehouse space utilization, Arcadia Cold is able to provide industry-leading service levels and control costs while also being an environmental steward. 

Today, in addition to shifting market conditions and sustainability goalposts, companies face new levels of uncertainty around global trade. In a world full of complexity, inconsistency and unpredictability, technology can help make smart decisions that not only minimize the costs associated with cross-border business but that can ensure those decisions are aligned with sustainability goals.