Suppliers, Reduced Purchases, and Domestic Production: Key Strategies Amid Trade Tensions

Turning to alternative suppliers, substituting imported products with similar ones, reducing purchases or increasing domestic production are some of the alternatives that companies can use to deal with the trade tensions between China and the United States that are affecting world trade. This is highlighted in the McKinsey Global Institute’s Great Trade Rearrangement report on new global trade.

McKinsey introduces a ‘reordering index’, which measures the potential for reordering of U.S. imports from China and how it could impact the world as a whole. The consulting firm’s report notes that “tariffs have jumped into the public spotlight” since the United States unveiled country-specific tariffs on April 2, 2025, defined by a formula based on trade deficits in goods.

“Significant trade tensions between the U.S. and China may be here to stay,“ says the consultancy, which notes that “when combined with past policy actions, tariffs and geopolitics are a clear match,“ and that “the trade tensions between the U.S. and China are likely to continue to grow.The consulting firm notes that “when combined with past policy actions, tariffs and geopolitics are clearly correlated” and economies that are more “geopolitically distant” from the United States, particularly China, tend to face higher tariffs.

U.S. imports could shift to countries with lower tariffs than China

“If the current situation continues, U.S. imports could shift from China to countries with lower tariffs and that have historically been more geopolitically aligned with the United States,“ the report asserts.

McKinsey notes that prior to 2025 the geometry of trade had been shifting along geopolitical lines and notes that “recent developments may accelerate this realignment.“

Thus, he notes that many U.S. companies are considering alternative sources of supply and indicates that, without a shift to different sources, prices may rise, and U.S. companies and consumers may have to cut back or replace, substituting one product with a sufficiently similar one. The higher the tariffs, the more significant the potential reduction or substitution, he notes.

An alternative, he says, is to boost existing U.S. manufacturing capabilities, such as automobiles, and rebuild idle ones, such as chips and ships, a shift that “could also happen in other countries,“ but which “takes time, money and know-how,“ he says.

Reorganization and Europe’s role

Using the “reorganization index”, which focuses on quantifying the difficulty of change, McKinsey argues that “35% of US imports from China have a ratio of less than 0.1”; this means “a global market with a global market of less than 0.1”.This means “an available world export market ten times larger than current US imports from China”, such as T-shirts or logic chips.

For higher ratios, reorganization becomes “more difficult,“ and for the 5% of trade with a ratio above 1, such as rare earth magnets, US imports from China exceed available world exports.

Moreover, Mckinsey notes that consumer goods are more difficult to reorder than business inputs. Thus, 61% of business input imports have a reorder ratio of less than 0.1, compared to 16% for consumer goods. Major products, such as laptops, smartphones and toys, are more difficult to reorder.

A large portion of products do not suffer from excessive concentration in China

In this context, “Europe appears as the fulcrum of trade realignment.“ In nine different simulations, both European imports from China and exports to the United States increase by almost $200 billion, the study states.

Moreover, as intra-European trade shifts to the United States it leaves gaps that are filled by increased Chinese exports, assuming Europe does not decide to alter its own trade policies. Others will also be affected and “exports to the U.S. from as many as 70 countries may increase by more than 10%.“

Europe is at the center of the trade realignment in most sectors. The three largest US import sectors from China-electronics, other manufacturing and textiles-contribute the most to the overall reordering. In all simulations, Europe increases its exports to the US in these sectors.

Ability to act

McKinsey believes it is possible that multinational companies will have to navigate an environment in which “the geopolitical distance of US trade shortens, the China-Europe trade relationship deepens, and surpluses and product shortages emerge between countries, at least in the short term.“

In the face of this “uncertainty,“ he notes that companies may consider downsizing, substitution, augmentation, and reorganization measures to respond to potential trade disruptions. McKinsey argues that “the reordering of trade promises to reshape the geometry of global trade” setting the backdrop for companies to develop their resilience in a reordered world.“

Strategies will have to cope with continued uncertainty and change as customers buy new things from new sources and use them in new ways, it says. In this context, the consultancy states that “granularity is key” and “changes in thousands of products will alter the geometry of global trade”.