In 2025, global manufacturers are grappling with escalating challenges as rising tariffs, unexpected supply chain disruptions, and sudden government actions converge to create an unstable landscape. According to the latest McKinsey Global Survey, business leaders now view geopolitical tensions as the single greatest risk to economic growth.
This blog explores how today’s geopolitical uncertainty is exposing the limits of traditional cost models, and what cost engineers can do to adapt. Drawing lessons from the ongoing tariff upheaval, we outline actionable strategies for building more resilient and responsive cost engineering practices.
Understanding Geopolitical Risk in Cost Engineering
Geopolitical risk refers to unpredictable events and tensions between countries that disrupt economic activity. These risks include wars, trade disputes, regulatory changes, and sanctions. Unlike ESG (Environmental, Social, and Governance) risks, which typically develop gradually, geopolitical risks can emerge suddenly, potentially changing the rules of global trade overnight.
In this environment of uncertainty, static costing assumptions no longer hold. Political decisions are directly impacting material flows, supplier reliability, workforce availability, and energy costs. As per McKinsey’s study, we are experiencing the highest level of tariff activity since the 1930s. This situation is not confined to steel or semiconductors; every aspect of the supply chain has the potential to introduce cost volatility.
Disruptions Caused by 2025 Tariffs
Among the various geopolitical instabilities affecting global supply chains, the most prominent in recent news is President Trump’s implementation of sweeping tariffs, particularly targeting the automotive sector. These measures have introduced significant volatility into manufacturing cost structures.
In March 2025, the Trump administration announced a 25% tariff on all imported automobiles and auto parts, effective April 3. This policy aims to encourage domestic production and reduce reliance on foreign manufacturing. However, it has also led to increased costs for automakers who depend on international supply chains. For instance, vehicles assembled in Canada or Mexico that do not meet the United States-Mexico-Canada Agreement (USMCA) content requirements are subject to these tariffs, disrupting the integrated North American automotive industry.
The financial implications are substantial. A study by the Center for Automotive Research estimates that these tariffs could cost U.S. automakers nearly $108 billion, with major companies like Ford, General Motors, and Stellantis bearing the brunt due to their extensive use of imported components.
In response to these tariffs, automakers are exploring various strategies to mitigate the impact. Some are considering shifting production to the U.S., while others are seeking alternative suppliers or adjusting their product pricing. For example, Hyundai is contemplating a 1% price increase across its U.S. vehicle lineup to offset the financial burden imposed by the tariffs.
From Cost Control to Resilience Engineering
These developments highlight the need for agile and responsive cost engineering practices. Cost engineers must now consider rapidly changing trade policies and their effects on supply chains, production costs, and pricing strategies.
To meet these challenges, cost engineering must evolve from static analysis to resilience-focused modeling. This includes:
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Integrating real-time inputs such as tariffs, country risk ratings, and logistics disruptions directly into cost logic
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Accurately modeling dual and multi-sourcing strategies within a single cost framework
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Running scenario simulations that reflect trade policy changes, regional sourcing shifts, or regulatory impacts
With these capabilities in place, cost engineers can support key decisions such as:
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Rapid supplier substitution
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Adjusting logistics strategies in response to bottlenecks
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Evaluating cost versus carbon implications across sourcing options
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Anticipating cost shifts due to tariffs, credits, or export controls
Relying on Excel or legacy tools in this context results in fragmented data, outdated assumptions, and delayed responses.
How Modern Tools Support Resilient Costing
This is where modern product costing software becomes essential, not as a luxury, but as a backbone for fast, confident decisions.
Tset is built to meet exactly this need, helping manufacturers stay ahead of tariff shifts, supply chain volatility, and changing cost structures.
With Tset’s product costing software, teams can:
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Automate should-cost analysis to give procurement teams access to detailed, bottom-up cost breakdowns that support more transparent and data-driven supplier negotiations.
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Simulate the cost impact of tariff scenarios instantly, allowing manufacturers to assess pricing, margin, and sourcing implications before disruptions occur.
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Integrate costing across departments by connecting cost engineering, procurement, and R&D, ensuring tariff-related adjustments are aligned and traceable across the organization.
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Update tariff and trade inputs dynamically based on region, commodity, or material class, keeping models accurate as conditions shift.
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Model dual- and multi-sourcing strategies across geographies with full visibility into cost, lead time, and risk trade-offs.
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Run fast “what-if” simulations to evaluate the effect of changing volumes, supplier locations, or routing strategies in real time.
When done right, this kind of system turns cost engineering into a real-time decision partner. Tset's product costing software gives your team the speed and structure to adapt before volatility turns into margin loss.
Because in a world where conditions change weekly, resilience is the new cost advantage.
Conclusion
Tariffs are not just a policy shift. They are a stress test for how adaptive your cost models really are. The companies that simulate and respond faster will stay competitive. Those that rely on outdated tools will fall behind. Now is the time to integrate geopolitical awareness directly into your product costing approach. Because the next shock is not a question of if, but when.