The logistics of tariffs

These measures put at risk the approximately €66 billion of annual Italian exports and hit hard the automotive sector, high-end fashion and design, agri-food, mechanical and mechatronic industries. And even if this aspect is often overlooked, a drop in export volumes also affects national logistics operators, especially Italy’s port economy. According to Conftrasporto (the Italian federation of logistics and transport operators), ports like Trieste (1.61 million tons shipped to the U.S. in the first nine months of 2024), Livorno (1.01 million tons), Piombino (931,000 tons), Augusta (896,000), Genoa (825,000), Taranto (754,000), Savona (612,000), Ravenna (527,000), Porto Foxi (418,000), and even Milazzo (360,000) will suffer consequences.

In the short term, the European Union, like other nations, responded by adopting countermeasures of equivalent scope, but overall, retaliation policies do not seem to produce offsetting effects. In fact, in recent weeks, recommendations to EU policymakers—such as those in the March 2025 Monetary Dialogue Papers, co-authored by experts from our University including Professors Giavazzi, Favero, and Monacelli—suggested that a more effective approach would have been to adopt a wait-and-see stance, letting euro-dollar exchange rate adjustments absorb much of the tariffs’ damage. Meanwhile, various countries have started independent bilateral negotiations, and news has emerged that China has reached a mutually satisfactory agreement with the U.S. administration.

What will remain from this long phase of incremental adjustments made of reciprocal tariffs, behind-the-scenes deals, currency fluctuations, and employment impacts (estimates point to 8,000–10,000 jobs lost for every €1 billion in EU GDP lost) is an earthquake in supply chains. This will force a redefinition of structural choices (sourcing markets, infrastructure, technologies) and management policies (planning criteria, logistics network flexibility, warehouse sizing). It is likely that design and assembly criteria for complex product categories will need to be rethought, effectively aligning with the U.S. government’s goal of reshoring parts of the manufacturing process.

Let’s now examine these medium- to long-term implications.

Tariffs trigger a chain reaction throughout the entire logistics ecosystem. Rising import costs directly affect transportation and handling expenses, as companies compensate for higher tariffs by moving larger but less frequent shipments. This deeply impacts flow planning and inventory levels, which over the past 40 years had been optimized under the principles of just-in-time and zero inventory, meaning low stock levels and frequent, small-volume deliveries. In addition to reducing the average impact of tariffs, the uncertainty caused by abrupt tariff changes leads companies to increase stock levels in destination countries, tying up more working capital. The resulting strain on liquidity and operational agility turns into financial stress and growing costs—not just for operating those immobilized assets, but for financing them.

Tariff-related administrative complexity—requiring customs officials to distinguish between various product categories—slows down and complicates customs operations. Longer processing times and increased risk of delays or errors (due to varying customs efficiency) reduce reliability and promptness, two core metrics of logistics service quality. This is especially harmful for supply chains handling highly perishable goods (like food) or products with very short life cycles (such as technology and fashion).

The most effective countermeasure, though far from simple, is to restructure supplier chains by involving alternative or local vendors not subject to tariffs and relocating parts of production. But this is no easy feat. The logic behind the U.S. protectionist policy—strategically sound in the medium to long term—collides with the immediate impact of tariffs and the lengthy technical and physical process of rebuilding an industrial base with capabilities and skills eroded or lost after forty years of outsourcing and offshoring.

Another viable solution involves adopting distribution models based on decentralized warehouses within the United States. This approach brings products closer to end consumers and avoids some of the import tariffs. These structural measures can be complemented by expanding the role of U.S.-based logistics operators, entrusting them with so-called production and logistics postponement activities: assembling, finalizing, and packaging products based on local customer orders. As I will discuss further below, such initiatives require a shift in product design to fit the new logistics model. They can mitigate the impact of tariffs on end customers and reduce working capital immobilization, as disassembled and stocked components are worth less than the finished product.

From a management perspective, the reduced flexibility of logistics and distribution networks will need to be offset by better forecasting, planning, and operational flow management especially for inventory, which is likely to increase. However, the core problem with warehousing remains: stock volume alone doesn’t guarantee timely responses to demand, as service quality also depends on inventory variety. That said, I expect significant support from predictive technologies powered by artificial intelligence and increasingly abundant data across logistics chains where Industry 4.0 and 5.0 innovation processes have begun.

Finally, as anticipated, physical products themselves will need to be redesigned. To enable implementation of production and logistics postponement strategies, products must be conceived with a high degree of modularity and designed for simple, low-cost (both investment and operating) assembly processes. Kit configuration and packaging operations will also need to be reimagined so they can be handled by third-party logistics providers in the destination country.

This is not entirely uncharted territory. For years, high-end automotive and high-value industrial automation sectors, particularly in countries like India and Brazil, where import tariffs have long been in place, have employed the Complete Knock Down model. This industrial system involves shipping and storing disassembled product parts, which are then assembled by a local licensee with limited manufacturing skills.

Industrial implications

In Italy’s case, we must also reflect on the industrial implications of some specific U.S. tariff measures. One issue that has not received much public attention in recent months concerns a duty of up to $1.5 million on port calls made in the U.S. by ships built in China or operated by companies with shipbuilding contracts in Chinese yards. According to Conftrasporto, 17% of the Italian fleet was built in China, but when considering only new builds ordered by Italian shipowners and scheduled for delivery in 2028, that share rises to 84%.
Perhaps it is time to rethink the industrial strategies of companies like Fincantieri and the broader Italian shipbuilding industry, which over the years has largely abandoned freight transport to focus on military and cruise ships.