S2, E7 – Talking Tariffs: How they Impact Manufacturing in 2025

Talking Tariffs: What Manufacturers Can Actually Do About Rising Costs (S2 E7)
The Integrate Intelligently Podcast, Season 2, Episode 7 — with Jeff Brickler and Scott Brickler (CADTALK)

Jeff: Welcome back to The Integrate Intelligently Podcast. I'm your host, Jeff Brickler, here with another conversation with founder and CEO of CADTALK, Scott Brickler. Today's topic is very topical, as it were — we're talking tariffs. It's been a big story lately, so it's worth talking through what tariffs mean for manufacturing.

Scott: Should be interesting. As we were saying off camera, I'm aware of the tariffs but I don't dig deep into it, so I'm interested in learning more myself.

Jeff: I'm a little different. I follow a consultant who talks about geopolitics and economic policy. My background was more humanities when I first went to school — not just politics but history, and why people do what they do. I wouldn't call myself an expert by any stretch, but I follow it.

We know the United States has threatened and implemented tariffs against trading partners. Before we get into it, tariffs aren't new and they aren't only an American thing. They've been around a long time, even in American history — 100 or 150 years ago they were a government revenue source on imports.

Why Not Watch the News
Scott: It isn't a lack of understanding so much as a choice. I always think about CNN standing for constant negative news. The news is always bad news, and always so much worse than reality, because if it bleeds it leads. It's more about scaring people than about what's actually happening.

I'm not trying to ignore reality when I say that. It's about not letting your mind get influenced by all the negativity, especially around something you don't have full control over. All you can do is get enough information to decide how you're going to act, and then no more.

Jeff: That makes sense. A lot of people feel that way. The media is in the business of scaring you, and it doesn't help your mental health or your decisions. It just gets you worked up.

What a Tariff Actually Does
Jeff: So what is a tariff, and what does it mean for us as buyers, and for our customers as manufacturers?

Scott: My understanding is that it's partly about equalizing different economies, and partly a protectionist act.

If you bring goods in from overseas, from countries with different economic structures, you could make the argument that those goods and services could have been produced in the United States — so those jobs are being eliminated because you're buying from a different economic situation.

A lot of manufactured goods have been made in China for many years, because the cost of living and the cost of labor there are much lower, and because they control that differently than we do. That's beneficial to the consumer, since we buy goods more cheaply. But at the same time you're eliminating the opportunity to make that same good here, which is what feeds our economic engine.

So a way to offset that is to tax the good coming in, to equalize the playing field. Because you're not in a truly competitive market when different countries are playing by different rules. China sets its currency — as I understand it, they simply decide what it's going to be, because that's how their system works, whereas ours runs more through the Fed. We do something similar in smaller respects, but it doesn't work the same way. We're all playing Monopoly, but everybody's playing by different rules. Setting a tariff is a way of saying, within the United States, we're going to level the field by imposing a tax to make things more competitive.

Tariffs Everywhere: Cheese, Milk, and Protected Industries
Jeff: Tariffs have been around for hundreds of years, and plenty of other countries use them — sometimes to protect a specific industry that would struggle to compete.

When I was in Italy — and France may do this too — cheese is a major industry and it matters culturally. Parmesan production is protected. I think it's actually a UNESCO heritage designation. And Italy has tariffs and restrictions on other cheese imports.

Scott: Canada does it with milk.

Jeff: Right, to protect industries from cheaper imports. We have a lot of land in the United States, a lot of cows, a lot of milk production — America produces a tremendous amount of milk and cheese. So countries like France and Italy protect against someone making Parmesan-style cheese elsewhere and bringing it in cheaper.

Scott: Or it's about quality. There are foods that aren't allowed to contain certain dyes, so the production itself is controlled by different rules and standards. Crossing borders is tricky, but it's also what lets the world economy work.

And it gets very political, which is funny when you think about it, because it's really macroeconomics. What do you believe about the macroeconomic landscape? Are free trade borders good or bad? Nobody really knows. They have theories, and they know how things have worked in the past, and there's a constant tension between them. It's not that one is right and one is wrong — you shift back and forth to keep things stable.

I remember taking macroeconomics in my MBA. A friend of mine who's an economist thought macro was completely useless, but I found it fascinating — the idea of levers in the economy. Government spending, interest rates, all the things you can change to move the economy in a direction. The goal is to keep things as stable as possible, because people like stable.

Jeff: Stable and slowly growing up and to the right. That's what people want.

Tariffs as an Economic Lever
Jeff: So the goal of this conversation is: how do you find footing when things get less certain? What do you do as a manufacturer when you don't know what's coming?

At the core, a tariff changes the cost of the good. If I'm a manufacturer importing a motor for $10 and there's a 100 percent tariff, I pay a $10 tax on a $10 good. So that motor isn't $10 in my finished product anymore — it's $20. It increases the cost of production. Is that fair?

Scott: It can. A lot depends on how fast it happens. The tariff goes in immediately, but the reaction to it takes time. So it crunches the margins of companies using outside goods right away, and then they adjust.

That's the point — tariffs are being used as an economic lever, the same way you'd change government spending or interest rates. You say, I want to bring more of the supply chain into the country. So you introduce the tariff, which increases cost, which squeezes margins, which pushes those industries to find alternatives — usually onshoring — and that changes the dynamics of the equation.

It just takes time, and during that time there's uncertainty. Uncertainty drives fear, and fear drives the economy down. I'm oversimplifying, but that's the mechanism. You're trying to change behavior.

The theory is that the deal with these other countries isn't as good as it looks. Prices are cheaper, which feels good and stable, but it's slowly decaying the country's capability. So you impose a tariff and accept short-term pain for long-term benefit. That's the belief.

Jeff: Same as the Parmesan example. Not allowing outside Parmesan protects an industry that's part of their heritage, even though it would probably make Parmesan cheaper.

Scott: It would.

Jeff: But nobody's used to it being cheaper, so it's fine. It's only the change that shocks the system, because it isn't built into your cost of goods sold. I've been selling this for $10 and making it for $6, so I make $4. Now my cost is $8, or $8.50. My margin is lower.

So I have a few choices: raise prices, take less profit — which nobody with stock in the company likes — or cut costs somehow.

Cutting Cost Without Raising Prices
Scott: What's happening is that a change has been imposed. Everybody's used to playing Monopoly a certain way, the rules get tightened, and now everyone has to figure out how to play again — and how to survive long enough to keep playing, because it's an infinite game. That's why it's painful and why everybody complains.

Passing cost on is hard, because if you raise prices, demand goes down and things even out one way or the other. But if you can hold prices and figure out how to do it more cheaply, you probably gain an advantage, because consumers won't notice.

So the question becomes: how do I hold prices while costs go up? You have to get more efficient. You have to get more creative. That's what the tariff is forcing — adaptation.

Jeff: So if prices stay constant and your cost of goods doesn't, you have to find the savings elsewhere. Cut cost in other places to offset the increase, find efficiencies, or change where you buy it.

Scott: Or create more output from the same input. You don't necessarily have to cut. People have a negative association with cutting, because a lot of the time it means jobs. But you can raise productivity by introducing technology or tools you wouldn't have bothered with when margins were higher.

That's what's interesting about these situations. Until there's a stressor, the status quo just keeps going.

The Profit First Analogy
Scott: There's a great book on this for operating a company called Profit First, and it creates a similar effect on a micro scale.

The insight is that most company owners don't look closely at their accounting numbers — they look at their bank account. That's how most people run their personal finances too: do I have enough money in the bank? Yep, I'm good.

So the method is to use different accounts and move money around to change your perception. You pre-allocate profit, pre-allocate expenses, and put them in separate accounts. It's like the envelope system. When you look at your operating account, it looks low, because the money is already spoken for. You don't get the false sense that there's plenty there, only to discover a big expense later and realize you had nothing left.

You look at the account and think: I don't have any money, I need to act, I need to get creative, I need to do something different. And you drive it up. It's psychological, but it works.

The same thing is happening with a tariff. You're fat and happy, doing things the way you've done them, and a stressor gets imposed to make you more efficient or change your behavior. It's painful — like lifting weights, where two days later you can barely walk, but your legs are getting stronger.

Jeff: Stress pushes you to look for better ways to deliver. Fix broken processes, find better suppliers. It might even create economic opportunity for someone in the US to start a business making those goods locally, or nearshoring. It forces change. It's just painful, because nobody likes change.

Scott: And it's really painful when it's the biggest economy in the world doing it. Not to get political, but plenty of countries have tariffs — we named several. It's that when the biggest economy imposes them, the entire world feels it.

Traditionally the United States has been more open and business-oriented: go where things are most efficient, where cost is lowest. That dynamic is shifting, and at this scale it causes worldwide disruption. When I've traveled, you notice other countries paying very close attention to what the US is doing, because so much of the world economy is driven from here. These aren't things other countries don't do. It's that when the US does it, it's far more disruptive, and it's different from how we've typically operated.

Jeff: We've had tariffs before, including against China in 2018 and 2019, along with other restrictions. But when the change is this big, and the economy is this big, it ripples everywhere.

Uncertainty Is Also Opportunity
Scott: Reacting to it is the same as reacting to any economic shift, up or down. Uncertainty creates a downturn, but it's also an opportunity to get stronger. You're introducing stress into the system, and the companies that adapt come out the other side better than they were.

Shameless plug on our part, but one option is getting more efficient in your engineering process. If you're doing those things manually, you can get more output by automating them with software — you buy the software at a fixed cost, and it does work that used to be manual. More output for the same input, which offsets the cost of the tariff.

The stress makes you more creative. It makes you act, and you start finding solutions. Sometimes the solution is technology, sometimes it's just doing things differently. It makes you look at everything that's been inefficient.

Two Places to Look: Design and Process
Jeff: From my experience working with engineering and manufacturing, there are two areas to look at for efficiency. The first is design.

Ask what material you're using, and where you're getting a part from. Do you have to have that exact purchased part, from that exact supplier? Are there other suppliers you could get an equivalent from? Or could you achieve the same thing with a different type of part?

And then — we talked about this in the supply chain episode — there's resiliency, or anti-fragility. What if I could design something with alternates, and those alternates had alternate suppliers?

If I have efficiency in the handoff from engineering to manufacturing, I can design a part with several options, manage it in my ERP quickly, and have multiple vendors. Then I can make adjustments much faster, because I already have two or three alternatives from two or three suppliers. I might have favorites, or prefer one part over another out of personal preference — but over time those assumptions may not hold.

From an engineering perspective you can say: I could design this a new way. That stressor makes you more creative. Constraints are what produce the best solutions.

Scott: Constraints create creativity. And the interesting thing is that constraints change constantly. We get used to a set of them, and humans are pattern recognition creatures. When the patterns get scrambled, we don't know what to do, and then we learn the new pattern and get comfortable and run for a while.

I say this a lot in our internal meetings: everything in our evolution wants us to conserve energy. Thinking is biologically expensive. So we find patterns and short-circuit them in our brains, so we can act without thinking, and we always want to get back to that state. When patterns shift, it hurts, because we have to expend more energy to figure out what's going on. But that's exactly when our brains turn on and we become most creative.

I saw something from Tony Robbins recently about this. Pattern recognition is a superpower, especially in times like these. What's going on here? Oh, that's what's going on — and if I see that pattern, I can predict the next thing and act on it.

One of his points was that all of these things have happened many times before, just not within our lifetime. We haven't personally seen the pattern, but tariffs being introduced, or a generation doing a particular thing, has happened over and over throughout history. We don't remember it, so everything feels novel when it isn't.

The Long-Run Argument
Jeff: That's where the history comes in. Part of the argument is that we had higher tariffs at various points, and more manufacturing, and America was stronger. Then we reduced tariffs and had more open trade, and — the argument goes — manufacturing went overseas, we started importing everything, and we lost those jobs, which hurt in the long run even while we got cheaper products in the medium run. I'm not saying I subscribe to that argument, but that's the argument.

Scott: Over the long run, the only reasons it makes sense to manufacture in another country and import it are that they have natural resources you don't, or there's some other economic reason.

If everybody made the same wages and played by the same rules — if there were a single world government — you'd just make things close to where you need them, because the highest cost would be transportation. You'd do everything as locally as possible. Digital work would probably still be remote, because it would become pure talent acquisition: everybody earns the same, so there's no arbitrage on cost of living, and it's only about where the best talent is.

The problem is that not all countries have the same cost of living, the same governments, the same rules, or the same natural resources. A country like the United States has most of the natural resources it needs and is big enough that it could technically be self-sustaining. The reason it hasn't been is the arbitrage between economies and costs of living. That's how we keep things relatively inexpensive even as our wages rise. And the argument is that you're decaying the value of the country in exchange for cheap products. That's what they're trying to protect against.

What a Leader Tells the Team
Jeff: So if you're running a manufacturing company and raw material costs are going up, what do you tell your team? Tariffs happened, big shock to the system — now what? What's the message?

Scott: First, the ideas aren't all going to come from the leader. The leader gives a vision, and the vision is that we have to do more with less.

We can't pass the cost on to the customer, because the market will only tolerate so much. So we have to get more efficient and produce more with less. We need to look at what we do and how we do it, and ask where we can get back the efficiency we've lost. Where have things gotten fat? There's a great analogy I heard today: where can we cut the fat without nicking the muscle?

That's the vision. Then: how do we get creative? What tools, what technologies, what process changes get us back to the same profitability and the same kind of operating we had before?

Jeff: So boiled down: do more with less, make departmental changes that raise productivity and reduce cost, and maintain profitability without changing the cost to the end consumer.

It isn't as simple as some of the commentary suggests — and again, this isn't meant to be political — where people say you raise the tariff and companies will just raise prices. That is one strategy. I have to pay a 50 percent tariff, so I raise your price 50 percent. But the leader decides. They might say no, we'll raise 10 percent, or nothing, and we'll figure out how to do the rest more efficiently.

Scott: It's somewhat naive to say prices will simply go up, because that would require collusion among everyone who makes that thing — essentially a cartel.

Say three companies make the same product. Two of the CEOs say we're raising prices because there's nothing else to do. The third says, here's my opportunity: if I figure out how to make it for less, I can take the market. That's competition. That's what makes capitalism work — they won't collude, and that makes everything better. It just isn't painless.

So if you're trying to be competitive, the question is how to deal with the situation faster than everyone else and take advantage of an arbitrage in the market. It forces you to think harder. The only way all prices rise together is if everybody colludes to raise them, which is actually against the law.

Jeff: So leaders have to decide: we're not raising prices, or only raising them a little, and we'll handle the rest through efficiencies, productivity, better pricing with suppliers, standardization on parts or materials.

Then you pass those initiatives to your manufacturing and engineering teams. In engineering, you look at cheaper ways to make a part, more efficient ways to do an assembly. In manufacturing, you look at the process of making it — material types, which machines you use, how the process works.

Which Industries Actually Win
Scott: You can start connecting the dots and see industries that will thrive because of tariffs. At the end of every disruption, somebody does really well and somebody gets hurt.

Let's do a thought experiment. What industry do you think rises because of tariffs?

Jeff: Good question. Someone I watched said that if they were in America with manufacturing capacity, or the ability to start a plant, they'd get into contract manufacturing — start making parts here right away. Give me your drawings and I'll make them.

Scott: Now take the second-order effect. Why weren't they doing that all along? Because labor and everything else is expensive here. They couldn't compete.

So what has to happen for the tariff to equalize it? All you've done is match the price to the tariff — the price still went up, and you don't want that. The real question becomes: how do I do the manufacturing in the United States at the price levels it used to be done in China?

Jeff: You have to be a lot more efficient. You have to use technology.

Scott: Right. So what's the biggest thing on the horizon for that?

Jeff: AI, certainly. And robotics.

Scott: AI and robotics together, since robotics have AI in them. Think it through: I have to bring manufacturing to the United States, and I have to do it at the cost it used to be in China. If I can hit that cost and not pay the shipping, it's actually better than it was before.

But it doesn't necessarily create jobs here. Maybe it creates high-level jobs — people figuring out how to make robots. So anybody making robots could do really, really well. That's an industry that will probably boom, the way personal protective equipment boomed during COVID.

Jeff: It's like seeing the wave coming in surfing. You have to be there to catch it. Whoever can build a manufacturing company that competes with China's cost without the shipping has a huge opportunity.

Scott: Not an easy thing to do.

Back to Fundamentals
Jeff: In the long term this could change where manufacturing happens, and it could be very good for robotics. But in the short term, manufacturers need to focus on doing things more efficiently — finding the cracks and gaps in their processes, getting more resilient and creative about solving them.

And it's hard, because it takes real thought. We're pattern recognition machines, and we're used to the old patterns. But you go back to fundamentals: get more efficient, focus on repeatable processes, automate where you can.

Scott: That's literally the business we're in — making engineering and manufacturing more efficient. This isn't only an American question either. Anywhere you're competing on a world stage, you need your operations and data transfers to work well, and we're a good tool for that.

Jeff: And not just for what we do. Your ERP, your PLM, your CAD, your nesting software — all of it is somewhere you can gain efficiency. I'd expect companies to look hard at what they're doing and find ways to do more with less. Cut the fat without nicking the muscle.

Scott: We're all feeling the pinch right now, and the economy isn't doing what we want in this particular moment. But it's a bigger thing than the moment. In everything that seems bad, there are also areas doing well, and what you focus on matters. If you only focus on the negative, that's all you'll see. It's good to know these things are happening — just don't get caught in the spiral of negativity and believe the world is ending. This has happened before, and it will happen again.

Jeff: My takeaway is to take any extra cash and invest it in robotics.

Scott: They say it could be the most successful product in human history. If I can get a robot to do the chores and clean up after my kids, I'm all for it.

Jeff: My wife needs one to clean up after me. I've heard on some podcasts that there could be billions of humanoid robots — I don't know whether that's ten years or fifty — doing tasks at home and at work.

Scott: They're saying the cost could get down to around twenty grand.

Jeff: Basically the price of a car, and you could have a robot doing chores at home. Maybe robotics is the next thing.

Thanks everyone for listening. Subscribe to The Integrate Intelligently Podcast on YouTube or wherever you get your podcasts, and visit cadtalk.com if you want to learn more about automating your engineering-to-manufacturing handoff.