Tariff Hikes, Emerging Tech, Trade Wars: Outstrategizing the Competition in 2025

The implications for Mexico’s auto industry could be severe, as it hosts manufacturing plants for Honda, Nissan, Toyota, Mazda and Kia, as well as facilities for Asian tech companies like Foxconn, Nvidia, Lenovo and LG. Trump’s pledge to expand fossil fuel production, coupled with his disdain for clean energy subsidies, casts uncertainty over the U.S. energy policy's future direction.

Europe at a Crossroads
Green votes secured Ursula von der Leyen’s re-election as president of the European Commission, steering Europe further toward regulatory measures to phase out non-renewable energy sources. However, this direction risks rendering European industries uncompetitive. Starting in 2025, the EU will lower the cap on average emissions from new vehicle sales to 94 grams/km from 116 grams/km, with penalties of €95 ($103) per excess CO2 gram per vehicle sold.

This shift marks yet another blow to Europe’s struggling automotive sector, now facing fierce competition from Chinese OEMs and EV battery manufacturers flooding the European market with electric vehicles. The response to global competition in the car industry remains predictably protectionist: tariffs. European Union raised tariffs on Chinese-built electric vehicles to as high as 45.3%. In retaliation, China threatened higher tariffs on imported internal-combustion-engine cars with larger engines, escalating an already tense trade situation.

China’s Strategic Shifts
China’s economy is expanding at its slowest pace since early last year, with a third-quarter GDP growth of 4.6%, below the government’s 5% target. Despite economic challenges, China continues to adopt cutting-edge technology, leveraging advanced automation and artificial intelligence to scale rapidly. The fierce competition in Europe’s automotive market has pushed Chinese manufacturers to innovate aggressively, even as overproduction looms.

Global Instability and Its Ripple Effects
Ongoing conflicts in Ukraine; increasing collaboration among Russia, Iran and North Korea; the collapse of Syria; and tensions surrounding Israel and Palestine are destabilizing global supply chains and the competitiveness of entire nations, especially those in continental Europe.

A Bright Spot: AI and Innovation
Amid these challenges, artificial intelligence continues to transform industries. Companies are leveraging synthetic data, agentic AI and industrial applications of AI to gain a competitive edge. However, organizations are learning that technology alone is not a silver bullet—success lies in combining data readiness, strategic use cases, governance and security.

The Road Ahead
Summing up the turbulence in the global economy, Bosch CEO Stefan Hartung predicted at the end of 2023 that 2024 would be more challenging than expected, with 2025 likely to follow suit. Considering Bosch’s plans to cut up to 1,300 jobs between 2027 and 2030 in its steering systems division, the challenges faced by manufacturers worldwide in 2024 highlight the headwinds ahead.

Key Areas for Competitiveness in 2025
To simplify an overly complex world, I’ve outlined areas that the most significant global manufacturing hubs should focus on in 2025 to stay competitive:

Modernize IT infrastructure. To remain competitive in an era defined by digital transformation, manufacturing organizations should prioritize the modernization of IT infrastructure. Application modernization is a critical step for achieving growth, resilience and innovation. By embracing a strategic approach to IT updates, organizations can prepare for future challenges and capitalize on new opportunities. Industry insights reveal that application modernization is among the top initiatives across sectors.

Accelerate product development. Speed in product development is a decisive competitive factor, particularly against agile players in Asia. Organizations should adopt a software-centric view of product development, iterating on beta versions and improving continuously. This approach, exemplified by the EV industry, enables innovation and faster time-to-market while maintaining competitiveness.

Prioritize software development. As products become increasingly software-defined, robust software architectures and scalable frameworks are essential. Manufacturing organizations must accelerate the development, testing and deployment of software components, treating "speed squared" as a key metric for success. Despite the U.S.'s leadership in tech innovation, the automotive sector demonstrates that even well-established IT departments need to rethink processes to foster speed and creativity.

Leverage power of data and AI. As the business landscape becomes more complex, data-driven insights, transparency and intelligence are essential. Generative AI-powered solutions have the potential to turn challenges like supply chain management into opportunities for optimization and innovation. Companies that can swiftly develop and scale language models and AI agents while maintaining a sharp focus on business priorities will emerge as industry leaders. This ability is particularly vital in areas such as automotive design, software engineering, semiconductor production and the adoption of cutting-edge technologies like "digital twins of digital twins": a digital replica of a complex environment that integrates and interacts with multiple individual digital twins, such as those representing products, production lines, equipment, factories, and supply chains.

Adapt to tariffs and regulations. Manufacturing organizations should prepare for evolving trade barriers and regulatory frameworks in 2025 and beyond. Global companies with diverse production footprints can benefit from flexible reshoring strategies, shifting operations as needed to maintain cost-efficiency and compliance. Mid-sized firms must enhance their resilience strategies to navigate the rapidly evolving regulatory landscape, including Europe’s ever-expanding climate protection and competitiveness-focused regulations.

Protect intellectual property (IP)
Safeguarding intellectual property is a foundational requirement for maintaining competitiveness in global markets. Organizations should consider embedding an IP-first culture that prioritizes protecting patents, production expertise and other strategic assets. As global competition intensifies, IP security becomes an increasingly critical advantage.

Recognize the U.S. as a strategic investment hub
Despite higher workforce costs, the U.S. offers unique advantages for manufacturing, logistics, and R&D. Affordable energy, moderate climate regulations and strong capital markets make it an attractive region for industries such as semiconductors, advanced technologies and automotive production.

Address personal biases in decision-making
Effective decision-making in complex scenarios requires an awareness of personal and organizational biases. Recent geopolitical and economic events illustrate how biases can distort understanding and lead to misjudgments. Manufacturing leaders should actively identify and mitigate these biases, critically evaluating the motivations and perspectives of those shaping recommendations. This approach will ensure more informed and balanced decision-making for long-term success.

Here’s to navigating the complexities of 2025—and thriving in the Year of the Snake!