By: Seth Winterroth and Aidan Madigan-Curtis

Following the administration’s announcements about tariffs on foreign goods, we immediately started thinking about the potential impact these actions will have on the U.S.’ manufacturing and supply chain capabilities. 

As investors in companies building the next generation of physical industries, Eclipse looks at tariffs and subsidies through the lens of how they may encourage or inhibit innovation. This prompted us to post our thoughts on LinkedIn, where we suggested additional actions that must be taken to help America reclaim manufacturing leadership in the long term, and offered our expertise to founders trying to chart a path forward as the short-term impact of tariffs becomes clear. 

We received thoughtful feedback and questions about what can be done in the meantime. For example, how OEMs will address crucial gaps in the U.S. supply chain, whether the government should offer aid to companies affected by tariffs, whether founders should expect to raise more capital than previously needed, and how tariffs might change business models and go-to-market strategies for startups. 

Source: Washington Post

It’s too soon to know exactly how tariffs will play out. Any operational decision should be made to support your company’s long-term vision rather than a short-term response to potential regulations. What is clear is the need to strengthen our domestic capabilities. While the domestic industrial base catches up, there are several practical steps U.S. companies with domestic manufacturing and international supply chains can take to mitigate higher costs on imported components:

- Supply Chain Partnership and Active Diversification:
Your best suppliers are likely true partners to you. Engage them under the realities of this new status quo and renegotiate terms to find a win/win. They don’t want to lose your business (they are probably having the same conversations with their other American customers) and you likely can’t continue to buy components at pre-tariff prices. In parallel, actively engage with both domestic and international suppliers to secure better pricing and reduce reliance on any single source. This diversification will enable some flexibility as the domestic supply base develops.

- Boost Operational Efficiency:
Now is the time to lean into opportunities to make your operations more efficient. Can you take the “best part is no part” approach and eliminate inefficiencies like Tesla did when it removed 350 stamped parts from the Model 3? Are there technology solutions that may not have made sense to invest in before, but now have a stronger ROI? Optimizing production processes helps to offset higher input costs and improve overall profitability.

- Strategic Pricing and Value Differentiation:
Consider carefully phased price adjustments and highlight unique selling points — like superior quality or service — to justify any increases to customers. This approach helps maintain competitiveness despite higher component costs. Again, you are not alone in considering how to balance absorbing new costs and sharing a portion of these new costs with your customers, so the better the customer experience, the more likely customers will remain sticky if costs are going up for your product across the board.  

- Government Support and Strategic Coalitions:
A single company can’t fight this battle alone, but a coalition of companies building modern solutions in the U.S. (like the New American Industrial Alliance) can engage the government today to get support in the short term.  It would be logical in the near term for the government to provide targeted relief to critical domestic industries. This could include tax incentives, grants, or subsidies that ease financial pressures until domestic production can meet demand. We know that this sort of support can help companies weather current challenges and invest in long-term capabilities. We would be surprised if this isn’t a part of the current administration's plan. There are very forward thinking people like Jacob Helberg in this administration that are laser-focused on U.S. re-industrialization. We’re eager to see what they have in store. 

- Prioritize your pain points and pilot domestic sourcing
Be specific and targeted around areas of your supply chain that require the most support — i.e. components that have little or no near-term domestic alternatives like EV batteries or unique metal parts. Outward communication around these pain points could attract companies like Peak Energy, VulcanForms, or others that were not known to you and have largely domestic products. Your efforts with the government will also have a higher impact if they are specific and highly focused on the biggest issues that will take the longest to solve and move the needle the most on cost. Start by insourcing select, high-impact components where domestic capabilities exist or can be rapidly developed. These pilot initiatives not only reduce dependency on imports, but also pave the way for broader domestic sourcing in the future.

- Vertical Integration:
Finally, explore opportunities for vertical integration. By bringing critical components in-house, companies can reduce dependence on foreign suppliers, streamline production, and improve quality control. Vertical integration can result in product improvements, reduce long-term costs, and enhance overall responsiveness to market changes. The best companies today are actively allocating capital to enable increasing vertical integration and this enables them to both delight their customers and control their destiny. If high-ROI verticalization isn’t in your 2025 budget but the return on equity is clear, reach out to thesis-aligned investors who might be willing to capitalize these steps for your business.

These measures, combined with robust government support, can help U.S. manufacturers manage short-term challenges while positioning themselves for a more resilient, self-sufficient supply chain in the long run. It is suddenly open-season for the north of $500B in U.S. annual supply chain spend on automotives, parts, and engines, as well as industrial materials. The best companies will move swiftly to seize this moment as an opportunity as much as it is a challenge.

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