Can Manufacturing Software Providers Keep the Ship from Sinking Under U.S. Tariffs?

Starting on April 2 and promptly promoted as “Liberation Day,” President Trump announced a baseline tariff for all countries (besides Russia) of 10%, with specific countries that conduct large quantities of trade with the United States such as China, Vietnam, Taiwan, Japan, and India having significantly higher tariffs due to unbalanced trade deficits. Unlike previous tariffs that specifically target subsections of industry to promote internal growth, the reciprocal tariffs were applied to all physical goods being imported into the United States. Due to significant internal (U.S.) and global upheaval, as of April 10, Trump reversed course and rescinded the reciprocal tariffs to a blanket 10% for all countries besides China, which at time of writing, sits at 145%. With the changing nature of U.S. politics, it is unlikely that the blanket and 145% tariff on China will remain. The trillion-dollar questions now are how long will the tariffs stay in place and will they increase again before stabilization.

Since the initiation of the reciprocal tariffs, countries around the world have been responding with different strategies. Notably, China, Canada, and the European Union (EU) have opted to impose likewise tariffs, while countries such as the United Kingdom are looking to broker a deal and negotiate through diplomatic channels to decrease the sweeping tariffs or become exempt. Regardless of which strategy a country takes, the end goal is a resumption of the status quo pre-tariffs. The backtrack to a 10% global tariff rate has marginally improved economic optimism; however, it has not quelled all the concerns around a global recession with the VIX Index sitting at the highest rate in 30 years (excluding the financial crisis of 2008 and the COVID-19 pandemic).   

Examining the tariffs through the lens of global manufacturing, volatility is the true motivator (or non-motivator). With a relapse on tariffs in just 1 week, certainty about what will happen in a month, a year, or 4 years from now is unknown. Manufacturers rely on certainty as an indicator for future expansion and growth. With the fluctuating nature of U.S. tariffs, manufacturers are unlikely to open greenfield factories or retrofit brownfield sites with significant Operational Expenditure (OPEX) spending as both processes take significant time and are likely to change based on volatile pricing. The most likely result in the short term will be manufacturers actively reducing spending across the board, while looking to source raw materials and parts/components outside of the United States, and increasing the goods sold to more local and favorable markets.

It is important to highlight that the global trade network established over the last 35 years that supports all manufacturing operations cannot be salvaged by software providers alone. However, they may be able to ease the burden on manufacturers through reduced OPEX, streamlined operations with automated technology, and new supplier recommendations.

• Software-as-a-Service (SaaS)-based Computer-Aided Design (CAD): CAD providers such as Autodesk, Dassault Systèmes, PTC, and Siemens need to continue the momentum of promoting SaaS-based CAD. SaaS-based CAD has a revenue Compound Annual Growth Rate (CAGR) of 14.4% over the next decade, outpacing traditional on-premises solutions, which sit at 6.12%. Growth in the CAD SaaS market was strong prior to the U.S. tariffs, but will grow faster based on manufacturers trying to reduce costs across the entire organization. SaaS-based solutions are, on average, 31% cheaper than on-premises counterparts, and with the manufacturing market already making significant strides in transitioning, U.S. tariffs and volatility will act as an accelerator. 
• Lightweight and Flexible CAD Software: On top of the benefits of switching to SaaS-based CAD, manufacturers may look further to reduce costs. CAD software that can be scaled up or down (number of user seats and core functionality) will likely see an increase in use among manufacturers that operate in industries with long product development cycles and reduced Bill of Materials (BOM). Although necessary for advanced manufacturing industries such as Architecture and Design (A&D), automotive, and heavy machinery, manufacturers in industries such as pharmaceuticals and Consumer Packaged Goods (CPG) are likely to switch to lightweight CAD models with less functionality, but a cheaper price tag.
• Product Lifecycle Management (PLM) and Generative Artificial Intelligence (Gen AI): PLM software will also play a role in aiding relative price stability. This will materialize through the use of Gen AI and the extensive buildout of supplier and contract manufacturers in PLM databases. To circumvent tariffs in the short term, manufacturers must look for alternative means of sourcing, preferably in-country when possible. Although the price of manufactured goods will remain higher than the pre-tariff rates, using Gen AI in conjunction with PLM databases will mitigate the short-term effects as the second-best supplier option can be assessed for new parts and components. New deployments of Gen AI in PLM are being used to locate the best raw material suppliers based on price, lead time, quality, and now, expected tariff rate.

It is unlikely that manufacturing software providers will be the answer to the sweeping U.S. tariffs as replacing the global manufacturing supply chain with incremental increases in cost savings and efficiencies; however, vendors that position and market solutions in the correct manner may carry some of the heavy burden. 

Gain Clarity In Uncertain Times 

Explore more ABI Research Analyst Insights on how the U.S. tariffs will potentially impact technology markets and the next steps for stakeholders by downloading the free whitepaper, Navigating Tariff Turbulence in the Technology Sector.