Supply chains worldwide are shifting to adapt to tariffs and geopolitical uncertainty but are slowly bouncing back to normal, according to the recently published Wells Fargo Supply Chains Report. 

The report, which reviews supply chain trends in the first half of 2025, finds that retailers paused major orders during the tariff uncertainty but front-loaded orders in advance of the holiday season once the situation became clear. 

To adjust to the higher costs, firms are adjusting their import sources, ordering long in advance, and increasingly relying on supply chain finance to preserve cash flows. 

US trade in turmoil 

With the contradictory tariff announcements dominating headlines in the first half of this year, it’s hardly surprising that the US trade outlook has been bumpy. Following the Liberation Day tariff announcement in April, the US deficit narrowed significantly, from £71.4 billion in May to £63.7 billion in June, a £7.7 billion drop. This was led by a decrease in exports and a sharp decrease in imports – unsurprising as the tariffs saw levies as high as 50% on the US’s largest trading partners. 

Exports, on the other hand, weakened due to lower global demand and geopolitical uncertainty, said the report. Tariffs are also leading to changes in trade patterns, which may be overwhelming US port infrastructure: as container traffic shifts from the US West coast, which is used to handling large volumes of trade, to the East coast, the extra traffic may lead to bottlenecks and delays. This, along with tariffs reducing the overall level of imports, is expected to reduce total yearly container traffic by nearly 6% compared to 2024.

Potential delays, as well as the halt in shipping during the height of the tariff uncertainty, could mean retailers choose to front-load shipments to avoid delays. Firms that import non-durable or seasonal goods (such as Halloween decorations or Christmas-themed decor) have inherently less flexibility and are most affected by delays, making them more vulnerable. 

However, tariffs themselves are not significantly changing firms’ behaviors for now. “What I’m not seeing […] is delaying plans or not hiring because of the cost of the tariff. I think you can certainly see some delay in hiring or delay in capital expenditures because of uncertainty and caution, but not directly related to tariffs,” said Jeremy Jansen, Head of Global Originations, Wells Fargo Supply Chain Finance. 

In a CNBC interview yesterday, Wells Fargo CEO Charles Scharf was also optimistic about businesses’ response to tariffs: “Business owners and people leading mid size businesses are happy that this country is dealing with the trade inequities that existed – so they feel good about that and they’re willing to deal with the uncertainty.”

Inventory management as a strategy

To cope with uncertainty, importers are relying on careful inventory management, predicting demand far in advance and using flexible inventory strategies to stay resilient. Wells Fargo found minimal year-on-year inventory growth this year, with a sharp rise in March, April, and May. This is likely due to importers placing orders in the first months of 2025, hoping to avoid the long-awaited tariffs, which came into place in April. 

Ordering goods in advance can be a good strategy to get ahead of tariffs: in most cases, as long as goods have been loaded on the ship in the outgoing port before the date a tariff comes into effect, they are not affected by the higher rate. This led to sharp rises in orders – and a resulting later increase in inventory levels – just before tariffs were scheduled or expected to come into effect, as well as disruptions in shipping around the world as resources were diverted to US routes to meet deadlines.

 With tariffs now fully in effect, firms are carefully managing inventories to cope with higher costs without transferring them to consumers. “Businesses have done a wonderful job at adjusting to some of the new realities of the costs associated with tariffs,” said Jansen. 

According to the report, this is leading to a reconfiguration of supply chains, with some costs shifted downstream to vendors and manufacturers; shrinking margins are also seeing firms carefully manage their cash flows and cut capital expenditures.“Consumer prices, even now through July and August, have subtly and slightly moved up, but probably not to the extent that business leaders or the American consumer would have thought,” said Jansen.

Wells Fargo’s June data shows steady invoice financing volumes, which could indicate a resilient industry that is cautiously optimistic about tariff recovery. As uncertainty doesn’t look ready to decrease anytime soon, firms are working to make their supply chains more agile – often by leveraging supply chain finance programs to achieve longer payment terms and increase working capital.

“We’ve seen a modest increase in the use of reverse factoring facilities throughout the year,” said Jansen. Reverse factoring facilities give buyers more time to pay suppliers and maintain liquidity, while still letting suppliers receive their funds in good time. 

The rise of China (and China+1)

The US-China tariff war looks currently paused, as a recently announced extension would have the full range of tariffs come into effect only in November. However, reciprocal tariffs are still high – at 57.6% for Chinese imports in the US and 32.6% on American imports in China – and uncertainty on what lies beyond November even higher. 

Especially ahead of the holiday season, companies are increasingly sourcing products from China despite the tariffs, while still avoiding an aggressive restocking. China’s trade volume in the first half of June 2025 nearly exceeded that of the entirety of June 2024, suggesting even high tariffs are not discouraging trade; most of all in the decor and toy industries (those who experience the largest holiday spike), where up to 90% of all products are sourced from China.

At the same time, China+1 strategies are gaining traction, with firms looking to diversify ahead of potential further tariff troubles. Diversified supply chains, which include manufacturers from a range of countries instead of an over-reliance on a single vendor or exporter, make firms more agile and better able to survive shocks and shipping disruptions.

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The Wells Fargo report shows global retailers are gearing up for the holidays, with tariff troubles not excessively disrupting normal operations. An increased focus on inventory management and agile supply chains will make global trade as a whole more resilient to future shocks, be they tariff, geopolitics, or shipping related.