Government agencies in the U.S. have long emphasized the importance of purchasing American-made goods. However, recent developments, including newly imposed tariffs on imports from Canada, Mexico, and China, have intensified this focus.
With heightened economic and national security concerns, government contractors must understand the impact of these policies and how they will reshape procurement strategies.
The Shift Toward Domestic Procurement
The federal government has consistently encouraged the purchase of American-made products through initiatives like the Buy American Act and the Berry Amendment. However, the latest tariff policies, announced by the Administration in early 2025, provide a stronger economic incentive to source domestically.
These tariffs, which impose up to a 25% tax on imports from Canada and Mexico (with a 10% tax on Canadian energy products) and increased levies on Chinese imports, are designed to boost American manufacturing and reduce dependency on foreign goods.
Government agencies are particularly sensitive to price fluctuations, supply chain vulnerabilities, and geopolitical risks. By prioritizing domestic products, these agencies can minimize potential delays and cost increases tied to trade disputes while ensuring greater control over the sourcing of critical materials.
How the New Tariffs Impact Competitors Using Imported Goods
The new tariffs will have a direct impact on companies relying on imported goods, particularly those in industries that depend on raw materials or components from Canada, Mexico, and China. Some key implications include:
- Increased Costs: The 25% tariff on most Canadian and Mexican goods means that companies sourcing from these countries will face significantly higher costs. Businesses reliant on Canadian oil and electricity will also see a 10% increase in expenses.
- Retaliatory Tariffs: Canada and Mexico have responded by imposing their own tariffs on U.S. products. On March 4, 2025, Canada imposed a 25% tariff on $30 billion worth of U.S. goods and is set to add $125 billion more in tariffs by March 25, 2025. Mexico is also preparing retaliatory measures, adding to the pressure on American exporters.
- China’s Response: With China doubling its tariffs on U.S. goods to 20% and imposing additional tariffs on agricultural products, energy resources, and high-tech components, businesses relying on Chinese imports will see sharp cost increases. Moreover, China’s export controls on rare earth minerals and semiconductor components will further disrupt supply chains.
Companies that depend on foreign imports will either have to absorb these costs, pass them on to consumers, or shift to alternative supply sources. As a result, government agencies are incentivized to work with vendors that already manufacture domestically to avoid price volatility and delays.
Key Considerations for Government Contractors
Government contractors must carefully navigate this evolving trade environment. To stay competitive and compliant with federal procurement priorities, they should:
- Assess the Impact on Costs and Supply Chains
- Contractors must evaluate how increased tariffs and export restrictions will affect their operations. Some suppliers may struggle to meet demand or raise prices, leading to project delays or cost overruns.
- Review Contract Terms for Cost Recovery Options
- Federal Acquisition Regulation (FAR) clauses like FAR 52.229-3 (Federal, State, and Local Taxes) and FAR 52.229-6 (Taxes—Foreign Fixed-Price Contracts) may provide avenues for cost recovery. Economic Price Adjustment clauses could also help offset increased expenses.
- Reduce Reliance on Foreign Goods
- Contractors should explore domestic alternatives for materials and components to avoid tariff-related cost spikes. Reshoring efforts, supplier diversification, and new manufacturing partnerships will be crucial.
- Account for Tariff Costs in Future Bids
- When supply chain adjustments are not feasible, contractors must factor increased material and transportation costs into their future proposals to ensure profitability.
- Stay Updated on Trade Policy Developments
- With steel and aluminum tariffs set for March 12, 2025, and additional reciprocal tariffs expected after April 1, 2025, ongoing policy shifts could further reshape procurement strategies. Contractors must stay informed to mitigate risks.
Summary – Made in America
As trade tensions escalate, government agencies will continue prioritizing American-made products to protect economic stability, enhance national security, and reduce supply chain risks. Contractors who proactively adjust to these changes—by sourcing domestically, understanding contractual protections, and adapting bidding strategies—will be better positioned to secure government contracts in this evolving landscape.
By staying ahead of the curve and embracing these shifts, businesses can strengthen their relationships with federal agencies while ensuring long-term sustainability in a rapidly changing trade environment.
