Tariff Shocks and How to Cope (Commercial Vehicle Edition)

To assess the impact of the Trump administration’s trade moves, we recently built a high-level game theory model. We mapped out the potential moves across market participants and governments, examining their motivations and constraints to predict likely outcomes.

The game was played well before President Trump’s announcement of the most sweeping tariff package in U.S. history on what it dubbed “Liberation Day,” which only enhances its value as the game’s insights turned out to be highly prescient.

The analysis yielded important insights, divided across short- and long-term time frames:

Short-Term Impacts: Immediate Reactions and Tactical Shifts

Tariffs will rise: The Trump administration sees multiple benefits—political and economic—in imposing tariffs and is likely to escalate them. Retaliation by foreign governments is inevitable.

Policy uncertainty will persist: Tariff levels and trade rules will remain volatile as negotiations evolve and domestic priorities shift, creating operational ambiguity.

Price adjustments will be swift: OEMs and suppliers—both foreign and domestic—will rapidly pass through tariff costs. U.S.-based players may also capitalize on new protectionist advantages to expand margin and market share.

Near-term first-mover advantage is possible: Companies able to quickly adapt pricing and sourcing may gain an early edge. However, this must be weighed against the risk of recession or sharp policy reversals.

Limited industry influence: Despite the magnitude of impact, industry players will have little sway over trade policy, emphasizing the importance of adaptation over advocacy.

Long-Term Impacts: Strategic Realignments and Structural Change

Supply chain regionalization: As tariffs endure, OEMs will increasingly re-source components and encourage local production, shifting toward regional supply chains across the U.S., Europe and Asia-Pacific.

Global overcapacity risk: These adjustments will increase capacity without corresponding demand growth, threatening margins and raising the risk of underutilized assets.

Competitive pressure on supplier capacity: A scramble for domestic supply may spark bidding wars, creating an advantage for those who act early and have strong productive relationships with their suppliers—but potentially at elevated cost.

Need for operational flexibility: Companies will benefit from production systems that allow fast, low-cost reallocation across regions—a “no-regret” investment in a volatile world.

Expanded service offerings: As vehicle purchases decline in the face of uncertainty, OEMs will need to pivot toward services that extend the life of existing fleets and create new revenue streams.

Acting on the Insight: One Game Does Not Fit All

While the high-level game described here offers valuable directional guidance, the real power of game theory lies in its ability to tailor insights to the specific strategic context of each company. Product portfolio, cost structure, geographic footprint, and supplier relationships are unique—and so is the game every firm is playing.

Game-theory models that reflect their particular challenges and opportunities can assess not just the impact of tariffs, but also incorporate demand shifts, competitor moves, regulatory developments and geopolitical risk into flexible decision-making.

In a world of rising trade barriers, policy unpredictability and volatility, resilience and adaptability are not luxuries, but necessities.  Game theory can help build them.

This article originally appeared in the C-Suite newsletter. It is used with permission.