The Indirect Effects of The U.S.

Tariffs on Global Engineering Outsourcing Services

Contact Us

In an increasingly interconnected global economy, tariffs have once again emerged as a blunt yet powerful instrument in international trade policy. While their direct impacts on goods are well documented, the indirect consequences of tariffs on services, especially the high-value, knowledge-intensive sectors like global engineering outsourcing, are less understood.

As a Politico article in late March of 2025 stated, “it’s one thing to hit Harley-Davidson motorbikes and bourbon whiskey. It’s another to go after Silicon Valley or Wall Street.” Tariffs are taxes imposed on imported goods and are intended to protect domestic industries by making foreign goods more expensive, generate revenue for governments, and serve as leverage in trade negotiations. However, they have cascading effects on upstream and downstream sectors that include services that support or rely on those goods.

Global engineering outsourcing services, encompassing product design, R&D, prototyping, testing, and maintenance, have grown exponentially over the last two decades. Driven by digitalization and cost efficiency, companies routinely tap into specialized talent pools across borders. However, the rising protectionist policies and tariffs on goods introduce new complexities, indirectly altering the dynamics of engineering services outsourcing.

Indirect Impact on
Engineering Outsourcing

  • Increased Production Costs and Shifting Supply Chains: Tariffs that raise imported component costs often push manufacturers to source locally or diversify suppliers, driving product redesigns, spec updates, and production shifts. Thus, demand for engineering services is boosted. However, uncertainty and higher costs may also prompt companies to insource to protect IP, favor nearshoring over offshoring to reduce risks, and slow related sectors like shipping and transportation. For example, ongoing trade uncertainties have delayed planning and hiring in the marine and freight sectors, with extended shipyard inactivity at US ports prompting several of our Vee Technologies’ heavy-duty truck-trailer manufacturing clients to put long-term contracts on hold.

  • Reallocation of R&D Budgets: Tariff-induced cost escalations can squeeze margins, forcing firms to reprioritize spending. Engineering outsourcing, which is sometimes viewed as discretionary or scalable, may face budget cuts or deferrals in favor of core manufacturing investments. Conversely, companies looking to cut costs might expand outsourcing to lower-cost regions unaffected by tariffs.

  • Regulatory and Compliance: New trade barriers often come with increased documentation and compliance requirements. Engineering service providers may need to adapt designs to meet shifting regional standards, adding layers of complexity that require more engineering effort in addition to longer timelines and higher costs.

  • Overheads & International Travel Expenses: Tariff barriers can also increase certain overhead costs for the engineering services providers, such as purchase and shipment of physical prototype builds, testing equipment etc, as well as associated overseas travel expenses in the event of any nearshoring requirements.

Global Perspectives

China : Although commonly known as “world’s factory”, when it comes to engineering services, concerns regarding China’s intellectual property protection remain significant. In addition, English language proficiency always posed a challenge compared to India and other countries in the world, regardless of tariffs. US multinationals sometimes maintain a smaller production CAD team on-site near their Chinese manufacturing plants. However, when tariffs push production out of China, the related design services usually move too.

US Tariff Rates Imposed by the Trump Administaration on April 2, 2025
Country Tariff % Country Tariff %
Australia 10% Brazil 10%
Bangladesh 37% Chile 10%
China 34% Cambodia 49%
European Union 20% Indonesia 32%
India 26% Japan 24%
Malaysia 24% Singapore 10%
South Korea 25% South Africa 30%
Switzerland 31% United Kingdom 10%
Vietnam 46% Turkey 10%
Taiwan 32% Thailand 36%

Source: Fact Sheet, The White House

India’s Outsourced Engineering Services Industry: Before the new tariffs kicked in, India’s engineering services outsourcing sector enjoyed a significant global cost advantage, supported by a strong legal framework and thriving democracy. As shown in the table above, overall industry costs in India remain comparatively low (at 26%), giving its engineering services market a relative competitive edge over many peer countries. However, the secondary impacts of the tariffs are expected to create challenges for India’s manufacturing sector and the providers may choose to pivot more toward European and Japanese markets for certain verticals, rather than relying as heavily on the US.

Others in Southeast Asia: The Philippines, known for healthcare BPO due to strong English skills and cultural fit with the US, is expanding into Architectural Engineering, and Construction (AEC) services, though less so in manufacturing/product engineering. Similarly, Vietnam is gaining recognition in civil engineering CAD detailing outsourcing although its English proficiency has been improving steadily but not as favored as in India and the Philippines. Malaysia and Thailand are pushing into semiconductor design services to move beyond just the final assembly that is already being exploited by many Chinese companies to avoid relatively higher tariff rates if shipped directly out of China.

Europe: Largely being a developed-economy continent, Europe has mixed tariff rates but lower geopolitical risk for the US due to shared Western values. Eastern European countries like Poland and Romania offer competitive rates for specialized automotive engineering, though labor costs are much higher than in India or other low-cost regions.

Canada & Mexico: Under USMCA, and despite periodic tariff pauses, Mexico and Canada consistently offer US clients significant nearshoring advantages through time zone alignment and cultural compatibility. From a cost-arbitrage perspective, larger US MNCs may retain core R&D onshore, establish cost-efficient engineering centers in India for detailed design work, and run a testing lab in Mexico close to local production facilities. Similarly, with nearly half of its aluminum imports coming from Canada, Detroit-based auto parts manufacturers are bound to benefit from near-sourcing of high-end manufacturing execution services (MES) and advanced AI-driven engineering capabilities.

Conclusion:

Tariffs disrupt both manufacturers and service providers. To succeed, engineering service firms and clients must stay flexible, manage risk, and adapt to changing trade conditions. While tariff wars upend established practices, they also create opportunities for agile providers. In the short term, a stronger US dollar and weaker emerging market currencies help offset wage pressures abroad. Tariff climate encourages a shift from Time & Material (“T&M”) to Value-based pricing models in the interim, which we, at Vee Technologies, have been steadily adopting as a mutually balanced strategy. In the longer term, these shifts accelerate automation, AI adoption, and the move toward higher-value services delivered by a highly skilled workforce, thus benefiting both providers and clients.

Contact Us

References:

  • https://www.politico.eu/article/eu-tariffs-counter-strike-big-tech-us-banks-donald-trump/
  • https://www.india-briefing.com/news/us-imposes-26-tariff-on-india-36763.html/
  • https://www.truckinginfo.com/10235316/how-new-trump-tariffs-could-affect-trucking
PK-Das

Meet the Author

PK Das - Client Services Director

PK Das brings over 30 years of diverse industry experience to his role at Vee Technologies, where he focuses on aligning engineering services with client needs, managing strategic accounts, and fostering strong communication with leadership teams. Since joining Vee Technologies in 2017, PK has applied his extensive expertise as a mechanical engineer, gained over 15 years of hands-on practice across the United States, Europe, and India. His deep understanding of the engineering landscape, combined with his global experience, positions him as a key leader in driving innovation and client success at Vee Technologies.

Copyright © Vee Technologies All Rights Reserved. | Image Copyright