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Trade tensions may be heating up, but here’s the reality: tariffs are shaking up operational and financial realities for companies across sectors. From manufacturing and consumer products to M&A strategy and tax compliance, the ripple effects are everywhere. The big question for business leaders isn’t just about managing the here and now. It’s about preparing for what might come next.
If you’re feeling uncertain about how to handle all these changes, you’re not alone. Many middle-market businesses have questions about how to navigate these disruptions. To help, we’ve pulled together some ideas and strategies to help you make smart, proactive decisions rooted in data, strategy and alignment. Stay in the loop with our tariffs updates page for significant tariff-related developments and what they could mean for you.
This guide explores the what’s happening with tariffs right now, how they’re affecting businesses and considerations for managing risk and identifying opportunities.
The reintroduction of tariffs, particularly reciprocal tariffs and the tariffs on China, has introduced cascading cost pressures across supply chains. Whether it's raw materials, components or finished goods, companies are seeing:
Manufacturers report struggling with timing issues related to the changes in policy, such as tariffs incurred at border crossings but billed to customers later. Increased volatility results in greater working capital needs, margin compression and financial reporting complexities, emphasizing the need for scenario modeling and careful strategic shifts.
Navigating the complexities of tariffs requires you to act with foresight, adaptability and alignment across teams. From assessing financial impacts to restructuring supply chains, identifying areas of vulnerability and opportunity is critical to building resilience. The following sections outline key focus areas and ways you can proactively address risks, optimize operations and ensure long-term competitiveness.
Managing cash flow, working capital, taxes, pricing, and capital expenditures effectively is vital for businesses of all shapes and sizes, especially in a tariff-driven economy. These areas form the backbone of financial longevity, ensuring your organization can adapt to rising costs, evolving trade policies and operational pressures. This section explores how proactive strategies in these critical domains can help you mitigate risk, strengthen your position and plan for sustainable growth.
Tariffs place immediate and sustained pressure on working capital. They raise inventory costs and may put pressure on the cash cycle by significantly increasing costs without a concurrent increase in revenue. As a result, some companies might delay payments until their own increase in receivables value is assured. This means that organizations in the middle of the supply chain may see delays in receivables and delay payables as a result.
Tighter borrowing conditions intensify these conditions, leading to heightened liquidity needs and increased risk of cash flow strain.
In the short term, organizations may try to mitigate these effects by holding inventory ahead of tariff increases or delaying shipments. However, these tactics can further tie up cash and are difficult to sustain. In the long term, forecasting becomes increasingly complex, as consumer demand may soften in response to rising prices, making cash flow planning more uncertain.
Tariffs often require upfront payments at ports. Some vendors may shift to cash-on-delivery (COD) terms in response. This accelerated cash outflow can deplete your working capital reserves and, in some cases, impact borrowing bases, raising the risk of covenant breaches.
Consider reinforcing liquidity through cash buffers or expanded credit lines. But this is not always straightforward, especially for lower-margin or capital-constrained businesses. To improve financing prospects, you also may need to tighten financial reporting, engage advisors or "stage" the business for funding, like preparing a home for sale.
Although tariffs don’t directly impact your company’s effective tax rate because the stated income tax rate is calculated as a percentage of pre-tax profits, they do raise your overall cost of doing business by driving up the cost of goods sold (COGS) and operating expenses. This can reduce your profit margins and lower your taxable income, especially if you’re unable to pass the added costs on to customers.
Inventory accounting methods, such as last-in, first-out (LIFO), influence the timing of tax deductions for tariffed goods. Organizations absorbing tariff costs may incur short-term tax losses, but this strategy is rarely sustainable. When products are imported into a country (e.g., the U.S.), customs duties are usually assessed on the declared transaction value — typically, the price paid or payable for the goods. However, if part of that value relates to intangibles (like trademarks, patents or know-how) or post-importation services or U.S.-based value-added functions, there's an opportunity to strip those from the customs valuation while remaining compliant with transfer pricing and customs rules.
When it comes to transfer pricing and structural tax impacts, tariffs can have far-reaching implications, including:
As tariff-related costs rise, so does regulatory scrutiny. This can show up in tax authorities requiring more detailed documentation for inventory valuation, fluctuations in profits of related parties and intercompany agreements. With profits under pressure, expect audit activity to increase as authorities look to protect their tax bases.
Research and development (R&D) tax credits remain important for cash management, especially as organizations look for ways to maintain liquidity and offset rising costs.
Reevaluate pricing and capital decisions with a strategic, holistic approach. Adjust pricing not only to respond to inflation but also based on market expectations and competitive positioning. A full profit-and-loss (P&L) analysis — not just a pricing adjustment — will help you determine which costs can be passed on and where operational efficiencies can preserve margins.
Effective pricing execution is key. Price increases, when necessary, should be thoughtfully planned and communicated clearly to maintain customer trust. Be clear with customers about the reasons, timing and potential future adjustments. Mishandling this step can damage relationships and loyalty.
Flexibility in capital deployment is essential. Act decisively to seize new opportunities or shift resources away from investments that no longer align with strategic goals.
Rather than a one-off incident, tariffs are part of a societal shift to a VUCA (volatility, uncertainty, complexity and ambiguity) world defined by frequent disruptions, such as pandemics (as we saw with Covid), inflation and political uncertainty. Consequently, it’s important to make strategic scenario-based modeling part of your core business practices. This approach empowers you to anticipate challenges, adapt to uncertainties and make informed decisions with confidence.
Most businesses typically develop dynamic models alongside financial advisors. But even simple models can be effective if they:
Modeling can help you identify the point when tariffs might trigger unsustainable losses or cash burn, prompting the need for operational restructuring or liquidation. If tariffs consistently undermine financial viability, then it’s time to revisit your overarching business strategy. A flexible, strategic mindset is more valuable than narrowly focused, static planning. Optimize margins through smart sourcing, cost control and flexible pricing.
Tariffs present a mixed signal for capital investment. On the one hand, inflationary pressures and government incentives to boost domestic production may encourage some firms to invest sooner. On the other hand, the uncertainty surrounding trade policy could lead companies to delay key decisions. The net impact will depend on each organization’s exposure and long-term strategy.
Tariffs and broader economic uncertainty may prompt businesses to pause or redirect investments. Companies with strong growth prospects or clear cost-saving opportunities may move forward. However, most organizations should adopt a more cautious stance until conditions stabilize.
Organizations are reevaluating how they approach M&A in light of tariff pressures. Buyers are hesitant to commit to long-term investments with so much volatility around trade. They don’t want to make a 20-year capital decision based on a 90-day trade policy.
To hedge against volatility, we’re seeing companies increasingly use earn-outs, deferred payouts, claw backs and price adjustment clauses tied to post-close performance. Material adverse change (MAC) clauses are also gaining traction, giving buyers flexibility if trade conditions shift dramatically after signing.
Tariffs can disrupt synergies like consolidated supply chains and might diminish the financial benefit of an acquisition. This will require conducting deeper due diligence and a shift toward scenario modeling during deal planning. If you’re in an M&A situation, you can’t afford to look backward. What matters now is how exposed a target is to changing trade realities.
While this volatility can slow or even pause M&A activity, it can also create strategic openings for insightful leaders, especially if you don’t need a lot of leverage and can find a unique asset at the right price. For instance, private equity firms with significant cash or liquidity may be seeking favorable opportunities like distressed or undervalued assets impacted by supply chain disruptions or shifting valuations. Sellers facing margin pressures or aging owners looking to exit this volatile market could further expand the pool of opportunities.
Vertical integration is gaining traction, with buyers acquiring domestic suppliers to mitigate import duties and bypass tariff exposure. Likewise, M&A targets with U.S.-based manufacturing or strategic distribution locations can enhance target appeal, drawing premium interest. Foreign buyers are also accelerating U.S. acquisitions to secure market access and adjust to long-term trade realignment.
Geographic diversification is increasingly under the microscope as companies weigh the risks of purchasing in areas with escalating trade tensions. Tariffs are further influencing M&A trends, with certain sectors like manufacturing, logistics and consumer products (e.g., toys, autos) bearing the brunt of direct costs. Meanwhile, more insulated industries like tech or professional services may still experience indirect impacts, such as tighter customer budgets or shifts in access to capital. These dynamics underscore the need for strategic planning to identify opportunities and mitigate risks.
Tariffs inject uncertainty into revenue forecasts and cost structures, increasing the range of future cash flow projections and reducing confidence in standard valuation models. Organizations that rely heavily on global sourcing, especially from tariff-targeted countries, are particularly vulnerable to margin pressures, inventory distortions and working capital fluctuations. For instance, if an organization is buying a company that sources from Asia, and tariffs change overnight, they might see a margin hit or have to hold more inventory. Both can reduce valuation.
Inventory and intangible assets (e.g., goodwill from acquisitions) might be impaired due to reduced demand or valuation declines. Public companies should evaluate any impairment triggering events by quarter-end.
Tariffs require closer scrutiny of a target’s supply chain, vendor agreements and systems. Post-close, organizations may need to reconfigure sourcing strategies, evaluate customs compliance or invest in systems that track tariff-related costs more precisely.
Just-in-time supply chains are highly efficient, but they’re also fragile due to tariff stress. This brittleness is especially tricky for smaller manufacturers who often lack visibility into their supply networks and technology systems. This leaves them more vulnerable to volatility and uncertainty.
Conducting a tariff exposure audit can help you identify which products, suppliers and markets are most affected and provide clarity on where to focus your mitigation efforts. Highly specialized inputs like rare earth elements, which are largely controlled by China, pose significant challenges for industries such as semiconductors and electric vehicles. For less specialized products, like toys, substituting components is more feasible but still time-consuming.
Relocating manufacturing operations can reduce exposure to tariffs, but it's rarely a simple fix. Many products still rely on imported components, limiting the advantages of moving assembly elsewhere. And altering the supply chain can introduce new international tax obligations or regulatory risks. Even tools like free trade zones or tax credits offer limited financial relief and may not fully offset rising tariff costs.
Many mid-market companies also struggle with rigid supply chains. Encourage cross-functional collaboration across finance, operations, procurement and marketing teams to address these challenges. Simple steps like planning ahead, scenario modeling and data analysis can improve adaptability.
Flexible sourcing strategies, such as nearshoring or multi-sourcing options, can also help reduce risk and ensure stability in VUCA world.
While domestic production can reduce exposure to global tariffs, it can introduce higher labor costs, talent shortages and outdated or insufficient infrastructure. Nearshoring (moving operations to a nearby country) can offer a balanced alternative with proximity and cost savings, but new tariffs may require a broader reassessment of sourcing strategies, overhead costs and opportunities for automation and outsourcing.
Restructuring supply chains through reshoring or relocation can span several years. If you’re considering this strategy, approach these initiatives in phases and evaluate at regular intervals to ensure you remain aligned with market and policy conditions.
Building in flexibility through staged investments can reduce exposure to sudden regulatory or geopolitical changes and help you pivot without incurring excessive costs.
Larger companies typically have an advantage in managing tariff exposure because they have more robust systems and data infrastructure. But regardless of size, every organization must understand its supply chain and vendor relationships. Know exactly what you source, from whom and where. Understanding your inventory, supplier contracts and sourcing options is a must, as legacy agreements could carry hidden financial risks in this shifting environment.
With foundational data in place, you can use it for cost modeling, scenario planning and financial analysis to evaluate trade-offs, anticipate outcomes and make informed decisions.
When you face pressure to reduce costs through layoffs, closing plants or offices, or other restructuring initiatives, base these decisions on data, not your gut instinct. Focus on what adds the most value and operational impact over metrics like headcount.
Solid data consolidation and analytics can help you identify which areas can be streamlined without jeopardizing long-term stability or growth. Remember, the goal is to protect core capabilities while eliminating inefficiencies.
The manufacturing sector is approaching a major workforce transition with nearly 30% of its employees expected to retire within the next five to 10 years. To prepare for the future and make things easier for the next generation of workers, focus on upskilling existing employees and capturing legacy knowledge.
You can also address this looming talent gap by embracing automation, artificial intelligence (AI) and machine learning — not to replace human workers, but to boost productivity and support their work.
It’s also important to redefine Human Resources as a department that spearheads strategic workforce planning. To ease the stress that uncertainty can bring, HR must focus on increasing morale, training employees for different roles and helping them grow their talents.
Inflation affects lower-wage workers more, so companies will need to think beyond pay raises in their retention strategies. Offering career growth, flexible work options and a sense of purpose can help keep employees engaged and loyal.
Tariff talk often raises concerns about job losses, but they might actually spur job creation in U.S. manufacturing, compliance, customs brokerage and data-driven roles . As global trade becomes more complex, companies will need more specialized talent to manage operations, regulatory compliance and financial modeling.
In uncertain times, businesses often hesitate, entering a "freeze" mode, delaying key decisions on spending, hiring or restructuring. But hesitation has consequences. Postponing difficult decisions or “kicking the can down the road” about issues, such as refinancing debt, adjusting pricing models or resizing operations can increase risk. Instead, conduct strategic reviews of profitability, cost structures and contracts. Identifying which segments may become unprofitable under tariff pressure is crucial for long-term stability.
Navigating tariffs and economic shifts requires collaboration across finance, tax, operations and leadership. Cross-functional alignment ensures decisions are data-driven and organization-wide, while siloed thinking leads to reactive measures.
Review units affect by tariffs or with shrinking margins for potential divestiture, especially if they’re not essential. Timing is critical — selling in a down market may yield poor returns, so consider winding down certain operations instead of selling outright.
Clear communication is crucial during uncertain times, especially when restructuring may be on the horizon. Investors, customers, lenders and employees need more than updates --- they require confidence in your plan. Transparency, coupled with actionable next steps, helps maintain trust and prevents speculation.
When communicating with investors and analysts, openly acknowledge uncertainty while demonstrating preparedness and strategic foresight. Silence is deadly, so even saying “we don’t know yet” is better than no response. However, the ideal approach is to provide a measured, scenario-based response plan. This assures stakeholders that you have considered potential outcomes and are ready to adapt.
Earnings forecasts also play a critical role during these times. Many public companies are revising or withholding guidance, leading to earnings forecast reductions in sectors like auto manufacturing. On the other hand, domestic-focused sectors like mining or solar may experience valuation growth.
Equally important is addressing and correcting misconceptions about tariffs. Proactively challenging these misunderstandings is essential to gain a clear understanding of their impact on your business and the broader economy. Combining strategic decision-making with effective communication not only strengthens your position in a volatile market but also builds lasting trust with all stakeholders.
Tariffs are often misunderstood, leading to decisions that overlook their complexity or long-term effects. They’re more than just short-term hurdles or sector-specific issues. Understanding their true impact can help you make smarter, more strategic moves. This section clears up common tariff misconceptions to help you plan with confidence.
Misconception 1: Tariffs are a Temporary Blip – We Can Wait Them Out.
Reality: While specific tariffs might be subject to change or removal, the underlying drivers of trade friction — geopolitical tensions, national security concerns, and the desire for regionalization — are likely to persist. Viewing tariffs as a fleeting phenomenon is a dangerous gamble. Adopt a long-term perspective and build adaptability into your core operations. This means moving beyond short-term fixes and embracing strategic shifts that can weather future storms, regardless of the specific tariff du jour.
Misconception 2: Our Only Option is to Absorb the Costs.
Reality: Absorbing some initial cost increases might be a short-term necessity, but it's rarely a sustainable long-term solution. This approach erodes profitability and weakens your competitive positioning. To succeed in a tariff-laden environment, you need a balanced strategy. Consider supply chain diversification, value engineering, pricing strategies, automation and efficiency improvements and strategic partnerships to stay competitive and resilient.
Misconception 3: Lobbying and Legal Challenges are the Most Effective Solutions.
Reality: While engaging in advocacy and exploring legal avenues can be part of a comprehensive strategy, relying solely on these approaches is often reactive and uncertain. Policy changes are unpredictable, and legal battles can be lengthy and costly. Focus on proactive measures that you can control directly. Advocacy efforts should be part of a broader strategy that prioritizes internal adaptation and flexibility.
Misconception 4: Only Large Corporations Have the Resources to Effectively Plan for Tariffs.
Reality: While large enterprises might have dedicated teams and significant financial resources, smaller and medium-sized enterprises (SMEs) can also build resilience through agile and focused strategies. SMEs can:
Misconception 5: The Goal of Pricing Strategy is to Negate Margin Compression from Tariffs Fully.
Reality: It’s understandable to want to fully offset tariff-induced margin losses, but this can be unrealistic and lead to issues like significant volume loss or decreased competitiveness. However, top companies see publicly announced tariffs as a chance to adjust prices strategically, improving margins over time even after the immediate pressures subside.
Customers are often more receptive to price increases when there's a clear, external justification like tariffs. Acting early and clearly communicating the impact of these cost pressures allows you to adjust pricing in a way that’s more acceptable. This proactive approach helps you manage customer expectations, reset pricing expectations and can even expand margins. On the other hand, delaying these adjustments can increase the risk of stronger customer resistance and result in a missed chance to move strategically.
Misconception 6: In Times of Economic Uncertainty and Tariff Volatility, Investing in New Technology Should Be Put on Hold.
Reality: Investing in technology in uncertain times is more critical than ever. Tariffs and fluctuating global trade demand tools that enhance agility, provide proactive insights and support rapid, informed decision-making. Cutting back on tech investments now is less efficient and ultimately less competitive. In the next section, we’ll share where you can focus technology to prepare for economic impacts.
Technology isn’t just a nice-to-have in this volatile environment; it’s your lifeline. When tariffs and unpredictable trade shake things up, the right tools can help you adapt and stay ahead. Smart tech investments make your business more agile and give you the insights you need to make confident decisions fast. Companies that understand this aren’t just surviving the chaos — they’re turning into an opportunity to grow stronger and smarter. Here’s where to focus:
Sure, tariffs can create a lot of uncertainty, but there’s still plenty you can do to help your business stay resilient and even get an edge: Here’s how to get started:
Tariff changes can wreak havoc on your margins, supply chains and strategic plans, but only if you let them. Here’s a helpful chart that outlines key actions you can take right now to prepare for tariff changes and minimize their impact. Proactive planning helps you stay ahead of the storm in a volatile trade environment. From assessing exposure to reevaluating your cost allocation and investment strategies, these steps will help you mitigate risks and seize opportunities as the global trade environment evolves. Use these tactical approaches to ensure your business is ready to address challenges and thrive despite uncertainty.
Increase prices strategically to reflect higher costs due to tariffs while balancing competitiveness and profitability in key markets
Improve net pricing through a disciplined approach to discounting depth and frequency
As close to real-time updates as possible allow fast visibility into actual impact of pricing changes
Tariff changes and long stretches of uncertainty can disrupt nearly every part of your business, especially if you are already juggling lean teams, complex supply chains or dealing with high capital demands. But here’s the good news: you don’t have to do this alone. Get help in these core areas to boost your strategy and address tariff threats now:
Navigating tariffs doesn't have to feel overwhelming. With the right guidance and cross-functional support, you can turn uncertainty into a business advantage. Whether you're reassessing your supply chain, financial plans or deal structures, we're here to help you move forward with clarity and confidence.
Our Rapid Response team can help you assess your readiness and adapt quickly to upcoming changes, so you can set your business up for sustained success.