Key insights
- President Donald Trump's tariffs are reshaping international trade dynamics. Now as the courts get involved, additional changes could be forthcoming.
- Learn about the potential wide-ranging economic impact on key industries and how it could affect your business and operations.
- This is an evolving situation that continues to change.
Enact tariff risk mitigation strategies for your business.
Tariffs have been and continue to be a hot topic. As the tariff landscape continues to evolve, it can bring a level of uncertainty for many businesses across industries.
As we continue to monitor the situation, this comprehensive analysis delves into the potential far-reaching consequences of these tariffs, what they could mean for your business, and steps you can take to navigate risks.
Trump trade policy summary
President Donald Trump’s tariff announcements sparked intense negotiations with many affected countries — and there is the possibility of further tariff announcements on the horizon.
What started with tariffs on Canada, Mexico, and China evolved to include reciprocal tariffs on countries across the world, with significant implications for global trade dynamics and potentially affecting a wide range of commodities.
Latest tariff update
Now as the court system is getting involved, various rulings and appeals could bring additional changes.
This may create significant uncertainty for businesses, particularly manufacturers. At times, there may be immediate actions you can take, while also looking at longer-term strategies. CLA can help you navigate these latest developments, including building a tariff roadmap.
Tariffs are complex. How could they affect your business? Explore more than 20 strategies to help reduce your tariff impact. View our tariff webinar series.
Potential effects of tariffs on your business and beyond
U.S. companies could face increased costs due to potential retaliatory tariffs and trade restrictions. The effects could be far reaching.
Effects of tariffs on pricing
Tariffs are likely to affect a wide range of products across key industries. This can increase the cost of imported goods, leading to reduced profit margins and higher prices for consumers — potentially reducing their purchasing power and slowing consumer demand.
Our CLA tax professionals continue to watch tax and trade policy to help you stay informed and navigate a rapidly changing global market. Subscribe to our tax policy newsletter to get the latest updates. Be prepared regardless of where trade and tax policy lands.
Planning can become more difficult due to volatility over actual tariff rates. But there is a lot you can do to help your business proactively manage cash flow, margins, and profitability, regardless of policy and rate changes. Look beyond introducing a surcharge to customers to consider both short- and long-term tariff impacts. Scenario planning can help you review options.
Sales and use tax implications
Tariffs can increase the cost basis of goods, which affects the taxable value for state and local sales and use taxes. This could bring increased tax liabilities for businesses, including:
- Raising the taxable basis for sales tax
- Complicating use tax calculations
- Impacting pricing and customer tax burden
- Indirectly expanding income tax and sales tax nexus
- Creating challenges in multi-state compliance
The intersection of tariffs and sales and use tax can create significant compliance risks and complicate tax reporting for U.S. businesses.
Supply chain concerns
Global trade uncertainty can create supply chain challenges, such as transportation delays, higher freight costs, and shortages, which can extend production timelines and increase labor costs.
Supply chain disruptions can also lead to cash flow problems. Businesses need to plan strategically, diversify suppliers, and manage inventory to mitigate these risks and stay resilient in the face of global trade uncertainties.
Effects of tariffs on international trade
Tariffs can bring complexities in managing costs and compliance related to international trade.
Transfer pricing
Recent increases in U.S. tariffs on imports have significantly impacted transfer pricing, requiring companies to adjust their transfer pricing policies to account for higher costs while maintaining compliance with customs and tax regulations. Reviewing and strategically managing transfer pricing policies can help your company make decisions around tax savings opportunities and mitigate the financial impact of tariffs.
Onshoring incentives
In response to tariffs, many companies are considering onshoring to relocate production from overseas to domestic facilities. This involves significant investments in land, machinery, equipment, and workforce training. States and local governments offer various incentives to offset these costs, such as tax credits, property tax abatements, and assistance with infrastructure and workforce training.
Foreign currency exposure and management
Currency fluctuations can have a significant impact on the cost of international trade. While tariffs may not directly impact foreign currency, the markets often respond to tariff policy changes — and market uncertainty can make exchange rates unpredictable. Exchange rate risk and foreign currency exposure can be significant, affecting import costs, export competitiveness, and overall profit margins.
To help navigate foreign exchange risk, review your contracts and pricing models. A currency risk management plan can help mitigate the effects of currency fluctuation. In your plan, consider which entities and transactions are covered and determine the financial instruments used.
Hedging, which helps you lock in exchange rates for future transactions, can help protect against adverse currency movements, though it may limit you in favorable movements. Engage stakeholders, including financial service providers and accountants, to help develop and execute your plan.
How do tariffs impact the economy?
Tariffs can have complex implications on the economy and your portfolio. Tariff announcements led to wild market swings, mainly due to fears of trade war escalations. This uncertainty can reduce production and halt trade, introducing more market uncertainty, which can lead to fluctuations in the stock market. Consider investment strategies for market volatility from tariffs.
Changing tariffs are also injecting uncertainty into mergers, acquisitions, and private equity transactions, which can affect valuations, making it even more important to find ways to position your company for success in a complex market.
Which industries could be affected by Trump’s 2025 tariffs?
Tariffs can affect specific industries differently, with some potentially benefiting from reduced competition and others significantly impacted by higher costs.
The manufacturing industry could face tariff pressures with the potential for higher costs of raw materials like steel and aluminum. This can result in higher production expenses and reduced profit margins.
Additionally, supply chain challenges can be particularly disruptive to manufacturers, potentially extending production timelines and increasing operational costs. Manufacturers might also face increased uncertainty and volatility in the market, making it harder to plan and budget for future projects.
Explore local production options, diversify suppliers, and consider whether to take on additional inventory to help mitigate these extra costs, weighing factors, such as demand for the product, financing options, and storage space.
Aluminum and steel tariffs could significantly impact the construction industry, which uses fabricated structural steel and pre-stressed concrete strand.
When prices for these materials go up, building items like beams and pipes becomes more expensive and can increase the overall cost of construction projects. And supply chains delays and shortages can extend project timelines and increase labor costs. Higher costs can lead to bigger budgets and increased prices for clients and consumers.
Tariffs on steel and trucks, which are often produced overseas, can lead to higher expenses for transportation and logistics companies. This can result in increased costs for equipment purchases and potential delays in receiving supplies.
Tariffs could create financial strain and market uncertainty for the agribusiness industry and farmers, affecting their profitability and future planning. Potential challenges include:
- Raising costs and reducing export revenues
- Increasing production expenses if tariffs on imported agricultural equipment are realized
- Decreasing demand for U.S. agricultural exports, if retaliatory tariffs lead to lower sales and profits
- Reducing sales volumes to key markets like China if major crops like soybeans, corn, and pork are significantly impacted
Retailers often operate on slim profit margins, so higher costs for imported goods can lead to increased prices for consumers. Supply chain delays and shortages could also affect product availability and make retail operations less predictable.
How can I help protect my business from the impact of tariffs?
In the face of global trade uncertainties, you can do more than increase prices. Consider what immediate actions you could take to help mitigate the tariff impact, along with exploring strategies with a longer-term view. This strategic approach can help you navigate international trade challenges and make informed decisions strengthening your resilience.
Here are just a few:
Boost cash flow
- Explore cost accounting and inventory management options
- Model currency exchange, direct and indirect taxes, and other drivers
Reduce price of goods
- Consider new supplier terms and discounts
- Assess transfer pricing and state and local tax strategies
- Consider renegotiating supplier and customer pricing agreements and cost-splitting arrangements
- Analyze both financial and physical flows of imports and exports to assess the potential total landed cost of goods against which tariffs (and baseline duties) will apply
- Review contracts with suppliers and customers to clarify contractual liability for duties, tariffs, and taxes, including an examination of sales terms and importer-of-record roles and responsibilities
Logistics assessments
- Assess freight consolidation and volume planning
Product and process changes
- Weigh reshoring and incentives, tariff engineering, country of origin transformation
- Evaluate current domestic or alternative sourcing options for the impacted countries and consider country-of-origin planning to mitigate duties
We’ll continue to closely monitor international trade developments so we can help you find answers to the latest tariff questions and adjust your tariff mitigation strategies accordingly. By staying informed and adaptable, your business can better manage risks and capitalize on opportunities arising from the evolving trade landscape.
How CLA can help you navigate effects of tariffs
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