Key insights
- President Donald Trump's tariffs are reshaping international trade dynamics and 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.
Review 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 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
- Effects on pricing
- Sales and use tax
- Supply chain concerns
- Transfer pricing
- Onshoring incentives
- Currency exposure
- Industry impacts
- Tariff mitigation strategies
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
Enacting reciprocal tariffs continue, along with new tariffs on many copper imports. The Trump administration is also seeking stricter tariff enforcement and to separate from adversarial supply chains.
The administration also ended the $800 de minimis exemption for all non-postal commercial shipments. Now all non-postal shipments of commercial imports are subject to full duties under the Harmonized Tariff Schedule.
We are also closely monitoring how the Supreme Court reacts to the legality of the tariffs imposed under the International Emergency Economic Powers Act. If repealed, manufacturers may be eligible for rebates.
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. Tariffs can be imposed at any time, and may impact goods already in transit. The importance of monitoring the impact by country and commodity can’t be understated.
Effects of tariffs on international trade
Tariffs can bring complexities in managing costs and compliance related to international trade.
Transfer pricing
Given around half of all imports to the United States are intercompany, transfer pricing is a top strategy to address tariff exposure.
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 for both countries impacted, which have different 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 have 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 options bringing production closer to markets, diversifying 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.
Grocery prices have remained relatively stable since tariffs were enacted, with exceptions including coffee, tea, fruit, avocados, tomatoes, and spices. Grocery price increases may be more attributable to inflation than to tariffs.
Unlike other retailers, grocers cannot stockpile perishable goods in anticipation of tariffs, limiting their ability to mitigate cost increases. This raises the question — why haven’t grocery prices surged more dramatically?
One explanation is countries facing higher tariffs have reduced exports, effectively lowering average tariff rates, according to CBS News. Additionally, some imported goods are exempt from tariffs.
Grocery stores are often said to be a “penny business,” earning very little on products sold. While some chains can temporarily absorb increased costs, for long-term sustainability, grocers can implement tariff mitigation strategies and consider strategic pricing adjustments.
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 actions you could take to mitigate tariff impact, along with exploring strategies with a longer-term view.
Some immediate actions to assess include considering services not subject to tariff, evaluating transfer pricing, duty drawback, and if hedging foreign currency may provide savings.
Short-term changes to weigh include capacity-driven pricing, cash flow analysis, inventory techniques, warehousing strategies, and engineering changes that may impact tariff value.
Over the long term, there may be savings by moving production closer to markets to reduce border crossings and considering sourcing changes in alternate countries with lower tariff rates.
Strategic approaches like these can help you diversify your supply chain, strengthening your resilience. Explore a few key strategies in greater detail:
Boost cash flow
- Understand how the new tax law can help free up cash and relieve margin pressure related to tariffs.
- Model hedging approaches direct and indirect taxes, and other drivers.
- Understand warehousing options delaying tariff payments (or eliminate tariff altogether if goods are exported in the future).
Reduce price of goods
- Consider new supplier terms and discounts.
- Assess transfer pricing and state and local tax strategies.
- Analyze both financial and physical flows of imports to assess the potential total landed cost of goods against which tariffs (and baseline duties) will apply.
- Consider renegotiating supplier and customer pricing agreements as well as services not subject to tariff.
- Examine freight terms and the impact of services that may inadvertently be tariffed.
Logistics assessments
- Assess freight consolidation and volume planning
Product and process changes
- Weigh the impact of reshoring and incentives as goods are produced closer to markets.
- Consider if engineering changes could impact tariffs.
- Confirm compliance with transformation requirements as changes in country of origin are considered.
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.