
Navigating Tariff Turbulence: Practical Strategies to Protect Your Bottom Line
The recent rollout of global tariffs by the Trump administration has caught many businesses off guard. While the president has long advocated for protective trade measures, few expected such sweeping action—a baseline tariff on all imports and dramatically higher rates for key trading partners like China. As the situation continues to evolve, businesses large and small are feeling the impact, particularly due to the unpredictable nature and scale of the changes. In the face of uncertainty, companies must take proactive steps to assess their exposure, adapt their strategies, and minimize disruption.
The tariff plan sent businesses, both large and small, scrambling. Even companies accustomed to dealing with tariffs have been shaken because this round is so much more extensive and seemingly subject to change than those in the past.
Proponents of tariffs say they can be used as a negotiating tool to get other countries to lower their tariffs on U.S. imports, thereby leveling the global trade playing field. They also argue that if domestic and foreign companies relocate to the United States, it’ll create jobs for Americans, fuel construction industry growth and provide additional tax revenue.
Since more changes are expected as countries and industries negotiate with the administration for reduced rates and exemptions, some degree of uncertainty is likely to prevail for at least the short term. In the meantime, businesses have several areas they should focus on to reduce the tariff hit to their bottom lines.
1. Start with Strategic Financial Forecasting
No business should decide how to address tariff repercussions until they’ve conducted a comprehensive financial analysis to understand how U.S. and retaliatory tariffs will affect costs. You might find, for example, that your business needs to postpone impending plans for capital asset purchases or expansion.
Modeling, or scenario planning, is often helpful during unpredictable periods. Begin by identifying all the countries involved in your supply chain, whether you deal with them directly or through your suppliers, and the applicable tariffs, whether you’re importing or exporting goods.
You can then develop a model that projects how different sourcing scenarios might play out. The model should compare not only the costs of foreign vs. domestic options but also the resulting impact on your pricing, labor costs, cash flow and, ultimately, profitability. This information can allow you to build contingency plans to help reduce the odds of being caught flat-footed as new developments unfurl.
Modeling can provide valuable guidance if you’re considering reshoring your operations. Of course, reshoring isn’t a small endeavor. Moreover, U.S. infrastructure may not be adequate for your business needs.
Manufacturers also should note the shortage of domestic manufacturing workers. According to pre-tariff analysis from the National Association of Manufacturers, the U.S. manufacturing industry could require some 3.8 million jobs by 2033, and more than 1.9 million may go unfilled.
2. Consider Pricing Adjustments Carefully
Perhaps the most obvious tactic for companies incurring higher costs due to tariffs is to pass the increases along to their customers. It’s not that simple, though.
Before you raise your prices, you must take into account factors such as your competitors’ pricing and how higher prices might affect demand. The latter is especially critical for price-sensitive consumer goods where even a small price jump could undermine demand.
Consumers have already been cutting back on spending based on rising fears of inflation and a possible recession. Price increases, therefore, are better thought of as a single component in a more balanced approach.
3. Explore Foreign Trade Zone (FTZ) Opportunities
You may be able to take advantage of Foreign Trade Zones (FTZs) to minimize your tariff exposure. In these designated areas near U.S. ports of entry, a company can move goods in and out of the country for operations (including assembly, manufacturing and processing) but pay reduced or no tariffs.
Tariffs are paid when the goods are transferred from an FTZ into the United States for consumption. While in the zone, though, goods aren’t subject to tariffs. And, if the goods are exported, no tariff applies.
Note: Trump already has narrowed some of the potential benefits of FTZs, so avoid making them a cornerstone of your tariff strategy.
4. Improve Operational Efficiency
If your company’s suppliers are in high-tariff countries, you can look into switching to lower-cost suppliers in countries that have negotiated lower tariffs.
You may not be able to escape higher costs stemming from tariffs, but you can take steps to cut other costs by streamlining operations. For example, you could invest in technologies to improve efficiency or trim worker hours and employee benefits. You also should try to renegotiate contracts with suppliers and vendors, even if those relationships aren’t affected by tariffs. Such measures might make it less necessary to hike your prices.
You can control your overall costs as well by breaking down departmental silos so the logistics or procurement department isn’t making tariff-related decisions without input from others. Your finance and tax departments need to weigh in to achieve the optimal cost structures.
5. Revisit Your Tax Strategy
Maximizing your federal and state tax credits is paramount in financially challenging times. Certain sectors may benefit from the Sec. 45X Advanced Manufacturing Production Credit or the Sec. 48D Advanced Manufacturing Investment Credit. Several states also offer tax credits for job creation or R&D credits for situations where companies reengineer products or bring processes in-house. It’s also important to keep in mind that new equipment, in many scenarios, could qualify for accelerated depreciation.
This may be a wise time to consider changing your inventory accounting method, if possible. The last-in, first-out (LIFO) method assumes that you use your most recently purchased materials first. The cost of the newer, pricier items is charged first to the cost of goods sold, boosting it and cutting both your income and taxes. It’s also important to note that the Internal Revenue Code requires companies that utilize LIFO for tax purposes to apply the same methodology for financial reporting purposes.
6. Enhance Compliance Efforts
Regardless of the exact percentages of U.S. and retaliatory tariffs, you can count on tighter scrutiny of your compliance with the associated rules and requirements. These probably will become more complicated than they’ve been in the past.
For example, expect greater documentation requirements and shifting rules for identifying an item’s country of origin. The higher compliance burden alone will ramp up your costs — but the costs of noncompliance could be far greater.
Leverage a Trusted Advisor
Tariff policy remains fluid, and businesses must be prepared to adjust quickly. Whether you’re reshaping supply chains, managing pricing pressure, or reevaluating tax strategies, staying ahead of these challenges requires thoughtful planning and expert insight. If you need support in navigating these complex changes, the team at Clark Schaefer Hackett is ready to help. Contact us today to learn how we can help you respond with confidence and maintain financial stability through uncertain times.