What Are Tariffs and How Might They Impact Your Company?

Learn how tariffs could impact your bottom line — and how your business can prepare

Key takeaways:

• Tariffs are top of mind for many business leaders, as the Trump Administration pledges to apply tariffs to goods imported from America’s largest trading partners.
• As a type of tax, tariffs can increase costs for businesses across the U.S., particularly those that rely heavily on supplies produced abroad. 
• Despite uncertainty around the ongoing trade disputes, leaders have several opportunities to prepare their companies for success.   

Tariffs are dominating the headlines. And if you’re concerned about how tariffs may impact your company, you’re far from alone.

Tariffs themselves aren’t new — they were first introduced in the United States with The Tariff Act of 1789. However, the Trump Administration has begun leveraging the threat of tariffs to shape trade policies and negotiations, in a move that could drive up costs for businesses. 

Here’s what you need to know about the ongoing trade disputes and what you can do to prepare your organization accordingly. 

What are tariffs and who pays them?

In a nutshell, tariffs are taxes applied to foreign goods imported into a country. They’re paid by the recipient — so if your business orders $1,000 worth of supplies with a 25% tariff, for example, your business would pay $250 in tariffs. 

Tariffs are one way that governments can help give domestic suppliers an advantage: The higher the tariff on foreign goods, the less pressure domestic suppliers will feel to compete on price. Tariffs can also provide a source of revenue for governments.

Why are tariffs in the news now?

The United States has long embraced global commerce — and signed trade agreements with several countries that reduce or eliminate tariffs on certain goods. However, the Trump Administration has introduced a course change.

Since taking office in January, Donald Trump has announced tariffs on imports from a number of the country’s biggest trading partners, including China, Canada and Mexico. He’s also announced his intention to impose reciprocal tariffs — so if one trading partner applies a 10% tariff on U.S. imports, the U.S. would impose a 10% tariff on that country’s goods in return. 

How might tariffs impact businesses?

Tariffs have the potential to significantly impact businesses worldwide — particularly businesses that rely heavily on free trade (tariff-free trade) between the U.S., Canada and Mexico. 

North America’s long history of free trade has resulted in tightly integrated global supply chains across the continent, which means supplies may cross international borders multiple times before reaching consumers. If tariffs are put into place, businesses may have to pay tax at multiple points across their supply chain, driving up costs.

How businesses can adapt

The government’s trade disputes are an ongoing situation, and it’s not yet clear which tariffs will go into effect — or whether they’ll stay in effect. But there are steps you can take today to prepare your organization. 

1. Measure impact of tariffs on your business

Amid uncertainty, scenario-planning can be key to success. Explore how different trade policies could impact your supply chain — and your operational costs — so you can prepare accordingly. 

2. Create, and deploy, contingency plans

If tariffs pose a financial threat to your business, craft contingency plans to help you adapt. That could include revisiting your pricing strategy to minimize the financial impact on your business, or sourcing domestic alternatives to your existing suppliers. Each business’ plans will be unique, but having a strategy to address your most likely pain points can help set you up to succeed. 

3. Get support to manage your cash flow

Unless you already source a majority of your supplies in the U.S., it’s likely that tariffs will have a negative impact on your short-term cash flow. Now may be the time to ensure you have the cash on hand — and the capital — to help your company weather the storm. 

We’re here to help you lead your organization to success

Our dedicated business banking team can help you navigate uncertainty and make the next right move. Whether you need a trusted partner to help you refine your financial strategy, or you need financial products or services to move your business forward, we’re here to help you reach your goals.