President Trump has announced new tariffs affecting imports from Canada, Mexico, and China, with rates set at 25% on general imports from Canada and Mexico, 10% on Chinese imports, and an additional 10% on Canadian energy resources. Given that these three countries account for nearly half of U.S. imports, industries across the board will feel the impact.

For manufacturing businesses, adapting to these tariffs is not an immediate process. Existing contractual obligations, inventory management, and customer commitments all influence the pace of change. However, businesses can take proactive steps to mitigate the disruption and strategically navigate these new conditions.

Key Strategies for Adjusting to Tariffs

Assess the Impact on Your Business

Understanding the full implications of tariffs is the first step. Collaborate with advisors and industry experts to evaluate the affected countries, products, and tariff rates. Key questions to address include:

• What specific materials or products are impacted?
• How will tariff costs influence production expenses and pricing structures?
• Are suppliers likely to pass on additional costs, and by how much?
• If your product involves cross-border production cycles, how will tariffs compound?
• How will price adjustments impact lender agreements and financial covenants?
• What is the effect on planned investments and business growth initiatives?

A thorough financial analysis and scenario modeling will help identify risks and inform strategic

adjustments. Given the complexity of global supply chains, tracing the full cost impact requires time and detailed assessment.

Optimize Your Supply Chain

Companies with a diversified supply chain are better positioned to absorb tariff shocks. Businesses should explore increasing reliance on domestic suppliers, assessing their capacity to meet demand. Key considerations include:

• Engaging with domestic suppliers to gauge their response strategies.
• Identifying potential alternative suppliers in non-tariffed regions.
• Initiating supplier vetting processes to ensure long-term stability.

For businesses that have yet to diversify their supplier base, now is the time to begin. Establishing relationships with new vendors is a long-term investment that will enhance resilience against future trade fluctuations.

Evaluate Pricing and Customer Contracts

Businesses must carefully assess contractual obligations to determine how and when price increases can be passed on to customers. Steps include:

• Reviewing contracts to identify immediate pricing adjustment opportunities.
• Communicating anticipated cost increases to customers in advance.
• Ensuring compliance with notification periods for price changes.

Early and transparent discussions with customers will help manage expectations and minimize disruptions.

Manage Inventory Strategically

Inventory levels play a crucial role in responding to tariff changes. Key considerations include:

• Assessing whether current inventory can meet demand before implementing major changes.
• Evaluating industry demand cycles to determine optimal inventory adjustments.
• Monitoring reciprocal tariffs from other nations that could impact export demand.

Strategic inventory management can prevent premature reactions that may harm long-term business stability.

Monitor Financial Health and Cost Control Measures

If tariff-related price increases strain operational budgets, companies may need to explore alternative cost-saving strategies, such as:

• Adjusting labor expenses to align with shifting costs.
• Utilizing data analytics tools for real-time financial forecasting.
• Communicating financial changes with lenders and investors to maintain compliance.

Companies should anticipate reporting challenges during this period, with fluctuating costs impacting financial statements. Open communication with financial stakeholders is essential to securing necessary waivers and maintaining trust.

Next Steps: Building Long-Term Resilience

Adapting to new tariffs is a complex and ongoing process. By prioritizing supply chain resilience, strategic pricing, and proactive financial management, businesses can not only navigate current challenges but also position themselves for future market fluctuations. Strong communication, informed decision-making, and agile planning will be key to sustaining profitability in an evolving trade landscape.

Contact your Boyum Barenscheer CPA if you have additional questions.