But, there are assessments and conversations that can ease the transition, and those should be conducted immediately upon enactment of a tariff – if not well before. These center on strong supply chain management and stakeholder communication: best practices to help businesses weather any changes, from tariffs to port strikes. Here are some tips on where to start.

Evaluate your outlook

As tariffs take shape, work with your advisors and industry organizations to fully understand their implications. What countries are involved, at what percentages? Are any specific products or materials excluded?

Then, map those conditions against your business, and model the full impact to your end product. Run financial models for several potential scenarios to examine possible impacts on your margins and pricing. How would, for example, a 10% tariff on raw materials trickle down?

• Where are your suppliers located? What price increases might they pass along to you?
• How many times is your product crossing borders? If there are any parts that go back and forth between countries multiple times – as is common in the auto industry, for example – you could see a tariff’s impact multiply. 
• How would the change in your end pricing impact the covenant ratios that need to be reported to your lenders?
• What could be the impact on your already-planned investments?

Note that understanding your full magnitude – and finding ways to minimize it – will take time. Your suppliers have suppliers, and so on, and all will feed into the ultimate impact on your business. 

But remember that this information isn’t important just to weathering tariffs. These details will help you maintain a secure supply chain, stay efficient with your pricing and margins, and negotiate as needed. It’s worth investing in understanding and mitigative measures.

Rethink your supply chain

If your business already has a well-diversified supply chain, this is the time to consider leaning more on your domestic suppliers. Reach out for visibility into their planned response to the tariffs and how they can support you: Can you order more from them? Do they have the capacity to fill your needs?

If you haven’t yet diversified, it won’t be as easy for you to adjust to today’s changes, but it’s never too late to start preparing for tomorrow’s. It takes a considerable amount of time and effort to evaluate a new vendor, so start focusing on that now.

Consider your customers

Evaluate your contracts to determine what price increases you can pass on to customers and when. There may be some you can change immediately, and others that must wait a specified number of days due to required notification periods. To best manage risk, you should have those conversations as soon as a tariff becomes possible, even ahead of implementation: “I’ll need to pass on these costs, effective this date.” Additionally, with reciprocal tariffs, the pricing of your products might be increasing for customers in other countries. (Refer to below for more on this topic.) 

Weigh inventory against demand

Amid these external factors, the most critical internal one is your inventory levels. Tariffs can be variable, subject to negotiation, and so it might be worth considering: Do I have enough inventory to meet current demand with the supplies I have? Could I wait to see a final outcome before making changes? In some cases, reacting too quickly could be more hurtful to your business than not, so consider whether you have time to wait.

This judgment requires a thorough understanding of your customer demand. Some industries have natural peaks and valleys throughout the year; are you in a lower-demand period where you have more room to be flexible? Or, in the event that tariffs are enacted reciprocally – as Canada and Mexico have announced plans to do – could there be a tariff on your own exported products that impacts your customer demand? (Continue reading for more considerations for other countries’ tariffs.)

All of this will require close communication among your teams and systems. Check in with your warehouse people about inventory, and your sales team about demand. Bring all your data together toward forecasting. Key KPIs to monitor during this period will include inventory turnover – how much do you have in stock, and how quickly is it moving through? – and margins – How are they trending?

Other factors

• Some companies will find that they cannot afford to pay new prices, and will need to consider what other cost levers they can pull to maintain operations and profitability. Can they flex up and down with their labor pool?
• Data analytics and forecasting tools are critical to monitoring and modeling tariffs’ impacts in real time. If you are finding during this period that you do not have easy access to the information you need, make note of what you should optimize once conditions allow.
• Reporting for this time period will likely be difficult. The best course of action is to make your best estimates of the tariffs’ impacts, and acknowledge that there might be changes. There is an expectation that there will be significant impacts almost immediately in tariffs’ wake, so there should be some understanding. Speak to your lenders and investors about the changes in your financial reporting and their potential impact on covenant ratios and compliance with bank agreements; speak with your bankers to request waivers if necessary.

What about other countries’ tariffs on U.S. goods?

In response to the announced U.S. tariffs on products imported from China, Mexico, and Canada, those countries are announcing plans for tariffs on U.S. exports, adding a new level of complexity to international manufacturing and trade. To best navigate this evolving environment, manufacturers should:

• Consider where your bigger customers are located, whether the tariffs will impact the products you are selling to those customers, and how this may impact demand for your exported products. These tariffs may be product-specific and country-specific, so be careful to monitor and understand their exact requirements. 
• Have conversations with your customers to understand how they plan to respond to these tariffs: Order more product now to stock up; reduce purchasing for the foreseeable future (if they have enough inventory in stock); or have you ship product directly to the end customer to potentially avoid the tariffs? The best approach is one where your company and your customers are communicating and working together to keep the impact of these tariffs to a minimum and keep your relationships strong. 
• As with import tariffs, consider products that cross borders multiple times during the manufacturing and assembly process between Mexico, Canada, China, and the U.S. U.S. companies need to work with their legal teams to determine if they could be exempt from these tariffs (once more clarity and finality exists) given the product going between countries is not final.

Next steps

Tariffs tend to be complex and evolving, and fully adjusting to their impacts takes time. Careful communication and consideration of options can put manufacturers on track to not only navigate their new environment, but build resilience for any other changes ahead.