Key Considerations for Middle Market Businesses Navigating New Tariffs

Over the weekend President Donald Trump acted on his pre-office promise of imposing a wide range of tariffs on Mexico, Canada and China, collectively the largest imposition of tariffs by the US in more than 50 years. According to Monday’s news both the Mexico and Canada tariffs will be deferred by a month, but the situation clearly requires that middle market companies act with urgency. US-based management teams need to plan for both short-term operational challenges arising from tariff implementation as well as longer-term risk mitigation, particularly for their supply chains and export markets.

Prior to taking office, the Administration alluded to proposals for both country-specific and sector-specific tariffs. The new country-specific tariffs announced last weekend were aimed at three countries in particular – Canada, Mexico and China – which together account for more than half of all US merchandise imports, however, the potential for additional wide-ranging sector-specific tariffs still looms, with the Administration discussing blanket tariffs on all imports of steel, aluminum, automotive goods, consumer goods, processed foods and produce, selected energy products and electronics, including semiconductors – regardless of where they are produced outside of the US.

Implications and Suggested Actions for Middle Market Businesses

In today’s complex global trade environment, middle market businesses face several challenges related to tariff policies. As trade dynamics continue to evolve, these businesses would be well-advised to develop robust strategies to manage three key tariff impact areas in particular while maintaining competitive advantages.

• Supply Chain Impacts – Industries such as automotive, energy and consumer goods are particularly vulnerable to tariff impacts due to reliance on international suppliers. Companies can mitigate these risks by gaining more visibility into their supply chains and developing scenario plans designed to mitigate the potential tariff-related risks. These exercises can also help companies identify if they should pursue alternative sourcing, including options to nearshore or reshore some critical suppliers most exposed to potential tariffs
• Economic Impacts – Tariffs are projected to increase consumer prices, with varying inflationary impacts across industries. Though tariffs may help reduce US fiscal deficits, they could also have a negative impact on GDP and dampen M&A in trade-dependent sectors. As a result, businesses must make strategic adjustments to pricing or operations to mitigate margin reduction from rising import costs
• Geopolitical Risks – The Trump administration has alluded to leveraging tariffs as a means to address national security concerns and further domestic economic growth. Businesses must be prepared for potential sudden trade disruptions, especially those heavily reliant on global supply chains. Close trade law monitoring will be necessary to ensure regulatory compliance. Retaliatory tariffs may also emerge from other nations, exacerbating costs and reducing consumers’ purchasing power

With trade policies in flux, there are clear steps middle market sponsors and executives can take to manage supply chain vulnerabilities, cost pressures and pricing strategies. This process begins with an assessment, understanding the business’ exposure to tariffs by reviewing supplier contracts and engaging in scenario planning to uncover vulnerabilities in business operations.

Once this initial assessment is complete, management teams will be in a better-informed position to take decisive action — to both mitigate risk and capture an edge over the competition – based on the areas of their business most affected. Key examples are below.