Summary

• The U.S. is reinstating and increasing tariffs on key imports, including steel, aluminum, and a wide range of goods. As trade policy evolves rapidly – often each day – policymakers, economists and business owners are facing a variety of change. 

• But what are tariffs? And what exactly do they mean for your business? Continue reading for insight into the practical steps you can take to protect your business by managing the risk to your business if tariffs are implemented. 

Front-loading Imports to Delay Impacts 

When tariffs on imported goods increase, businesses often face higher input costs. One way to handle these costs is to accelerate imports before new tariffs take effect. This strategy, called front-loading, requires more working capital to buy and store extra inventory. Businesses might need to expand lines of credit or get short-term financing to manage upfront costs while keeping cash flow stable. 

Front-loading can be a proactive approach to avoid sudden price hikes. However, it also comes with risks. It requires precise timing and coordination with suppliers to ensure that goods arrive before tariffs are implemented. Storing large amounts of inventory can also lead to increased warehousing costs and potential spoilage for perishable goods. It’s prudent for business owners to weigh these factors carefully and plan accordingly. 

Diversifying Supply Chains to Maintain Competitiveness 

Tariffs increase the cost of products to foreign buyers. This can lead to decreased demand, which impacts revenue, profitability and cash flow. If sales drop, businesses might struggle to meet debt obligations or keep operations running. Companies should review pricing strategies and look for cost-saving measures to stay competitive in international markets. 

Diversified supply chains further help avoid dependency on any single market and mitigate impacts when disruptions occur. To mitigate the impact of tariffs on sales, businesses can consider diversifying their supply chain markets to countries with lower or no tariffs. This can help spread risk and reduce dependency on tariffed markets. Another option is to negotiate with suppliers for better pricing or explore alternative suppliers to reduce costs. Business owners might even consider teaming up with other companies in their industry to form a coalition with a larger bulk purchasing power, which may lead to more favorable supply costs. 

Adjusting Product Strategies to Offset Costs 

If your business is affected by rising tariffs, deciding how to handle increased expenses is crucial. Some may choose to pass higher costs on to customers, but this could reduce demand if prices get too high. Others might look for less expensive components to offset rising expenses, though this can require additional working capital or adjusting the quality of a product. For example, businesses may need to allocate more investment in research and development to ensure new designs meet quality standards. Additionally, businesses can explore bulk purchasing agreements with suppliers – and even others in its industry, as mentioned above – to secure lower prices, though this requires upfront investment and increased storage capacity. 

Each is not without its trade-offs, so evaluating different product quality and pricing options and ensuring financial flexibility are critical to managing changes effectively. And when your decisions are made, it’s equally important to communicate transparently with your customers about any changes to products or pricing to maintain reputation, trust and loyalty. 

Navigating Increased Demand for Locally Made Products 

Tariffs on imported goods can sometimes push consumers to buy domestically produced alternatives, creating opportunities for local businesses. However, a surge in demand can strain inventory levels and working capital. Businesses experiencing higher order volumes might need expanded lines of credit to finance expanded inventory, production capacity, equipment and staff. Additionally, as accounts receivable grow, securing financing options to maintain steady cash flow can help ensure operational efficiency. If your business anticipates increased demand for its U.S.-made products, investing in production capacity, equipment upgrades, hiring and expanding facilities may be appropriate to meet higher demand, in addition to allocating greater investment in marketing to highlight the benefits of buying local. Effective inventory management and forecasting can also help businesses anticipate demand and plan accordingly. 

Closing 

Navigating the impact of tariffs requires flexible financial planning and strategic decision-making. Whether your business is managing increased import costs, adjusting pricing strategies, responding to shifts in consumer demand or considering its domestic manufacturing approach, having access to the right financial resources is essential. Speak with your banker to explore financing options that can help your business stay agile and competitive in an evolving trade landscape. By proactively addressing these challenges, you can ensure your business remains resilient and prepared for whatever the future holds.

Wondering how tariffs may impact your business and how best to prepare? Contact us to learn more.

The opinions expressed herein are those of the authors and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice. These views and opinions should not be construed as any specific recommendation. This material is for your private information and we are not soliciting any action based on it. The information in this content has been obtained from sources believed to be reliable but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information.

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