Global Trade Tensions: What Should the Board Know as Tariffs Evolve and Expand?

Tariffs are back – front and center – and disrupting global markets and supply chains. In February and March, the Trump Administration triggered the latest trade war by imposing tariffs on various imports under a 1977 law—the International Emergency Economic Powers Act (IEEPA)—that had never been used to impose tariffs. These tariffs do not discriminate and now impact every trading partner of the U.S. without exception. 

Rising costs are causing organizations to scramble and question their business strategies to manage the significant and immediate cash costs involved with these new tariffs, which are all “above the line” and have to be paid by the U.S. importer of record to U.S. Customs & Border Protection at the time goods are imported. Because other countries have already announced retaliatory tariffs, similar cash costs are facing importers in foreign jurisdictions when they purchase merchandise of U.S. origin.

Board Navigation Considerations

Navigating this tumultuous geopolitical environment is a challenge that many boards of directors have not had to face in recent years. As directors begin to adapt to this new normal and rethink their approach to mitigate impact to their organizations, here are some issues they should consider:

How will tariffs impact our supply chain and how can we mitigate disruption? Can we identify and prioritize where increased costs from materials and/or finished goods may arise? 

• Do we have strong relationships with our suppliers? 
• Can we partner with our suppliers to jointly offset the tariff impacts and/or improve resilience?
• Can we renegotiate any existing supplier contracts? 
• Can we diversify our supply chain by introducing other suppliers and exploring alternative sourcing options?
• If we diversify, how might this impact any sustainability practices in place?
• How can we adapt and/or evolve so that this doesn’t negatively affect our bottom line?

How will tariffs impact our pricing strategy and market competitiveness?

• Are there opportunities to capitalize on changing trade policies?
• Are our competitors adjusting their pricing? 
• Do we need to adjust our pricing to account for increased costs? 
• If we increase our prices, will this significantly affect our competitiveness in the marketplace? 
• Are we continually seeking to expand and solidify our relationships with our customer base? 
• Do we understand and agree with assumptions by management to model the financial and operational impacts?
• Are we investing in R&D initiatives to absorb additional costs incurred or leverage potential cost savings?
• Have we considered financial hedging strategies to manage currency fluctuations and risk?

Have we carried out an assessment of all countries in which we operate?

• Have these countries introduced retaliatory tariffs or do they plan to do so?
• Are we too reliant on one country for sourcing and could we shift and/or rely on other countries?
• How will our customer base react if we shift operations to another country?
• How stable is the political environment in the countries in which we operate?
• Are we monitoring changes in trade policies and monitoring our processes to remain compliant?

Does our board have the knowledge and skills required to oversee global trade and economic policy impacts?

• Do we need to bring in external subject matter expertise to educate and advise the board?
• Is the full board or a committee/subcommittee responsible for overseeing and advising on tariff strategy?
• How can we upskill our directors in global trade and economic policy?

Additional considerations for the board: 

• Are we anticipating trade impacts on strategy in both the near and longer term?
• How is management prioritizing investments to adapt to tariffs and trade policy shifts? How are they defining ROI?
• Is management considering efficiencies to be gained in automating processes related to trade and tariff considerations?
• Do we have an intentional stakeholder communication strategy regarding the impact of tariffs on our business?
• Is management proactive in gathering and considering feedback from suppliers and customers on pricing changes and/or supply decisions?