In 2025, U.S. manufacturers are facing noteworthy challenges due to escalating tariffs. The Trump administration has imposed a 25% tariff on steel imports and increased aluminum tariffs from 10% to 25%, eliminating previous country exemptions. These measures have led to increased production costs and disrupted supply chains across various industries.
Furthermore, these tariffs have contributed to a decline in manufacturing employment and heightened investment uncertainty. The resulting disruptions have significantly impacted the manufacturing sector, emphasizing the need for strategic financial management to protect profit margins.
As tariffs continue to reshape global trade dynamics, companies must proactively develop strategies to navigate these changes and safeguard their organizations’ financial health. The real question is, will your strategy protect your margins or expose your business when the next shift hits?
What is a Tariff?
A tariff is a tax imposed by a government on goods or services coming into or going out of a country. It is typically used to protect local industries from foreign competition, generate revenue for the government, or influence international trade agreements.
There are two main types of tariffs: import tariffs and export tariffs.
Import tariffs are taxes on goods brought into a country. For instance, when the U.S. places tariffs on products from Canada or Mexico, it makes imported goods more expensive, encouraging consumers to buy local products while also raising government revenue. Export tariffs, on the other hand, are taxes on goods sent out of a country.
Although less common, export tariffs are usually implemented to protect valuable or limited resources, while still generating money for the government.
Tariffs can be charged in various ways: a specific tariff is a fixed amount of tax on a specific item or quantity, an ad valorem tariff is a tax based on a percentage of the item’s value, and a compound tariff is a combination of both specific and ad valorem tariffs.
How to Handle Tariff Changes and Protect Your Profits
Cash flow is always important, but changing tariffs makes it even more critical. Many of the new tariffs act as real added costs for businesses that import materials into the U.S. Since some government orders don’t allow for duty refunds, companies can’t recover the tariffs paid on imported parts used in products made in the U.S. and sold overseas. On top of that, higher tariffs might force businesses to have more cash on hand than usual.
Two ways companies can strengthen cash flow
Explore Other Ways to Access Cash
Look beyond your regular income streams. Identify every option available to bring in cash, how fast they can be accessed, and the cost of using them. Create a list that includes both low-cost and high-cost options, even if some are less than ideal, such as:
- Selling and leasing back owned buildings
- Bringing in new investors
- Taking on mezzanine debt
This list should be kept updated and shared with your leadership team to support smarter decision-making.
Renegotiate with Vendors
Most vendors won’t cover tariff-related cost increases, but you may be able to ease cash flow by extending payment terms — for example, from 60 days to 75 or 90.
However, this “slow pay” method comes with risks. Business owners should carefully weigh how much extra cash the delay brings in against the potential downsides, like damaging vendor relationships or affecting product delivery.
Smart Strategies for companies to Manage Tariff Impact
Tariffs are more than just a trade issue — they directly affect costs, pricing, cash flow, and planning. For business owners, staying prepared means more than just reacting to new regulations. It means building a financial strategy that can absorb shocks, protect margins, and support long-term stability.
Here are important strategies to help companies navigate tariff challenges effectively:
- Get a Clear Picture of Tariff Exposure
Start with a detailed assessment of how tariffs impact your business. This includes:
- Products and components affected
- Countries of origin and destination
- Current tariff rates and any upcoming changes
Work with procurement, supply chain, and legal teams to create a tariff impact map across all product lines.
- Strengthen Cash Flow Resilience
Tariffs often mean higher upfront costs. To stay flexible:
- Identify alternative cash flow sources like sale-leasebacks, low-interest credit lines, or asset refinancing
- Review payment terms and negotiate extended periods with key vendors
- Prioritize cash flow forecasting with scenario planning for worst-case tariffs
Keeping extra liquidity on hand can prevent costly short-term decisions.
- Revisit Vendor Contracts and Agreements
Review your contracts for pricing flexibility. Where possible:
- Add tariff-specific clauses for cost-sharing or adjustments
- Renegotiate payment schedules to spread out increased costs
- Build in review windows to allow for regular updates to contract terms
Don’t assume vendors will absorb tariff costs — plan for negotiation.
- Track Deeper Into Your Supply Chain
Most companies know their immediate suppliers — but tariff impact often lies deeper. Go beyond tier one:
- Identify second and third-tier suppliers
- Ask vendors where materials originate, even if they’re not directly importing
- Monitor shifting trade routes or sourcing strategies
Uncovering hidden exposure helps avoid supply chain surprises.
- Evaluate Currency Risk
Tariffs and currency fluctuations often go hand in hand. If you’re sourcing internationally, make sure to:
- Assess how currency shifts affect your purchase and sale prices
- Use hedging tools like forward contracts when appropriate
- Build contracts that adjust pricing within certain currency bands
This minimizes unexpected losses due to exchange rate volatility.
- Use Tariff Classification Strategically
Product classification under the Harmonized Tariff Schedule (HTS) can make a big difference in duty rates. It may be worth:
- Conducting a classification review with a trade compliance specialist
- Exploring alternate product descriptions or uses that may qualify for lower rates
- Filing for duty exclusions where available
Accurate classification can lead to meaningful savings.
- Keep a Dashboard for Decision-Making
Consolidate key data into one place:
- Tariff costs by category
- Currency exposure
- Cash flow options
- Supplier tier information
Having a centralized dashboard gives you clear visibility and helps drive faster decisions.
Understand the Full Supply Chain
Most physical goods made in the U.S. are tied to global supply chains. Yet, many companies only track parts from their direct suppliers, not deeper into the chain.
To understand how tariffs affect the business, business owners should map out at least two levels of their supply chain — their suppliers and their suppliers’ suppliers. For complex industries, such as automotive, going three levels deep is better.
Even if suppliers are hesitant to share their sources, business owners should push for at least the country of origin for all components. This helps uncover hidden tariff risks in sub-assemblies and raw materials.
Ongoing supply chain reviews can help identify problems before they grow. Start with the items you buy most often, then move to low-volume but high-value items. These reviews may need extra tools and resources, but they offer insights that can protect profit margins.
Manage Currency Risk
Currency fluctuations also play a role in tariff-related challenges. The U.S. dollar is usually stable, but global tariffs may increase currency swings. Even if a company deals only in dollars, it might still be affected if its suppliers or parts come from other countries.
Business owners should check how much of their supply chain is exposed to foreign currencies. For example, if parts come from Europe, changes in the euro matter.
To reduce currency risk, business owners can:
- Add terms to contracts that allow price adjustments if exchange rates move outside a certain range.
- Work with experts or banks to review and manage currency risks.
- Use forward contracts to lock in exchange rates for a set time, giving better cost predictability.
- Request open credit terms with foreign vendors to avoid extra costs from letters of credit or guarantees.
Don’t Let Tariffs Eat Your Lunch
Tariffs won’t wait—and neither should you. Hope isn’t a strategy when your margins are on the line. business owners who sit on their hands risk getting caught flat-footed.
Now’s the time to sharpen your tools, question every cost, and dig deep into your supply chain. The winds of trade can shift overnight—are you ready to steer through the storm or just hoping for calm seas?
Get your numbers straight, your contracts tight, and your eyes on the full picture. Because once the hammer drops, it’s too late to play catch-up.
This edited publication first appeared in an article published by Finance Market Research on April 12,2025. Edited by Doug White, CFO of Ernest, LLC and brightbell Virtual Receptionist (dwhite@daniels-inc.com).
