Uncertainty creates market volatility, and few things create more uncertainty than tariffs. Unlike tax changes, they don’t require congressional approval. President Trump has taken advantage of this by using tariffs as leverage in trade discussions. This article does not present an opinion on that. It explains how tariff uncertainty could affect your business and how to get started with financial planning to mitigate and anticipate risk and uncertainty. Some key takeaways:
- President Trump’s tariffs have been promoted as a way to balance the trade deficit, which currently stands at $1.2 trillion.
- The 90-day tariff agreement between China and the U.S. is a temporary cooling-off period, not a permanent solution.
- Sustainable pricing is the highest price your company can afford for imports. Paying more than that can put the business’s financial health at risk.
What tariffs are currently in place, and will they affect your business?
Writing about the “current” tariff landscape is difficult because major changes happen quite frequently, and relatively minor adjustments are ongoing.
According to the White House website, the tariffs are meant to balance the trade deficit, which currently stands at $1.2 trillion. Since January 2025, we’ve seen a series of tariff implementations targeting key trading partners and specific industries.
Here’s what the tariffs are looking like at the time of publication.
First, there’s a baseline global tariff set for 10% on all countries as of April 5, 2025, though some items are exempt, including pharmaceuticals, semiconductors, and copper.
- China: Reduced from 145% to 30% in a temporary 90-day agreement (10% baseline plus 20% fentanyl-related tariff)
- De Minimis Chinese Shipments: 54% on small-value shipments from China (down from 120%)
- Canada & Mexico:
- USMCA-compliant goods: 0% (maintaining duty-free status)
- Non-USMCA compliant goods: 25%
- Non-USMCA energy and potash: 10%
- European Union: 10% baseline rate after a 90-day pause of the 20% “reciprocal” tariff
- United Kingdom: Special trade deal provisions including:
- First 100,000 UK auto imports: 10% instead of 25%
- UK steel & aluminum: 0% (tariffs eliminated)
- Steel & Aluminum: 50% on all global imports with limited exceptions
- Automobiles & Auto Parts: 25% on all imported vehicles, including those from Mexico and Canada
So, will the fallout affect your business?
Economists’ opinions on this schedule include lower GDP growth, an average tax increase, and decreased US imports from Asia. The math behind these projections is sound, but the 90-day agreement between China and the U.S. is a temporary cooling-off period, not a permanent solution. It’s impossible to predict long-term outcomes before that’s resolved.
To prepare for uncertainty, start by calculating sustainable price thresholds.
Sustainable pricing is the highest price your company can afford for imports. Paying more than that can put the business’s financial health at risk, even if you do it temporarily. US tariffs on imports will fluctuate further, so knowing your pricing thresholds is critical for long-term profitability. Here are a few steps you can take to accomplish that:
Step #1: Calculate your current gross profit margin percentage.
You can calculate your gross profit margin by subtracting your cost of goods sold (COGS) from your sales revenue and then multiplying the difference by 100 to turn it into a percentage. COGS is directly affected by tariffs because it includes imported materials and supplies. That means this number will change each time the tariff schedule is updated.
Step #2: Determine your minimum acceptable gross margin.
Subtract your expenses, including debt service, from net sales. Divide the difference by net sales to calculate your gross margin. Acceptable margins are those that cover costs and leave enough for acceptable profit. For example, if your business requires a 35% gross margin to cover overhead and generate sufficient profit, that’s your acceptable minimum.
Step #3: Establish your maximum sustainable input cost.
Armed with your gross profit margin and acceptable gross margin, you can now work backwards to calculate your maximum sustainable import cost. For instance, if your retail price is $100 and you need a 35% margin, your maximum COGS cannot exceed $65. If materials represent 60% of your COGS, your maximum materials cost would be $39.
Step #4: Build in a buffer for additional uncertainty.
Maintaining a minimum acceptable gross margin and staying under the maximum sustainable input cost will keep your company afloat, but it’s not a model for long-term profitability. In volatile periods, I advise my clients to reduce their maximum acceptable input costs by 3-5% to create breathing room. It’s either that or raise prices. We’ll cover that below.
Now, you and your team can use that financial data to make practical business decisions.
You can use your numbers from these exercises to project your cash flow, gross margin, and operational profitability in different tariff scenarios. This knowledge can help you make business decisions on price increases, supplier changes, or product redesigns before profitability is severely impacted. Some examples of that are listed below:
First, look at inventory management.
Traditionally, businesses minimize inventory holding costs through just-in-time practices. That means only buying what your company needs to meet consumer demand. The ideal order quantities are calculated using a formula called the Economic Order Quantity (EOQ). Here’s how to apply that equation during tariff uncertainty:
- Calculate the standard Economic Order Quantity (EOQ) using the standard formula. (This article provides an excellent explanation of how EOQ calculations work.)
- Add a “tariff risk premium” based on the following criteria:
- likelihood of price increases (percentage);
- magnitude of potential increases (dollars);
- storage costs in relation to the percentage of inventory value; and
- cost of capital for your business.
Here’s a quick scenario to use as an example.
An electronics assembly business increases its inventory of Chinese-sourced components by 60% after calculating that the carry costs are significantly lower than the projected tariff impacts. This provides a six-month buffer to redesign their supply chain.
Take action to diversify your supply chain.
Sourcing from countries with high tariffs creates significant business risk. That leaves you with two choices: Absorb the higher costs or diversify your supply chain. The tariff schedule at the top of this article shows some areas where you can do that. For instance, buying steel from the UK (0% tariff) is cheaper than importing steel from other countries (50% tariff).
Diversification should be evaluated using rigorous cost-benefit analysis. Include domestic alternatives. They may have a higher base cost, but there are no tariffs, and shipping costs could be significantly lower. Weigh those against alternative international sources with lower prices. A comprehensive supplier diversification analysis should also include the following:
- Total landed cost comparison (base price + shipping + tariffs + compliance)
- Quality variance assessment
- Lead time impacts on inventory requirements
- Minimum order quantity implications for cash flow
- Geopolitical risk assessment for alternative sources
Example: A furniture manufacturer shifts 30% of their production inputs from tariffed sources to Vietnam and Malaysia, resulting in a blended cost increase of only 4.5% versus the 15% they would have experienced without diversification.
Reevaluate pricing strategies.
Under normal circumstances, the last thing you want to do is raise your prices, but long-term high tariffs on certain imports might force your hand. China is a good example. That 30% tariff is unlikely to decrease. If your company is dependent upon Chinese imports, you might need to think about a price increase. Here are some pricing strategies to consider:
- Value-Based Pricing – Charge what your customers perceive as valuable, not what it costs you. This maximizes profit margins when you provide unique solutions that customers can’t find elsewhere.
- Tiered Pricing – Offer “good, better, best” options to capture different market segments. Customers who need premium features will pay more, while budget-conscious clients can still work with you.
- Loss Leader Strategy – Deliberately price non-tariff products below market value to attract customers, then profit on tariffed products with adjusted pricing.
- Competitive Pricing – Set prices based on what competitors charge, not on your costs. They are also paying higher prices for imports. Are their prices going up?
Uncertainty means working with a professional who’s tracking metrics and making contingency plans.
We’re a business advisory firm. That means when you call, you get an answer and action. The idea is to be prepared for existential threats. As your CFO partner, I would be closely monitoring the following items:
- Contribution margin by product line to identify which products are most vulnerable.
- Vendor concentration percentages to highlight supply chain risks.
- Days inventory outstanding (DIO) to balance carrying costs against price protection.
- Cash conversion cycle to ensure working capital remains sufficient.
Understanding exactly what price points make your business unsustainable allows you to make proactive decisions rather than reactive ones when international vendor pricing fluctuates.
Let’s not let doubts among leadership slow down operations and lower efficiency.
Tariffs create uncertainty, but that doesn’t have to translate into financial distress.
Knowing what the current tariff schedule is can help you evaluate its impact on your business. You can accomplish that by calculating sustainable price thresholds and implementing practical business strategies designed to reduce costs and maximize profits.
Inventory and supply chain management are key factors for businesses reliant on imported materials and supplies. Many companies are thinking outside the box in these areas to find creative ways to offset or eliminate tariff costs.
Expect this to be an ongoing discussion over the next several months, with the onus on us to keep the information flowing.
Count on me and my firm to deliver clear, candid, and numbers-based advice, whether it’s good news or bad news.
The tariff landscape will continue to evolve as President Trump seeks to make new trade deals and balance the federal trade deficit. That process could take several years and might stretch into the next administration.
We’re going to dig and dig to find a way if things get out of control. However, I want you to know that I will be straightforward with you if the situation is untenable. Business owners need objective perspectives and recommendations free from emotion. That being said, I believe your business will weather the storm and come out stronger, and we can help with cost-efficient CFO services and business advisory support.
Schedule a discovery call today for immediate action and strong financial leadership to deal with potential cash flow issues or price fluctuations.
Talk soon,
Jeremy A. Johnson, CPA