A new tariff paradigm: How businesses can respond

A multi-trillion-dollar upheaval

For a sense of how broad the impact is, Trump imposed a 10% baseline tariff on products from nearly every country, with additional tariffs imposed on products from the U.S.’s three largest country trading partners – China, Mexico, and Canada.

The end game remains unclear. Senior Trump administration trade policy advisors have promised tariffs will raise $600 billion per year, and shift U.S. taxation towards consumption of imported products and away from domestic income revenues, while increasing domestic production and negotiating new trade agreements to lower tariffs in the U.S. and other countries. The publicly divergent views expressed by senior advisors, as well as the goals and benchmarks that will vary by country, fuel uncertainty for businesses, as the administration looks to singlehandedly rewrite the global trade system.

To get a sense of the scale, and keep track of where we are, a timeline of trade actions (not just statements of intent, though some are included) taken during the second Trump administration so far includes: 

• Feb. 4: Proposed 25% tariffs on Mexican, Canadian products (10% for energy imports, potash, later decreased to 10%), 10% across-the-board tariff on Chinese products (also stacked on pre-existing tariffs, leading to higher cumulative duties on some imports). Suspension of Mexican and Canadian tariffs for one month. De minimis (imports valued at $800 or less exempted from tariffs) treatment for Chinese goods suspended.
• Feb. 25: Trump orders the Commerce Department to initiate a Section 232 investigation into copper imports (including derivatives). The result of that investigation are expected in November, with a likely 25% tariff on those products put in place.
• March 1: Trump directs the Commerce Department to conduct Section 232 investigations into wood products (lumber, timber) to be completed no later than 270 days (9 months) from March 1. The expectation is that this will result in additional 25% tariffs on lumber, timber, and derivative products (paper, cabinetry, furniture).  
• March 4: 25% tariffs on Canada and Mexico imports go into effect, as does additional 10% cumulative, across-board tariff on China (raising baseline to 20%).
• March 7: The administration exempts auto parts for three American auto manufacturers (Ford, GM, Stellantis), and “USMCA-compliant” products from 25% Canada and Mexico tariffs. According to White House, 62% of Canadian imports and approximately 50% of Mexican imports are exempted (what is or is not USMCA-compliant varies from product to product, but country of origin for imports plays a significant role). Tariffs on Canadian potash are also lowered to 10%.
• March 12: Trump administration ends negotiated country exemptions from previously established steel and aluminum tariffs and raises aluminum tariffs to 25%. The tariffs cover not only raw material, but also over 300 derivative products (and that list could grow at the request of domestic producers).
• April 2:
  • The Trump administration imposes 25% auto tariffs, with additional 25% tariffs on auto parts due to take effect no later than May 3.
  • Order for 25% “secondary” tariffs on countries that import Venezuelan oil, though imposition of those tariffs is at the discretion of the president rather than immediately in effect. China and the U.S. were the two biggest importers of Venezuelan oil in 2023, according to a Department of Energy report published in February 2024. Spain, the Bahamas, Singapore, Cuba, Russia, and Malaysia also import Venezuelan oil, though China and the U.S. are the largest two importers listed in the report.
  • “Liberation Day” announcement of country-specific tariffs of up to 50% baseline on nearly 90 countries (counting the EU’s 27 different member states). 10% universal tariff announced for April 5. China faces one of the highest baseline rates, as additional 34% tariffs stack on top of earlier 20% imposed during this Trump term, and in addition to prior, more targeted tariffs on Chinese products still in effect from first Trump administration.
  • See the full list of country-specific tariffs here. See the product exemption list here.
• April 5: Imposition of a 10% universal tariff on most imports. Copper, semiconductors/computer chips, lumber and timber, and pharmaceuticals among exempted imports, but signals from White House indicate that product-specific tariffs will come on those, likely at 25%.
• April 8: Following retaliatory tariff announcement by China, Trump increases the China baseline tariff to 104% (an increase of 50% to the initial announced increase of 34%, after accounting for the previously imposed 20%). After further retaliation, Trump announces an additional increase of the baseline rate to 145% (again, after accounting for previously enacted 20%), effective April 10.
• April 9: After country-specific tariffs officially imposed at 12:01 a.m., negative equity and bond market reaction follows. At 1:18 p.m., in a social media post, Trump announced an up to 90-day “pause” on country-specific tariffs (except China’s), saying his administration would negotiate, “…a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation, and Non Monetary Tariffs…”. The current deadline to do so is July 9. The administration clarified that the 10% tariffs on imports from every country in the world do not stack on top of prior tariffs on Canadian and Mexican imports (and those 25% tariffs remain on non-USMCA-compliant tariffs only). 
• April 10: 145% baseline tariffs on Chinese products go into effect.
• April 11: Official guidance on new Chinese tariffs indicates electronics are exempted.
  • However, in an April 13 interview, Commerce Secretary Howard Lutnick clarified that this is because they will fall under Sec. 232 tariffs on semiconductors, expected to be announced soon. “This is not a permanent sort of exemption,” Lutnick said. “(Trump is) just clarifying that these are not available to be negotiated away by countries. These are things that are national security, that we need to be made in America.”
  • Trump added to this in a social media post later on April 13, saying that tariffs on semiconductors would come following the Section 232 investigations and that, “NOBODY is getting ‘off the hook’ for the unfair Trade Balances, and Non Monetary Tariff Barriers, that other Countries have used against us, especially not China which, by far, treats us the worst!”
• Later in 2025:
  • July 9 is the Trump administration’s current deadline for new country-by-country agreements. While this deadline could be pushed further for some countries, the president can snap his proposed sanctions back on at any time, of his own discretion, barring a successful legal challenge or congressional action.
  • Additional product/sector-specific tariffs: The Trump administration continues to promise more tariffs on specific products and sectors, including copper, timber, lumber, semiconductors, and pharmaceuticals (and their components) later this year. Trump has also promised agricultural tariffs, though other administration officials have not touted that possibility as much.

Earlier tariff actions on Canada, China and Mexico alone could affect up to $2.2 trillion in trade activity (if USMCA-compliant goods are no longer exempted). The 145% tariffs (and retaliatory tariffs of the same amount placed on U.S. exports to China by the Chinese government) impact $582.4 billion in trade volume, according to the U.S. Trade Representative’s official count for 2024 trade activity between the two countries; imports of Chinese products to the U.S. make up approximately $439 billion of that.

The China, Canada, and Mexico tariffs alone would be the largest new import duties imposed in decades. But combined with additional trade actions, they have raised the estimated average applied tariff to 27.8%. That is the largest rate since the 1940s, and the largest tax increase in decades, even before the promise of additional product-specific tariffs and possible country-by-country tariffs.

The recent U.S. stance marks an aggressive escalation, as the administration’s stated goal is to shift more production and consumption to the U.S. while raising revenues to accommodate lower domestic taxes. Canada and China have immediately responded, while other countries, including significant trading partners like Mexico and the E.U., may do so in the near future.

U.S. trading partners have responded with both resistance and retaliatory measures:

• Canada quickly countered Trump’s Canadian import tariffs with 25% counter-tariffs on approximately $21 billion (USD) worth of targeted U.S. products. Following the March 12 steel and aluminum tariffs imposition, Canada doubled the total number of American products tariffed, to $41.6 billion (USD). Canada has since announced 25% tariffs on all non-USCMA compliant imports from the U.S., and 25% tariffs on non-Canadian or Mexican components of fully assembled cars, effective April 9. Canada has also threatened to leverage essential exports to the U.S. – which is the largest consumer of Canadian oil, among other commodities – to bring the new trade war to an end, though a temporary détente was reached to prevent 25% export taxes on electricity generated in Canada and exported to the U.S. Then-Prime Minister Justin Trudeau commented he would impose an additional $86 billion (USD) in retaliatory tariffs in late March if the U.S. tariffs aren’t lifted, while Ontario Premier Doug Ford has threatened to outright cut off electricity supply from his province to areas in New York, Michigan, and Minnesota that utilize Canadian-generated electricity.
• China: In response to the initial 10% tariff raise Trump placed on Chinese products effective Feb. 4, China retaliated with its own 15% tariffs on U.S. coal and liquified natural gas, and 10% tariffs on crude oil, farm equipment, and some automobiles, as well as restrictions on critical mineral exports to the U.S. and retaliatory actions against select U.S. companies. After the March 4 additional 10% across-the-board tariffs from the Trump administration, China’s government retaliated with tariffs of up to 15% on more U.S. products, with an emphasis on the agricultural sector, a major area of trade between the two countries. After a series of escalatory announcements between the Trump administration and the Chinese government the week of April 7, China now tariffs U.S. imports at 125% and has affected other company-specific investigations and product-specific export controls.
• Mexico: President Claudia Sheinbaum has promised a response with details to come, with Mexico’s government reportedly weighing retaliatory tariffs of 5% to 20% on U.S. products, but there has been less official detail than with Canada and China. Like Canada, the retaliation could be a combination of U.S.-specific export taxes and tariffs on U.S. products. So far, Mexico has chosen to attempt de-escalation, as the U.S. is a more important export market for Mexico than vice versa.
• The European Union had planned to reinstate retaliatory measures it enacted to similar metal tariffs from the first Trump administration on April 1, but paused the response for negotiations to play out. In total, the EU expected h  to impose duties on U.S. exports worth up to 26 billion euros (or over $28 billion) in retaliation to the aluminum and steel tariffs alone, with more retaliation likely not only to those but also auto tariffs and the 20% tariff specific to the EU, which Trump suspended until July 9. The EU has also threatened to target U.S. services with taxes using an anti-coercion instrument agreed upon in 2023, in response to the first Trump administration’s tariffs and attempts by China to retaliate against EU members over political actions. EU Commission President Ursula von der Leyen told the Financial Times on April 10 that retaliation could include bloc-wide “tariffs” on U.S. services provided in the EU, which may especially target U.S. tech giants, as prior digital services taxes introduced by some EU members during the first Trump administration did.
• Australia, Brazil, Japan, South Korea, and other countries affected by the steel and aluminum, auto, and 10% universal tariffs have not yet retaliated but are weighing options. Australia and South Korea are among the countries that already have free trade agreements with the U.S. – an ostensible reason for the country-specific tariffs – and the U.S. had a sizeable trade surplus with Australia in 2024, according to the USTR, implying that tariff barriers and trade deficits are not the only motivation of the Trump administration’s tariffs. The Trump administration has repeatedly touted tariffs as paying for the extension of the Tax Cuts and Jobs Act being drafted by Republicans, as well as additional tax cuts. All of this creates greater uncertainty, as tariffs have been touted by Trump and officials as both a negotiation tool and a way to broadly restructure the American economy. 

Shipping fees: The Trump administration (through the U.S. Trade Representative) has proposed new fees that could go over $3 million per port call for China-built or linked vessels and fleets. However, the proposal received significant pushback from companies across a variety of industries, due to the significant prevalence of Chinese-manufactured or owned ships across global shipping fleets. The administration has left room to adjust down its proposal, though fees would still be expected to increase for any Chinese-linked ship, and possibly, fleets controlled by non-Chinese companies that may have one or more Chinese-manufactured vessels.

An April 9 executive order also leaves open the possibility of additional action, in cross-governmental coordination, by the USTR, as well as tariffs on Chinese ship-to-shore cranes and cargo handling equipment. The order also requires all foreign cargo shipped inland to the U.S. (via Canada or Mexico) to have an additional 10% fee paid to Customs and Border Protection, if the product was not “significantly transformed” (a term that usually applied to skilled and nonskilled manufacturing) in Canada or Mexico. The definitions for that will be determined by CBP.

Duty drawback: The Trump administration has thus far disallowed duty drawback, a type of refund that can be claimed on tariffs if the imported item a tariff is paid on is destroyed or exported. However, the country-specific tariffs paused by Trump on April 9 included duty drawback, though the status of that is now uncertain.

Possible legal challenges or changes: Congress granted the presidency sweeping trade and international commerce powers over the course of several decades, with the intent to negotiate lower barriers to U.S. products, or flexibility to respond to national crises. While the Trump administration has cited both causes for its tariffs, the use of the International Economic Emergency Powers Act (IEEPA) for tariffs is novel, as IEEPA has more commonly been used for targeted sanctions related to national security. However, former President Richard Nixon used the predecessor law to IEEPA in 1971 to impose a temporary (four month) 10% universal tariff in response to a balance-of-payments crisis. Legal challenges to that tariff were unsuccessful.

At least two lawsuits challenging the administration’s IEEPA tariffs (the current 10% universal tariff, as well as those imposed on Canada, China, and Mexico, and the threatened country-specific tariffs) have been filed so far. The expedited process used for at least some Section 232 (product-specific) tariffs could also face legal challenges. Historically, courts have sided with the executive branch over use of both laws, as the Constitution grants presidents broad authority over national security issues, and Congress delegated much of its trade powers to the president through several laws.

While IEEPA grants the president authority to restrict commerce in times of national emergency (as defined by the National Emergencies Act), Congress can lift that emergency through passage of a joint resolution. One such resolution to end the underlying declaration of emergency with Canada already earned a majority vote in the Senate, but faces a steep climb to success, as leadership in the House of Representatives is unlikely to bring it up, and both chambers of Congress would need to pass it by a 2/3 majority.

Likewise, on April 7, Trump has threatened to veto bipartisan legislation in the House and Senate that would require a 60-day approval period with Congress, as well as make it easier for the legislature to end tariffs.

The sweeping tariff actions – with more likely to come -- have introduced broad uncertainty for companies, requiring more planning and contingencies than normal.

Business considerations and adaptations

Given this new environment of disruption and uncertainty, businesses that are or expect to be affected by the tariffs likely have little choice but to concentrate on particular business functions to maintain stability.

Supply chain adaptations

The new emphasis on tariffs accelerates trends toward nearshoring and supply chain diversification, particularly to nearby countries with existing free trade agreements with the U.S. such as in Central America. Nearshoring supply chains to Mexico and Canada had been very attractive under the United States-Mexico-Canada Agreement (USMCA), but now the new U.S. tariffs on those two nations complicate this, with many U.S. businesses publicly expressing hope the new tariffs are temporary or negotiable.

Companies with supply chains in China may look at “China +1” strategies – keeping some production there but expanding capacity in Southeast Asia or India to mitigate risk. Diversification includes having multiple supplier options for key products. Even higher-cost domestic options can be a hedge against a foreign source that becomes too expensive because of tariffs. Building a base of redundant sources can increase costs in the short run, but many companies now view it as long-term “insurance.” 

Companies can elect to hold more inventory of critical items as a buffer against tariffs or border slowdowns, despite the working capital hit. Businesses should evaluate if they can redesign products to use more locally available materials or fewer imported components – engineering a solution to a trade problem. Having more agility in supply chain management becomes a competitive advantage, as companies that adapt fastest will secure alternatives before supplies become scarce.

Intercompany pricing and compliance

Tariffs complicate transfer pricing for multinationals, since an overseas affiliate of a multinational sells goods to its U.S. entity, that transfer price now effectively includes a tariff cost at import. Companies in this situation may need to adjust intercompany prices so that the U.S. entity doesn’t bear a disproportionate cost, which could make it unprofitable and trigger red flags with tax authorities.  One strategy is to allocate tariff costs across the value chain, such as having a foreign related party share some cost via price reduction or using transfer pricing adjustments at year-end. Any such moves must be done carefully to remain arm’s-length and avoid costly administrative processes to correct pricing.

Multinationals can and should align customs and tax reporting. Lowering customs value (for example, unbundling certain royalties or services from the product price so they aren’t tariffed) must be consistent with transfer pricing policies and be documented to avoid customs penalties or tax adjustment. Customs compliance is also critical – companies should ensure correct classification and country-of-origin determination to avoid overpaying or misapplying tariffs. In short, finance, tax, and trade compliance teams need to collaborate closely so that intercompany agreements, transfer pricing policies, and customs filings are synchronized in the new tariff environment.

Global tax structures

Tariffs are prompting companies to revisit the efficiency of their global operating models. Companies may discover that their current supply chains are suboptimal when the new tariffs are factored in.  Supply chain exposures to China, Canada and Mexico can lead to higher costs and associated margin pressures.  This interplay means companies are focusing more on a “total landed cost” analysis including tariffs and taxes. In this environment, companies may want to restructure value chains aligning to countries with favorable trade status with the U.S. to maintain cost synergies. Some companies might consider bringing certain high-tariff production to a domestic location using tax credits or incentives (e.g. research and development credits, foreign-derived intangible income provisions, or state and local tax breaks for manufacturing) to offset the increased cost.  Other companies may consider M&A opportunities to diversify their risks.

The OECD’s Pillar 2 global tax minimum of 15% adds another layer of complexity. Companies must ensure that a supply chain shift doesn’t alter their effective tax rate, create double taxation, or materially change their cash tax positions.  Pillar 2’s complex global minimum tax mechanism will make those determinations more daunting. The Trump administration has signaled the U.S. will pull out of the OECD process and threatened retaliatory actions including tariffs and Section 891 retaliatory taxes in response to digital services taxes – the precursor to the OECD global tax negotiations.  This means additional uncertainty, and moving pieces, for companies operating internationally.  It also may mean future trade policy complications for non-U.S. countries adopting Pillar 2. 

Optimal global structuring now requires a multi-factor approach that balances corporate tax, tariffs, value added taxes, and logistics.

Pricing, brand positioning, customer perception

Tariffs likely lead some companies to re-examining their pricing and brand positioning strategies. For instance, companies can surgically adjust prices on their tariff-impacted items while keeping others stable. A targeted approach such as this can help preserve overall value perception. Communication is key: companies can be transparent explaining tariff-related price hikes on their website or store signage to effectively manage customer perception.

Brands with strong margins can consider absorbing tariffs to avoid losing market share or brand loyalty, or altering their products slightly to cut costs. These tactics aim to maintain price points attractive to customers, but companies should guard against too much cost-cutting, which can risk quality – a pitfall brands must avoid to not damage reputation.

Companies can turn tariffs into a branding opportunity by emphasizing American-made aspects of their products. Brands that must hike prices on their products may face consumer frustration, so how they handle the narrative matters. Customer-facing messaging might stress that increases are due to government policy, not company greed, though there’s a fine line in not appearing to “blame” too much and alienating customers who support the tariffs in principle. Companies may want to include a tariff surcharge line item rather than a permanent price increase, which keeps the tariff cost transparent. Companies also should monitor shifts to un-tariffed substitute products or competitors, as market share can change quickly in these circumstances. The bottom line is that pricing and customer strategy decisions under the new tariffs shouldn’t be made in isolation but with an eye on competitors’ moves and consumer tolerance.

Merger and acquisition possibilities

The tariff environment could affect the M&A market by creating opportunities, while also threatening valuations and deal certainty. When evaluating an acquisition, due diligence now must scrutinize the target’s supply chain exposure to tariffs and how resilient or adaptable it is. Buyers might require a tariff risk discount in valuation or focus on earn-outs tied to profitability, which is intrinsically linked to how well the target navigates tariff impacts. For manufacturing targets, questions about reshoring plans and supplier diversification are now standard in deal negotiations.

Due diligence efforts also should include evaluating a company’s customer base and customer contracts, developing an understanding of the company’s ability to increase price to offset increased costs due to tariffs. Potential buyers should evaluate this ability to increase prices, both in magnitude and timing, to maintain gross margins in a tariff-affected environment.

Parties may include tariff-related clauses in purchase agreements. For example, a material adverse change clause could specifically exclude or include major tariff enactments. A delay in negotiations or conditions precedent that pushes a deal closing past a tariff imposition date could trigger purchase price adjustments around inventory value changes or retrospective liabilities.

Post-merger, companies could look for supply chain synergies that optimize tariff exposure. Essentially, tariff mitigation becomes part of synergy realization. Opportunistic acquirers could find potential for synergy success.

Overall M&A volumes could be influenced by tariffs. Some healthy deals might be put on hold due to uncertainty, while other scenarios might spur M&A deals, such as those involving distressed companies hit hard by tariffs or by vertical integration. Companies also might forge new alliances with suppliers in tariff-friendly countries and encourage cross-border M&A. Such partnerships can be complex but offer a strategic win-win under the new rules.

Regulatory and audit focus

A volatile tariff environment requires stronger oversight and controls. Auditors (internal and external) will closely watch how companies reflect tariff impacts in financial statements. For instance, inventory on the balance sheet should include any duties paid, but could cause tight margins to go negative resulting in inventory write-downs. Revenue recognition, specifically determining the transaction price, might be affected if companies implement surcharges or passthrough charges. Disclosure in MD&A sections of 10-Q and 10-K filings or annual reports should address material tariff impacts and risks – the SEC may scrutinize whether companies are adequately informing investors of exposure to trade policy changes.

Companies must ensure they are not violating trade laws, such as re-routing goods through third countries (trans-shipment) to dodge tariffs and falsifying country-of-origin information. Compliance officers should tighten supplier audits and certifications of origin to avoid inadvertently buying goods with falsified origin, in addition to monitoring their company’s compliance with tariff/duties requirements.  We’ve seen an increase in companies engaging legal firms to assist with this. Internal audit teams should consider including tariff management in their audit plans: monitoring processes to maximize drawback claims, updating ERP systems with new tariff codes/rates, and inspecting that tariff-specific strategies and compliance are operating effectively.

Boards and audit committees will likely demand risk assessments related to tariffs – including scenario analyses and contingency plans. They may also want assurance that management is monitoring early warning signals of policy change (e.g. following Treasury announcements, engaging trade counsel). Strategic partnerships or joint ventures create new risks and monitoring requirements that should be of interest to audit committees.  Finally, some companies are looking into trade disruption insurance, including policies that cover losses due to supply chain disruption. Legal and risk advisors should review contract clauses, and new contracts might explicitly include or exclude tariffs as force majeure events.

Next steps

The new tariff environment touches nearly every aspect of business operations and the uncertainty about their implementation should lead companies to consider redoing contracts to adjust automatically by assigning risk to company pricing based on various tariff scenarios. Accordingly, companies seeking to adjust and thrive should adopt a holistic approach – combining supply chain agility, strategic tax compliance, and solid compliance monitoring. The strategic, financial, and operational challenges demand cross-functional action.

By staying informed and being proactive in implementing the kinds of measures discussed above, businesses can mitigate risk and even find opportunities in the uncertain future. Each step – from re-pricing products to redrawing supply lines – should be documented and executed with an eye on both the bottom line and stakeholder expectations, keeping the business resilient in the face of evolving trade policies.