5 Tips to Handle the Effects of Changing Tariffs

On April 2, 2025, President Trump rolled out his promised new tariff policy with a baseline tariff on all U.S. imports and higher tariff rates for some countries. Although he subsequently imposed a 90-day pause on some reciprocal tariffs, the 10% baseline tariffs have kicked in for most countries, with certain exemptions.

The administration says negotiations with trading partners are ongoing. Uncertainty and changes are likely to affect many U.S. businesses for at least the duration of the pause, and perhaps beyond. In this uncertain landscape, tariff-affected companies must be proactive, not merely reactive. Consider these five steps to help maintain your business’s financial stability.

1. Explore Reshoring

One of Trump’s stated goals for his tariffs is to encourage the “reshoring” of U.S. companies from abroad. Manufacturers, in particular, may have moved all or part of their operations offshore due largely to cost considerations, but tariffs could offset any savings. And a variety of federal and state tax incentives — including the Section 45X Advanced Manufacturing Production Credit and the Section 48D Advanced Manufacturing Investment Credit — could make it more financially appealing to return to the United States.

Tariffs and tax incentives should be weighed against other considerations, though. For example, will you need to build a new facility, or can you find existing space in a suitable location? Will you need to source foreign, tariff-covered parts even if you manufacture a product domestically?

Another important factor when evaluating a location is the availability of skilled labor. Even before the tariff announcement, the National Association of Manufacturers (NAM) estimated that the domestic manufacturing industry could require 3.8 million jobs by 2033 — and nearly 2 million of those jobs may go unfilled. A recent poll found that while most Americans favor more U.S. manufacturing jobs, few want to work them.

Investing in automation, robotics and AI-driven solutions may help counter potential labor shortages and the high labor costs associated with reshoring. These technologies could enhance productivity and make your business less reliant on human capital.

2. Game-Plan Your Options

Financial modeling (also known as scenario planning) can help determine whether reshoring and other tariff responses are right for your circumstances. It provides critical guidance for businesses during unpredictable times.

The first step is to identify all the countries that play a role in your supply chains. Include every country that you deal with directly or through your suppliers. You can then develop a model that projects how different sourcing scenarios will affect your finances based on the applicable tariffs. You should compare the costs of foreign versus domestic options and how each will affect your pricing, labor costs, cash flow and profitability.

With this information, you can create contingency plans to reduce risks as new developments are revealed. For example, you might decide to delay plans for capital asset purchases or expansion.

3. Raise Your Prices

The potential impact of tariffs on prices has captured a lot of attention. Many companies may understandably see passing the increased costs on to their customers as the easiest route to preserving profits. The decision is more complicated than that, however.

You need to account for several factors before you hike your prices, including your competitors’ pricing and how escalating prices might affect demand. The possibility of reduced demand should be paramount for price-sensitive consumer goods, where even an incremental price bump can hurt demand.

Some consumers have already pared back spending amid growing fears of trade war developments, stock market volatility and inflation. Price increases, therefore, should be treated as only one component in a broader approach.

4. Take Advantage of Foreign Trade Zones

You may be able to reduce your tariff exposure by leveraging Foreign Trade Zones (FTZs). Companies pay reduced or no tariffs by using these designated areas near U.S. ports of entry to transfer goods in and out of the country for operations, such as assembly, manufacturing and processing. That makes an FTZ attractive when a component has a higher tariff than the finished product.

Tariffs are incurred when the goods are moved from an FTZ into the country for consumption. While goods are within the zone, they aren’t subject to tariffs, and no tariff is incurred on exported goods.

Establishing an FTZ can be expensive, so the scale of your import activities must justify it. Historically, FTZs have been used mostly by companies in the consumer goods, retail, electronics, auto and aerospace industries.

5. Implement Tariff Engineering

Tariff engineering involves altering a good’s design or materials to qualify for lower tariff rates. Its effectiveness may be limited when a baseline tariff applies, but negotiations may lead to more variance in tariff rates based on the type of good.

For instance, Converse All-Stars have been “engineered” for years to avoid a higher tariff classification. More than half of their soles are covered in fuzzy felt. As a result, the shoes are classified as slippers, subjecting them to lower tariff rates than shoes would be. Similarly, Columbia Sportswear added a small pocket below the waistline of women’s tops to exclude them from the tariff for blouses. And back in 2003, the U.S. Court of International Trade ruled that some Marvel action figures should be classified not as dolls but as “other toys.”

Companies would be wise to re-examine their products to determine if such changes could reduce their tariff liability. Note that reclassification requires actual changes — simply re-labeling a good or component won’t pass legal muster. Documentation of how the altered good qualifies for the new classification is essential.

Stay Tuned

International tariff policies are evolving rapidly. U.S. companies must closely monitor changes from both the U.S. and foreign governments to chart the best course.

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