How to cope with tariffs: the corporate governance perspective

How to cope with tariffs, a corporate governance analysis and survival guide as costs mount amid a bubbling trade war.  

We’ve arrived at “Liberation Day”, as the Trump administration likes to call it. News media are calling it a redefining moment in global trade and international relations.

In case it’s not obvious, the next few weeks will bring enormous challenges for boards worldwide. Strategies that worked a year ago won’t make sense anymore. Entire business plans may get thrown out the window. Meanwhile, stakeholders will be looking to you – directors and executives – for confidence and clarity. You need a response that shows that your company’s leaders can safely weather the storm.

If you’re scrambling for structure during this uncertain time, this guide will help.

Tariffs are a core part of Donald Trump’s political agenda. He wants to bring jobs and wealth back to America, and his strategy for doing so is to heavily tax goods and services made outside its borders, so people will buy local.

This is a long game. Whether it will work is not our focus right now – you can read about it in the media to your heart’s content. The real focus is that once Trump introduces tariffs, other jurisdictions will follow suit. Without an agreement, it’s just a game of trying to one-up the other government. 

This is bad news for boards and executives because trade wars introduce huge costs, big risks, and enough problems to force a rethink of corporate strategy. Unfair as it may seem, the burden falls on you to find a way through it. It’s another governance duty – albeit one you might not be used to – and preparation is everything.

• Tariffs are a tax on goods and services that cross international borders.
• The importing company pays the tariffs.
• When tariffs increase, they add costs to the importing company’s supply chain. The company can either take this hit, find new suppliers to avoid tariffs, or just charge their customers more.
• Tariffs bring massive risk for companies, especially if they’re part of a trade war:
  • Financial risk – your strategy and avenues for profit may not make sense anymore.
  • Supply chain risk – your trusted corporate partners abroad may not supply you at the prices you need.
  • Reputational risk – any move to increase the costs of your products can make consumers angry and less enthusiastic, reducing revenue.
  • Investment risk – the above problems could dampen any investor’s confidence in your business model. They won’t put further money into your operations if they think you’re less viable in a tariff-centric world economy.

You need to ensure your business can remain healthy as the economy around it makes a sudden shift.

This is an all-hands-on-deck approach. Your executives and CEO may do most of the day-to-day heavy lifting, but the board has ultimate responsibility for making the final call on key decisions.

So, as the business model and strategy changes, the board must offer every level of oversight. Directors should ask every question they think of and provide constructive feedback to stress test any new ideas.

Also, it will benefit to be proactive in this environment. Try to think ahead as far as possible. It’s difficult, yes, because who knows how long Trump will let a trade war go on for, but that’s where scenario planning comes in; it gives you options.

First, you need to crunch the numbers. After that, you need to make a plan. Here are the details:

You can’t assess without raw data. In this case, it’s the numbers behind Trump’s tariffs and those which other jurisdictions will impose on the US in return. As soon as you know them, ensure you understand exactly how they will impact your business. 

Things to focus on include:

• What percentage of your supply chain is exposed to new tariffs?
• Can you absorb the increased costs, or do you need to adjust pricing?
• Are competitors benefiting from more favourable trade conditions?
• Are there alternative suppliers in non-tariffed regions? (Pay close attention this; global trade wars will always impact some trade routes more than others).
• How will your customers respond to price increases?

If the damage is significant or likely to be in the future, your board needs to act fast – pushing management for immediate solutions and checking every new idea to ensure it’s valid.

The problem is that finding the right solutions is subjective, depending on the company. So, ultimately, the final call is yours. However, what’s below will get you started on a game plan. 

• Supply chain diversification: If tariffs raise the prices of your imports to unsustainable levels, you could diversify your supply chain to include domestic producers. This may not always be possible, but it can be a quick fix if it is. 
• Contract renegotiations: You could work with suppliers to agree on a balanced approach to paying the new costs – one which doesn’t hit any company too hard. 
• Pricing strategy shifts: Nobody likes a price increase to cover rising costs, but there are ways it can be done with minimal damage to the stakeholders involved.
• Product re-thinks: See if there are ways you could alter the composition of your goods and services so tariffs won’t impact them as hard.

Medium term:

• Invest in training or upskilling key governance personnel. Governance has always been a high-stakes job, and frighteningly few people worldwide are trained to serve on a board. But emergencies like this, which require quick thinking and thorough expertise, are prime reasons why such training is necessary.

Longer term, these options are also on the table: 

• Strategic relocation: One of Donald Trump’s main reasons for new tariffs is that he wants to force foreign companies to set up shop in the US and employ more American workers. Whether this makes sense on the grand scale is the subject of much debate, but think about whether it might benefit your company to relocate operations to – or from – the United States. 
• Government engagement: Get together with industry colleagues to form a solid campaign on the tariffs issue you can bring to your government. This won’t fix anything overnight, but united voices will likely get more media coverage, and thus increase political pressure. It’s uncertain in this kind of polarised economy, but you can’t afford not to have your voice heard. 

Waiting to act is not an option. The companies that move swiftly will be the ones that stay competitive.

Trump will not back down from his tariff-dominated agenda, which means that other jurisdictions with significant power (like the UK, EU, Brazil, China and India) will not back down from reciprocating. It leaves companies stuck in a limbo full of new risks, but you can’t get away from it; you can only manage it. 

In many cases, they’re a clear and immediate threat to corporate strategy, supply chains, and financial stability. 

Board members must proactively assess risks, strategise responses, and push for decisive action. Those who sit back and hope for the best may find themselves outmanoeuvred by competitors, regulators, and an unpredictable global trade environment.

How to cope with tariffs: The Corporate Governance Institute