First, tariffs increase the cost of imported components. If the U.S. dollar weakens, that shift will amplify this inflationary effect. Companies will then be forced to choose between passing costs on to consumers, which could impact demand, and absorbing the costs and reducing margins. In either case, the tariffs will increase pressure on corporate revenues and profits, which means organizations will likely delay capital investments. In the worst-case scenario, financial defaults will become more likely, particularly for highly leveraged firms.

These challenges escalate when components travel back and forth across borders multiple times—such as parts used in auto manufacturing—potentially incurring multiple layers of tariffs. Worse, the cost increases for goods moving among countries might be amplified if U.S. trading partners retaliate with tariffs of their own. The effective tariff rate on such goods might end up being much higher than the baseline set by the U.S. government.

Another challenge is that the unpredictability surrounding the timing of tariff announcements, implementations, and reversals has created an environment of paralyzing uncertainty for global trade. Many companies have adopted a wait-and-see stance when considering major business decisions. Some seem to be delaying key investments, which may have a negative impact on the broader economy.

Then organizations face the risk that if tariffs reach prohibitive levels—as they recently did between the U.S. and China—they will essentially function as trade embargoes. Some goods may no longer be available to U.S. consumers, due to prohibitive pricing. This scenario could obviously create significant issues for a wide range U.S. retailers, importers, and manufacturers. One option would be to find new suppliers from other jurisdictions, but that would take time.

The combination of all these tariff impacts means that few domestic industries would come through a draconian tariff regime untouched, although some would feel more of an effect than others, depending on how much their businesses rely on inputs or products from outside the United States. The construction industry, for example, relies on materials like steel, aluminum, and machinery, many of which are imported and now subject to tariffs. While the foreign content of construction projects may be lower than in other industries, and substitution with domestic components may be more feasible, the cost pressures will still ripple through, potentially causing a rise in prices and a decrease in margins.

Meanwhile, companies in the food-and-beverage sector face exposure on the export side. Chinese and other Asian importers may not only experience retaliatory tariffs, but also seek alternative suppliers or prioritize local sourcing. U.S. exporters to these areas, particularly those operating in commoditized markets, are at risk of losing ground and revenue.

The broad scope of tariff measures is leaving few sectors untouched. Retailers and consumer goods companies that import heavily from Asia—including giants like Walmart, Target, and Nike—face notable risks. Textiles and renewable energy components, such as solar panels and windmills, also remain in the crosshairs.

Stepped up Preparation and Agility Are Crucial

Mitigating risk is crucial in this uncertain climate, and the best defenses are preparation and agility. Given the rate of change in the external environment, companies need to be more nimble than ever before. They must continuously and closely monitor trade developments and expected trade measures, both globally and in their specific industry, and prepare in advance to respond. The Peterson Institute for International Economics is a great source for real-time information about what is happening in the trade landscape, along with the Financial Times—which has a Trump Tracker that reports the latest information on tariffs and executive orders. Firms can also turn to their industry group organizations for information pertinent to their specific sectors.

Scenario planning, which used to be a luxury in C-suites, is now a necessity. Projecting the trajectories of tariffs is inherently difficult, and companies must develop both a baseline scenario and a downside scenario, especially during these volatile times. Then they should create detailed action plans for each possible scenario. Key variables include the elasticity of demand, supplier concentration, and geographic exposure to trade levies or restrictions.

A company that finds itself in a situation where margins are thin and demand is elastic will not be able to pass increased prices on to consumers. Scenario planning will help businesses understand whether they can pass on new tax costs without losing customers. Those operating in highly competitive, price-sensitive sectors will face more acute challenges and should prioritize risk mitigation accordingly.

Throughout the scenario planning process, transparency and clear communication with stakeholders are essential. Firms must be ready for situations in which they may have to release profit warnings or cost guidance revisions. Trade disruptions elevate the importance of contingency planning and robust forecasting.

At the same time, the unpredictability of modern trade policy has led to a surge in interest in strategies that help reduce uncertainty. One such solution is to develop flexible sourcing strategies, in both the short term and long term. Businesses are better positioned to weather the tariff storm if they have supplier options in an assortment of different locales. Many companies today are pursuing dual- or multiple-sourcing models, even at higher costs, to preserve continuity and reduce their dependency on a single market.

Firms can also turn their attention to reducing payment risks using a variety of strategies. As tariff-induced margin pressures grow, particularly for companies that cannot pass on cost increases due to competitive market structures, the risk of default intensifies. Organizations may respond by stepping up credit checks; asking for advance payments; or using escrow accounts, letters of credit, or a factoring company to ensure the terms of a transaction are fulfilled.

Another risk-mitigation strategy is trade credit insurance. Credit insurers help businesses identify at-risk partners and shield them against non-payment. The demand for trade credit insurance services tends to spike during crises—and this is no exception.

Only One Certainty: Uncertainty

The current pause on giant tariffs on goods from China and other countries is offering companies some temporary relief. Still, uncertainty remains the prevailing constant. For firms operating in or relying on the global economy, the need for vigilance, flexibility, and smart risk management has never been greater.