By Michael Santulli, Loan Villemin, and Sean Wu
In a significant step toward easing trade tensions, the United States and China have agreed to a 90-day reduction in tit-for-tat tariffs, a move that temporarily de-escalates one of the most volatile trade conflicts in recent years. This agreement, announced after productive talks in Geneva, saw U.S. tariffs on Chinese imports drop from 145% to 30%, while China's retaliatory tariffs fell from 125% to 10%. While markets have responded positively, the deal represents a pause, not a resolution.
This development reflects a broader shift: tariffs have evolved from routine fiscal instruments into powerful tools of economic leverage and political signaling. Their impact now extends far beyond customs duties, disrupting industries from manufacturing to technology. Trade policy can change overnight and a company’s operating field with it.
In fact, international trade is increasingly entangled with national interests. Businesses find themselves caught between shifting policies and rising costs. Trade disputes, often fueled by geopolitical tensions, can escalate quickly, leaving companies with little warning to adapt. As a result, tariff unpredictability has become a major concern for cross-border operations, affecting both daily actions and long-term strategy.
Indeed, the impact of modern tariff regimes goes way further than customs duties. They introduce volatility into supply chains, increase costs, challenge long-term strategic planning and also add complexity to pricing models and financial forecasting. The WTO's World Tariff Profiles 2024 provides comprehensive information on tariffs measures imposed by over 170countries. This publication offers valuable insights into the global tariff landscape, highlighting the complexities businesses face in international trade. In this environment, companies must treat tariff-related disruption, not only as an occasional event, but as a fundamental business risk.
Firstly, tariffs directly raise input costs for businesses dependent on imports, whether raw materials, components or finished goods. In low-margin industries like consumer electronics or apparel, even small increases can significantly erode profitability. For instance, the recent U.S.-China tariff rollback came after many firms had already absorbed cost surges that forced them to either cut margins or raise prices under pressure.
Secondly, tariffs introduce serious challenges to supply chain continuity. A change in trade policy can delay shipments, limit the availability of critical inputs or force suppliers to temporarily cease operations. For companies dependent on just-in-time inventory models, even short-term disruptions can escalate into bigger operational delays and, in the end, a loss in income.
In addition, contractual instability is a common consequence of tariff fluctuations. Long-term agreements with suppliers or customers often fail to account for sudden regulatory shifts. Indeed, when a tariff is imposed during the lifespan of a contract, a company may be required to honor pricing structures that no longer reflect the recent costs, thereby jeopardizing financial performance and damaging business relationships.
Strategically, trade policy uncertainty often leads to decision-making paralysis. When businesses don’t know whether tariffs will rise, fall, or stay in place, they may freeze capital investments, delay market entries or halt supply chain expansion. The90-day reset is a clear example : it buys time but not clarity and some companies may hesitate to act knowing the pause could abruptly end. This fear of uncertainty can be particularly damaging in industries that move fast, industries where competitive advantage often hinges on timely execution and innovation.
Furthermore, the financial markets are not immune to the ripple effects of tariff activity. Exchange rates, interest rates and commodity prices can all be influenced by shifts in trade policy. Therefore, companies operating internationally must manage not only the direct costs associated with tariffs but also the indirect consequences reflected in broader economic volatility.
Because of the wide implications of tariffs, businesses must adopt structured and proactive approaches to mitigation. Enterprise Risk Management (ERM) frameworks provide a solid foundation for integrating tariff-related risks into operational and strategic planning. The following strategies reflect key areas of focus that can be found in such a framework.
The first step in managing tariff risk is to understand the organization’s specific exposure. This involves identifying which products, suppliers and trade routes are subject to tariffs and estimating the financial and operational impact of potential changes. A comprehensive assessment gives the opportunity to the leadership team to take notice of the risk areas and develop appropriate response strategies. For instance, companies with deep exposure to U.S.-China trade routes would have been heavily impacted before and after the Geneva agreement, highlighting the importance of having an updated, region-specific risk map.
Secondly, companies need to avoid being overdependent on a single supplier or a particular geographic point. Diversifying sourcing options across multiple regions, especially those with stable or favorable trade agreements, would strongly reduce the impact of abrupt tariff increases. On the demand side, expanding into new international markets may help mitigate revenue risk in the event of retaliatory tariffs or market-specific disruptions.
Thirdly, contract structures should be updated to take into consideration the tariffs volatility. This may include incorporating tariff pass-through clauses, renegotiation triggers or urgency provisions specifically related to trade policy changes. Such terms enable companies to share or shift cost burdens in a manner that protects financial performance but also preserves business relationships.
In addition to contractual protections, organizations should engage in scenario-based planning. Indeed, by modeling the operational and financial consequences of different tariff events that might occur, companies can identify potential weaknesses and test the effectiveness of contingency plans. This approach prevents delay of reaction and ensures alignment among cross-functional teams when rapid responses are required. The recent 90-day U.S.-China tariff truce underscores the need for this capability. Indeed, companies that had simulated rollback scenarios were far better positioned to adjust sourcing, inventory or pricing quickly.
Another important consideration is regulatory intelligence. Trade policy changes frequently and without much notice if not enough attention is paid. Companies that monitor regulatory developments closely are better positioned to adjust strategies accordingly. Establishing a dedicated compliance team or partnering with trade advisory services can provide crucial early warnings and help ensure that documentation and classification processes remain accurate and up to date.
In some situations, adjusting inventory and logistics can reduce exposure to tariff-related dangers. This may involve stockpiling goods prior to anticipated duty increases, using warehouses and foreign trade zones or reconfiguring shipping routes to avoid high-tariff regions. Even though these measures may introduce added complexity or cost, they offer valuable flexibility in managing trade risks.
In fact, tariff volatility often intersects with currency risk, especially for businesses engaged in global trade. Thus, companies should consider financial instruments such as forward contracts or currency hedging to mitigate potential losses. Moreover, budgeting processes should incorporate contingency allowances to absorb cost shocks without compromising operational continuity.
Finally, a successful tariff risk strategy depends on organizational alignment. Procurement, finance, operations, compliance and executive teams must collaborate altogether to ensure that tariff-related risks are properly communicated and managed. Encouraging cross-functional dialogue and building a culture of responsiveness will enable the business to act quickly and as one when it faces changes.
Tariffs present complex and evolving challenges that demand thoughtful, proactive risk management. As the recent U.S.-China agreement shows, trade policy can shift dramatically and without much warning. Businesses must view tariffs not as isolated disruptions, but as a persistent strategic risk that spans supply chains, contracts, pricing, and financial planning.
By conducting exposure assessments, diversifying supply sources, adapting contracts and strengthening regulatory awareness, businesses can prepare better for trade-related disruptions. Indeed, those that treat tariff risks as a global part of enterprise resilience rather than as are acting issue will be far better positioned to adapt to the demands of nowadays volatile global economy.
Integrating these efforts into a comprehensive Enterprise Risk Management framework ensures that organizations stay responsive and aligned with their long-term strategic goals. It also promotes more consistent decision-making that bridges operations and executive leadership around a shared understanding of the risks incurred.
For expert guidance on navigating tariff risk and integrating ERM principles into your business continuity strategy, consider partnering with Enterprise Risk Management Consultants. Our experienced team provides valuable insights and tailored solutions to meet your organization’s specific needs. Contact us. We are dedicated to helping you develop robust strategies to protect your business from trade-related disruptions and achieve sustainable success in an increasingly uncertain global marketplace.
