Tariffs and Business Strategy
Randy Wolken, President & CEO

The recent wave of tariffs and trade controls has created an environment of uncertainty for manufacturers and many businesses. Decision-makers must determine how to best position their companies to thrive in this rapidly evolving landscape.

Since the U.S. announced its reciprocal tariffs on April 2, 2025, markets worldwide have faced volatility, raising the likelihood of a negative impact on the global economy. Since then, the combined tariffs enacted by the U.S. government have rapidly raised the country’s weighted-average tariff rate to its highest level in 100 years, from approximately two percent at the start of 2025 to more than 20% starting in April. The response of other governments has varied and continues to evolve. How these measures will continue to change is uncertain, particularly given the government’s pause on many important country-specific tariffs. However, the tariffs’ impact on business cost structures, business and consumer demand, and each company’s relative competitive advantage is bound to be substantial.

Business leaders are navigating many near-term decisions, with some setting up geopolitical “nerve centers” to coordinate their responses. Recently McKinsey research outlined three actions that can help businesses make medium to long-term decisions:

1. Analyzing relative positioning
2. Defining strategic posture and actions
3. Pressure-testing decisions considering current uncertainty

Analyze Positioning

As leaders move beyond immediate tactical responses and begin to consider the more enduring shifts to their businesses, they should assess how the new tariffs will affect their competitive advantages and growth prospects:

• Relative competitive advantage: The tariffs’ impact varies widely by country and sector, and every business has a different geography and product mix, operations footprint, and supply chain. This variance makes it necessary for each organization to assess the new tariffs’ implications against their own relative competitive advantage. Most business leaders are already calculating the cost impact on their operations. The next step is to analyze how the tariffs affect competitors’ cost structures and substitute products. This analysis will determine whether a business can sustain its margins—and even accelerate sales—or whether it must retrench.
• Demand: Tariff changes are likely to meaningfully affect business, consumer, and government spending, as well as trade flows. Companies should therefore evaluate how macroeconomic conditions may affect demand for their products.

Analyzing these two dimensions for each major product–geography combination can help business leaders define a set of actions to protect the economics of their businesses and potentially accelerate growth.

Define Strategic Actions

Decision-makers should go beyond mitigating the downside of the new trade measures and look for opportunities that the changes may present. The combination of actions that companies might consider in response to the recent tariff changes can be grouped into four strategic areas:

• Drive commercial acceleration and invest in growth: Companies in this category have operational footprints and supply chains that give them a competitive advantage in this environment. As such, they’re positioned to optimize pricing, expand their sales force or channel presence, and boost production in existing facilities. They should also assess investments with increased time horizons.
• Capture market share and protect margins: Companies in this category have reduced customer demand but are positioned better than their competitors. They would benefit from focusing on actions that leverage internal capabilities and moderating major capital investments until demand stabilizes.
• Invest to reset the cost structure: This strategic posture would apply to companies in a diminished competitive position but with increasing customer demand. Assuming business leaders believe their company’s competitive position remains viable, they might consider cost reductions to improve margins as they continue to benefit from healthy demand. In the medium term, companies in this group should determine how to improve their overall market position by changing their supply chains and realigning their manufacturing footprint and talent operations.
• Rationalize and refocus: Companies in this category are in the most vulnerable position because their products are highly exposed to tariffs and experiencing diminished customer demand. Their leaders’ strategic imperative is to reduce that exposure by accelerating cost containment, deferring capital investments in exposed areas, and exploring restructuring options.

The strategic postures that companies adopt aren’t static determinations. Business leaders need to analyze a range of potential scenarios to determine what will work for their organization. To find the best approach, leaders should ask themselves the following questions:

• Does my company’s position remain stable across a range of scenarios with any of our products? Which sets of actions are common for these products across most scenarios?
• For significant decisions, such as shifting factory production, what is the tariff threshold or differing trade dynamic that will change my decision? Is that breaking point low enough that the cost of inaction outweighs any downside of action?

The answers to those questions can help business leaders decide when they should prepare to act, and when they should wait it out.

Finally, many companies also wonder whether the uncertainty posed by these tariffs can be contained. Understanding the Trump Administration’s priorities can provide insight into which shifts may be lasting and which are transitory. The U.S. government’s priority areas include the following:

• Reinforcing national security: The U.S. has imposed trade restrictions on sectors it deems critical to protecting sensitive and dual-use technologies and rebuilding the domestic defense industrial base. The administration has cited this consideration in implementing tariffs and trade restrictions on steel and aluminum, with action anticipated on semiconductors. The government has also explicitly identified automotives, basic and fabricated metals, batteries, biomanufacturing, machine tools, microelectronics, pharmaceuticals, shipbuilding, technology products, and transportation equipment, as sectors critical to national security.
• Boosting U.S. manufacturing: The U.S. government has stated that encouraging companies to move more manufacturing operations stateside is a key driver for the recent tariffs. The Trump Administration says that bringing back one manufacturing job can lead to seven to 12 new jobs in other related industries. This, in turn, would increase American competitiveness through productivity growth and domestic innovation through higher spending on Research and Development (R&D).
• Balancing trade relationships: The Trump Administration has stated that it’s using tariffs to reduce or eliminate the country’s large and persistent trade deficits caused by tariff disparities and non-tariff barriers imposed by other countries. All the sectors not covered within national security or U.S. manufacturing categories will likely be subject to negotiations to reduce country-specific trade deficits.

Hopefully, this brief review of how companies can best navigate the current uncertainty is helpful. Action from our leaders is needed, even as the landscape continues to shift. We’re working with our members to help them take the specific actions required for their business. Please reach out to me at [email protected] if you’d like to discuss your company’s approach to tariffs. Together, we can navigate the future state of manufacturing.