Now that Trump has won the U.S. presidency and election uncertainty has receded, businesses across the country are setting their sights on 2025.
A major trend that every company is bracing for change as the Federal Reserve cuts interest rates is the proposed tariffs Trump touted during his campaign. Although details are unclear, it is said to include an across-the-board 20% tariff, with higher tariffs on certain materials and countries such as China and Mexico.
Tariffs – taxes on imported goods – are often seen as a tool for governments to protect domestic industries and address trade imbalances. However, the knock-on effects of such measures could extend far beyond trade negotiations. Whether you are a manufacturer, supplier or service provider, these proposed tariffs will impact your operations, costs, and even your business strategy.
Here’s what businesses need to know about the proposed tariffs in 2025 and how they will impact future operations.
What are tariffs and how do they work?
Before delving into specific proposals for 2025, it’s important to understand what tariffs are and how they work.
Tariffs are essentially taxes placed on goods imported from other countries. The goals are often twofold: protect domestic industries from foreign competition and generate revenue for the government.
When tariffs increase, the cost of imported goods increases. This increases the purchase price of these goods and may result in higher prices for products purchased by consumers. For businesses that rely on imported materials, supplies or finished goods from abroad, higher tariffs could mean higher production costs, which may need to be passed on to consumers or absorbed into the business’s profits.
What do we know about the proposed tariffs?
Specific details of the 2025 tariff plan are still being discussed. However, early reports indicate that tariffs of 10% to 20% will be imposed on every product imported from all US trading partners, with tariffs on Chinese goods being higher, ranging from 60% to 100%.
The reasoning behind these tariffs is simple: By imposing tariffs on all imported goods, U.S. manufacturers gain an advantage in the market. American-made goods become more attractive in the domestic market as the prices of substitutes rise due to tariffs. Over time, this will incentivize companies to produce products domestically, leading to long-term economic growth.
In the short term, however, the proposed tariffs could disrupt business operations. Those who do not consider how to source the products, materials and goods they rely on may have to deal with higher costs and supply chain disruptions.
How tariffs affect your business
The potential impact may vary depending on your company’s reliance on imported goods and your ability to adapt to market changes.
1. Cost increase
For many businesses, the most direct impact of rising tariffs is an increase in the cost of goods. This is particularly impactful for manufacturers or any business that relies on overseas raw materials or parts.
For example, if you are an electronics manufacturer and rely on semiconductors from Chinese companies, then imposing tariffs on those imports will increase your production costs. This could mean higher prices for the end consumer or lower profit margins for your business.
2. Supply chain disruption
Tariffs can also wreak havoc on supply chains. As import costs increase, some suppliers may choose to delay shipments or even pass on tariff costs directly to buyers. These supply chain disruptions can lead to extended product wait times, material shortages and challenges in meeting customer demand.
If your business relies on fast delivery to keep costs low and production running, changes in U.S. tariff policy may require you to reevaluate your supply chain strategy. Before we turn the page to 2025, it’s important to consider finding alternative suppliers, adjusting ordering models or rethinking your production plans to avoid delays.
3. Changes in consumer behavior
As businesses adapt to higher costs, the natural response may be to pass those costs on to consumers. This could lead to higher prices for products and services, which could impact demand. In some cases, consumers may choose to delay purchases, switch to lower-cost alternatives, or even reduce discretionary spending.
For example, a business that imports luxury goods may find that higher tariffs push prices beyond what their customer base is willing to pay. Likewise, businesses that make consumer-facing products may encounter headwinds if the cost of living rises and customers become more price-sensitive.
4. Procurement strategy changes
As tariffs raise the price of imported goods, some companies may change their purchasing strategies. Companies can choose to source materials domestically or in countries with lower tariffs, rather than from countries with higher tariffs such as China. This shift may require an overhaul of supply chain management, including renegotiating contracts, finding new suppliers, or even relocating parts of the supply chain.
For manufacturers, this may involve reshoring or nearshoring parts of their production processes – moving operations closer to home or to neighboring countries that offer more favorable trading terms. That could help mitigate the impact of tariffs, but it could also require companies to invest in new facilities, workers and technology, which would come at a cost.
Prepare your business for the potential impact of tariffs
Despite the lack of transparency on the specific details of the 2025 tariffs, businesses should take the following steps to ensure they are prepared:
- Assess your supply chain: Identify the goods and materials your business imports and determine whether any of them are likely to be affected by tariffs. If so, start researching alternative suppliers and make contingency plans for potential price increases or delays.
- Consider supplier diversity: If you rely heavily on imports from countries that may face higher tariffs, diversifying your supplier base may help mitigate some of the risk. Look for suppliers in areas less affected by proposed tariffs.
- Consider proactively purchasing goods by 2025: Some companies are bringing forward purchases of inventory, materials and other goods for 2025 to mitigate the impact of tariffs on their operations. This strategy can also reduce the cost of goods if the supplier offers discounts on large orders. Even with senior lenders, National Commercial Capital can support these types of inventory orders through our subordinated debt.
- Adjust pricing model: Proactively adjust prices. If tariffs are passed on to your business, you may need to increase prices to maintain profit margins. However, be aware of your customers’ price sensitivities and explore ways to minimize price increases without sacrificing quality or service.
- Stay informed: As the political landscape evolves, keep an eye out for any announcements related to tariffs. Government policies can change quickly, and understanding potential changes early can give you a strategic advantage.
Prepare for 2025 with National Business Capital
National Business Capital is here to support your company’s growth and development. If your company will be affected by tariffs in the new year, it’s a good idea to prepare your business in advance to mitigate any disruption to your operations.
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