The April 2, 2025 tariff announcements have reshaped the landscape for manufacturing and distribution (M&D) companies, bringing renewed urgency to reevaluate supply chains, financial structures, and strategic planning. With increased costs and operational disruption now an unavoidable reality, business leaders—particularly those in finance and operations—must act decisively to adapt. Although the White House recently announced a 90 day pause on reciprocal tariffs to allow for ensuing negotiations, business leaders will need to be proactive as the global trade landscape continues to adjust.
Finance and operations teams should consider these eight areas in tandem while navigating the ever-changing tariff landscape.
1. Hedging for Flexibility and Planning for Tariff Volatility
As tariff pressures mount, many companies are exploring moves to more tariff-friendly countries at the baseline 10 percent rate. While sourcing from Mexico appeared risky just weeks ago, it now presents an attractive alternative at a 25 percent tariff with lower freight costs compared to sourcing from China, Vietnam, and other high-tariff regions across the globe.
Domestic sourcing is, of course, the best option looking narrowly at tariffs alone. However, with a higher cost profile overall, companies should look to partially hedge to build greater resiliency into their supply chains should tariffs escalate. Shifting production is not without cost—upfront investments in time, capital, and supplier vetting are significant, and quality concerns may emerge.
Many companies may plan around today's tariffs without building flexibility for future changes. However, tariffs can be rescinded, escalated, or broadened quickly depending on trade negotiations or political developments. Scenario planning for multiple tariff environments is critical for a resilient strategy.
2. Supply Chain Disruption and Logistics Pressures
Tariff-induced delays at ports and docks could occur in the near term, stalling inventory movement and exacerbating delivery times. Conversely, those companies with existing sourcing options from traditionally low-tariff countries may soon find competition for capacity rising as more companies seek to pivot. Companies should factor logistics disruption into their revised forecasts as an indirect result of the tariff announcements.
3. Tax Implications
Multinational firms should revisit their transfer pricing models to ensure intercompany transactions reflect new cost realities without triggering compliance issues. Purchases from an overseas affiliate now include additional cost, which could result in an unprofitable transaction that is no longer viewed as arm’s-length. Allocating tariff costs should not only be considered but documented as well.
4. Covenant Implications
Businesses that were ahead of the curve and front-loaded inventory before the announcement may now face a capital crunch, as working capital is tied up in goods not yet generating revenue. Simultaneously, the margin squeeze from increased costs may jeopardize loan covenant compliance.
Companies with high leverage ratios, or those with deteriorating margins and thin debt service coverage, should anticipate lender scrutiny and be proactive in the communications with their lender.
5. Pricing Decisions to Balance Profitability and Market Share
Determining when and how to adjust pricing is critical. Competitive analysis will be key—if the broader industry is raising prices, there may be room to adjust without eroding market share. If not, companies will need to tread carefully to avoid customer attrition.
Companies may want to consider targeting certain product lines affected the most, or adding a tariff surcharge as opposed to a permanent increase. Transparent communication with customers about tariff costs and industry-wide cost pressures can help manage expectations.
6. Short-Term Cash Flow Concerns
Tariffs will not only elevate the cost of inventory but possibly increase lead times as well. In response, cash flow forecasting should be tightened, with scenario planning for different tariff levels and sourcing routes. Treasury and finance teams should coordinate closely with procurement and operations to balance liquidity with continuity.
7. International Sales and Retaliatory Risks
Global sales teams must monitor not only U.S. tariffs but also the risk of retaliatory tariffs from trade partners. A proactive review of international exposure, contract flexibility, and pricing arrangements will help mitigate downside risk.
8. Accounting Considerations
Accounting teams will need to carefully consider the effects of how tariffs are treated in their financial statements. On the balance sheet, inventory costs should now include the effect of tariffs in bringing raw materials to their usable condition. This may lead to increased analysis of inventory write-downs due to negative margins.
On the income statement, purchase price variance accounts will need to be closely monitored, as well as revenue recognition policies. The timing of revenue recognition could be impacted depending on how the company treats surcharges.
Next Steps as Your Manufacturing & Distribution Company Navigates the Evolving Tariff Landscape
Tariffs are more than a cost line item—they represent a strategic inflection point and require unified decision-making. M&D companies must respond with coordinated efforts across sourcing, finance, and pricing to protect profitability and ensure long-term resilience. If would like to discuss how your company can strategically respond and adapt to this evolving tax landscape, please contact us or visit our website to learn more about our Manufacturing & Distribution industry group.