The United States economic landscape has seen a great deal of change since the arrival of the new administration in January. One of the most widely discussed and debated topics of the past year has been the possibility of increased tariffs on goods imported to the U.S. in 2025. That possibility became a reality early this month.
What tariffs have been announced?
On February 1, the White House announced a 25% additional tariff on imports from Canada and Mexico, a lower 10% tariff on energy resources from Canada, and a 10% additional tariff on imports from China.
The tariffs on Canada and Mexico have been temporarily paused after negotiations between the U.S. government and the Canadian and Mexican governments regarding increased border patrol. The tariffs for these countries are now delayed until March 4, when the status of borders will be reassessed.
However, the 10% additional tariff on imports from China went into effect on February 4. China has responded with retaliatory tariffs on certain U.S. products.
President Trump has also reinstated the 25% tariff on steel imports and increased the tariffs on aluminum imports to 25%, eliminating exemptions previously granted for certain countries. These tariffs are slated to take effect in March.
Reciprocal tariffs on additional countries are expected to be announced in the near future.
How will the tariffs impact U.S. businesses?
The increased tariffs have the potential to impact U.S. manufacturing businesses both positively and negatively. One of the stated goals of the tariffs is to encourage American domestic production by raising prices of imported goods and reducing the country’s dependence on foreign imports. The increased tariffs may result in growth for certain U.S. manufacturing businesses, as well as the creation of new jobs, as has happened in the past.
However, there are also challenges and complications that come with such broad-sweeping tariffs. Some industries may suffer more than others due to retaliatory tariffs placed by other countries. Due to higher production costs, businesses that rely on foreign imports will either have to raise prices for consumers or take a hit to their profits. If product prices go up, consumers may reduce spending. The tariffs may result in the loss of jobs across the country if businesses resort to lay-offs to make up for financial losses. Additionally, manufacturers might encounter significant supply chain disruptions or delays as a result of the new policies.
How can manufacturers prepare?
The current uncertainty surrounding the tariffs and potential retaliatory measures makes it hard to predict the full effect of these policy changes. However, there are ways you can prepare your business for the impact of tariffs.
In preparation for potential tariffs, businesses can take the following measures:
- Identify which imports may be affected and estimate cost increases
- Identify potential supply chain vulnerabilities
- Consider the benefits of pricing increases versus the potential impact on demand
- Explore alternative sourcing options—either domestic or in regions less affected by tariffs
- Improve supply chain resilience by diversifying suppliers
- Invest in technology to improve efficiency, reduce production costs, and strengthen supply chain management
It is critical that business leaders stay abreast of the latest tariff developments as the situation is changing rapidly. Planning ahead—and adjusting your business strategies accordingly—will help to mitigate the impact of tariffs when they take effect.
Our experts at RBT CPAs can assist with cash flow projections and help to determine reasonable sales price increases if needed. While you work on strategies to adapt to the new tariffs, please know that RBT CPAs is here to support your business’s accounting, tax, audit, and advisory needs. Visit our website or give us a call to learn more about what we do.