As a CPA, I work with many leaders, CEOs and senior managers of small and mid-sized companies, and there is one thing that my most profitable clients have in common: they're always thinking ahead.
They think ahead by months — even years. They don't like surprises. They're planning their investments, spending and hiring well in advance. They consider what's going on around them and have a plan for different scenarios. Post-election, many are thinking about tariffs.
President-elect Donald Trump has been very, very clear: he's raising tariffs as soon as he takes office. He will increase tariffs on all Chinese imports to 60 percent. He will impose an across-the-board increase of 10 percent on all other imports. And he's keeping the option open to tariff any other country by up to 20 percent, depending on the circumstance.
Tariffs are absolutely, positively, definitely going up, and if you're running a business, you are likely to be affected. You should be making a plan to deal with this, now. Do not hope that Trump won't follow through. Do not think that he doesn't have the authority. He will and he does.
So what to do right now?
According to a Wall Street Journal report this week "American businesses are dusting off a playbook they used during Trump’s first term: stocking up on imported goods before tariffs are enacted." Buy now while prices are lower. This is a working capital issue. Talk to your bank and increase your line. You will ultimately sell these goods, so assuming you can find the space (and afford the interest, which, with the prime rate close to 8 percent, can be as much as 9 or 10 percent or even higher depending on your credit), this short-term strategy can buy you some time.
Overseas governments are also concerned about pending U.S. tariffs — and one of the likely scenarios of a Trump tariff increase is retaliation. I’m sure that leaders of some of our most significant trading partners are already gearing up for that option. This happened in 2017 and it will happen again. All of this, according to incoming Commerce Secretary Howard Lutnick, is likely a pre-amble for negotiation, but whatever the results, it will take time, and regardless, there will be some sort of longer-term price increases. So if you're going to raise prices, now's the time for your customers to take advantage of what’s available.
China is the bad guy in all of this and will face the largest tariff increases. A trade war is likely. China will increase their tariffs in return. The war could last a while and it could get ugly. The alternative is to focus on the 10 percenters — that is, those countries that are likely to be on the lower end of the tariff increase.
Mexico and Canada are our largest trading partners and (as far as we know) aren’t hacking our infrastructure or supplying North Korea. The United Kingdom, Australia, Vietnam and India are also friendly. There are other, smaller countries in both South America and Asia that will skirt the brunt of these increases. My recommendation is to reach out to organizations like the World Trade Centers Association, which can introduce your business to alternative suppliers in friendlier countries and facilitate a relationship.
You've got about two months to go before Trump is inaugurated, and if your business is reliant on overseas suppliers or customers, I'm hoping — like many of my smarter clients — you're already talking to them. Are prices negotiable? Are there other terms to consider? Can a short- or long-term supply agreement be reached that goes into effect only when tariffs increase? Can shipments be increased, decreased or altered based on circumstances? Does the supplier have other locations in less tariff-exposed countries where inventory can be stored, shipped and billed? Can your Chinese supplier sell to a Canadian middleman who will store your inventory and resell to you at a price that’s manageable?
Rhetoric aside, let's not forget the primary reason behind Trump's tariff plan: it's designed to keep money and jobs here in the United States. The companies that have no cause for concern are those that buy 100 percent of their products domestically and then sell these products locally. Tariffs only come into play when the buying and selling happens with overseas companies.
With two months until inauguration, there's still time to focus on alternative, domestic suppliers and to go after American customers. If you're a soybean farmer that sells 50 percent of your product to the Chinese or run an e-commerce business with suppliers only in China, that's easier said than done. But if there's flexibility in where your suppliers and customers are, it's time to dig deeper into those options.
Finally, if they have to, businesses can raise prices or absorb the costs themselves. Walmart announced in late November that increased tariffs may result in increased prices. Walmart doesn't want to do this, but the move proves that there's a limit to the amount of costs that even the largest companies can absorb.
Many of my clients are wrapping up their budgets for 2025 and they’re preparing various scenarios that take into consideration how tariffs will impact their margins and where the differences can come from. Some are willing to forgo profits, hire fewer people or invest less in order to stave off price increases. Others plan on passing the costs down immediately to their customers. Some are waiting for what the market will bear, while others are secretly hoping they can pass off price increases that are a little higher than tariff increases in order to make more profit.
Are there other strategies? Probably, but this is what I'm seeing right now. For those salty-old business owners, they've been to this rodeo before. They've navigated their way around problems like this and have survived. That's because they're good at seeing storm clouds on the horizon and taking cover.
Tariffs are on the horizon. Take cover.
Gene Marks is founder of the Marks Group, a small-business consulting firm.
