This is an urgent edition of the Advantexe Advisor Blog that is being shared with our clients and community. As the work week starts, US businesses are struggling to understand the short-term and long-term implications of the government's decision to implement tariffs on imports from Canada, Mexico, and China.
The purpose of this document is to share business insights and to help our clients understand the business acumen of the tariffs. Over the weekend, I spent time crafting new simulation wobblers that will be integrated into several of our customized business acumen simulations being prepared for roll-out over the next few weeks.
As always, Advantexe tries to keep the business acumen learnings non-political so our clients can understand the situation and use new knowledge and skills to make the best short-term and long-term business decisions for their people, customers, and stakeholders.
What are Tariffs?
Import tariffs, like the ones President Trump is levying, are taxes placed on goods imported from other countries. Please note that export tariffs, which are taxes on goods brought out of a country, are much rarer and not part of the current situation.
There are several different types of tariffs, and the kind that President Trump is imposing is known as an “ad valorem tariff,” meaning the tax on imported goods is calculated as a percentage of the product’s value. For example, if Product X has a Cost of Goods Sold (COGS) of $100 and the tariff is 10%, the tax will be $10. It is not the selling price of Product X, which could be $150, which is a typical 50% margin.
The recent imposition of tariffs by the U.S. on imports from Canada, Mexico, and China is going to have an immediate impact on American manufacturing companies. These tariffs include a 25% levy on imports from Canada and Mexico and a 10% tariff on Chinese goods.
Who is Really Going to Pay for the Tariffs?
Typically, tariffs are paid by domestic importers and paid to U.S. Customs and Border Protection. However, many economists and business experts believe that portions of the cost of tariffs end up paid by consumers as manufacturers (sellers of products) may hike up the prices of the goods that they are importing for consumers.
By way of example, let’s take a look at one of our favorite industries, Produce. Mexico is a huge supplier of Avocados to the US. As it stands now, Mexican growers will be taxed so therefore they will raise their prices and pass it along to the customers. However, they may also choose to lower their prices (eating into their margin) to maintain market share and customer satisfaction.
Why Does the President Want This?
Trump said over and over again during the campaign that he planned to impose tariffs on imported goods to boost American manufacturing and put an end to what he called unfair trade practices where he and others believe Chinese, Mexican, and Canadian workers are paid a fraction of what their US counterparts are. Trump believes this creates an unfair market because the COGS of foreign products is significantly lower than US COGS. There is also a human element related to poverty and work conditions that are important to note but not the direct issue of this document.
Trump campaigned on bringing manufacturing “back” to the US and believes that the tariffs plus proposed tax breaks to US-based manufacturing will be an accelerator of the US economy driving growth for years to come.
Another issue important to Trump is the trade deficit. A trade deficit is the difference between the amount of goods coming into the US versus going out of the US being purchased by consumers in other countries such as Mexico, Canada, and China. As of November 2024, the US trade deficit was $78.2 billion. This was an increase of $4.6 billion from the previous month and a 20.75% increase from the same period in 2023. When more trade comes in than goes out, economists believe that these are lost opportunities for US workers and companies.
The final reason is the argument on illegal immigrants and illegal drugs. Trump believes that tariffs will send a message to Mexico and Canada to take action on the number of illegal immigrants coming into the US and the amount of illegal drugs such as fentanyl. The business acumen issues here are complex as illegal immigrants take US jobs and illegal drugs kill people and help drive more poverty and criminal activities, which have a longer-term impact on business and society.
If We Manufacturer in the US, Everything will be Fine…Right?
This is one of the bigger issues facing Advantexe’s US-based clients who manufacture in the United States. The problem is that we now live in a complex global supply chain where ingredients and parts that are used by US manufacturers are imported from foreign countries like China, Mexico, and Canada.
So, if you are a company manufacturing a product in the US, but 50% of the parts or ingredients are imported from China, Mexico, or Canada, the tariffs will still apply to your vendors.
This is our biggest worry for our clients. Ambiguity will cause delays, disruptions, and a reactive mindset which could send your business (and the US economy) into a tailspin.
Business Acumen Lessons
The following is a general overview of possible strategies for learning purposes only and is not being offered as explicit advice. Many of the ideas shared below will find their way into the Business Acumen and Business Leadership simulations we are delivering through the rest of 2025 and possibly beyond.
Our clients, big U.S. businesses facing tariffs, often have a range of options, and the best mix depends on factors like industry specifics, supply chain dependencies, cost structures, and longer‐term strategic goals.
Here are some broad approaches that companies should understand and might consider…
Strategic and Financial Planning
At Advantexe, we believe all business acumen starts with strategy and financial planning. Here are several ideas:
- Scenario Planning: Develop models that assess different tariff scenarios, including potential changes in trade policy. This helps in understanding both near-term impacts and long-term strategic implications.
- Business Acumen Workshops: We have already started developing business simulations that are building the business acumen skills of leaders in areas beyond traditional training to include scenarios related to factors related to the tariffs.
Market and Product Strategy
Understanding markets, trends, and complex situations the tariffs will bring should impact your product strategy and product portfolio. Here are a few ideas:
- Product Adjustments: Consider whether modifications in product design or materials can reduce reliance on tariff-hit inputs. We just released a portfolio of business simulation “wobblers” to help build skills in this area.
- Diversification of Markets: If tariffs lead to higher costs in certain product lines, businesses might look to diversify their product portfolio or target different market segments less affected by these costs.
Supply Chain and Sourcing Adjustments
Supply chain optimization skills have already been an increasingly important part of business acumen training. Here are some additional ideas:
- Supply Chain Diversification: Explore alternative suppliers or regions for raw materials and components to reduce dependency on sources affected by tariffs.
- Make it Here: Evaluate the feasibility of shifting some production or sourcing closer to home, which can help sidestep import tariffs and potentially shorten supply chains.
- Inventory Management: Assess whether adjusting inventory levels or lead times could mitigate cost increases caused by tariffs.
Pricing and Cost Strategies
At some point very soon, pricing, forecasting, and cost strategies are going to be critical. Here are some ideas:
- Cost Pass-Through: Determine if it’s viable to pass some or all the increased costs on to customers (B2C and B2B) without significantly impacting demand.
- Cost Absorption: In some cases, businesses may choose to absorb the extra costs to maintain market share, at least in the short term.
- Process Efficiency: Look for internal efficiency improvements or cost-cutting measures elsewhere to offset the additional expense.
Engagement and Advocacy
In most of the industries we serve, such as healthcare, engagement, and advocacy are critical components of the business acumen mindset. Here are some ideas (most of these will take some time, and there is little you can do overnight):
- Lobbying and Policy Engagement: Big businesses often have the capacity to engage with policymakers. You might coordinate industry-wide efforts to lobby for tariff exemptions, modifications, or a broader review of trade policy.
- Coalitions and Trade Associations: Joining or forming coalitions with other affected companies can amplify their voice in discussions with government officials and help influence policy decisions.
- Legal and Regulatory Review: In some cases, companies may consider reviewing whether tariffs are being applied in a manner consistent with trade agreements and, if appropriate, exploring legal challenges or seeking exemptions.
Other Key Business Acumen Considerations
As shared upfront, this is a very tricky and delicate situation where general rules and guidance don’t apply because every industry is different, as are the customers to whom they deliver value. Here are a few closing thoughts and considerations:
- Understand your Industry Specifics: Not every strategy works for every industry. For example, a manufacturer that depends heavily on imported raw materials might lean more toward diversifying its supply chain, whereas a service-oriented company might focus on cost absorption and efficiency.
- Long-Term vs. Short-Term: Some measures (like increasing your capacity in your US plants or major supply chain overhauls) take time to implement. In contrast, temporary pricing adjustments might be more immediate but come with their own risks.
In summary, the next few weeks and months are going to be very challenging. We have seen these challenges before, and inevitably, the best way to navigate through them is to be proactive, not reactive, understand all sides of the issues, continue to develop skills, and understand the short-term and long-term impacts of your decisions on the key metrics of success.