Preparing for 2025 Tariffs: What Every Business Needs to Know

Now that Trump has won the U.S. presidency, the election uncertainty has subsided, and businesses nationwide are setting their sights ahead to 2025.

Along with the Federal Reserve’s rate cut cycle, a major trend that has every company bracing for change is the proposed tariff plan touted during Trump’s campaign. Although the details are ambiguous, it’s said to include 20% tariffs across the board, with more substantial tariffs on certain materials and countries, like China and Mexico.

Tariffs – taxes imposed on imported goods – are often seen as a tool for governments to protect domestic industries and address trade imbalances. However, the ripple effects of such measures can reach far beyond just trade negotiations. Whether you are a manufacturer, supplier, or service provider, these proposed tariffs can affect your operations, costs, and even your business strategy.

Here’s what businesses need to know about the proposed tariffs for 2025 – and how they could impact operations moving forward.

What Are Tariffs, and How Do They Work?

Before diving into the specific proposals for 2025, it’s important to understand what tariffs are and how they work.

A tariff is essentially a tax imposed on goods imported from other countries. The goal is typically twofold: protecting domestic industries from foreign competition and generating revenue for the government.

When tariffs increase, the cost of imported goods rises. This raises the acquisition price of these goods and can cause the price of products for consumers to increase as well. For businesses that rely on importing 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 bottom line.

What Do We Know About the Proposed Tariffs?

Update (11.26.2024) – On November 25th, 2024, President-elect Trump doubled down on his stance on raising tariffs, confirming that he will raise tariffs on Chinese goods by an additional 10%. This increase will compound the various existing tariffs on Chinese goods that went into effect on September 27th, 2024.

The specifics of 2025’s tariff plan are still under discussion. Still, early reports suggest a 10-20% tariff on every product imported from all U.S. trading partners, with higher tariffs between 60% and 100% on Chinese goods.

The reasoning behind these tariffs is simple: By implementing tariffs on all imported goods, US manufacturers gain a leg up in the market. U.S.-made goods become more attractive in the domestic market because the price tag of the alternative is inflated by a tariff. Over time, this will incentivize companies to manufacture their products domestically, yielding long-term economic growth.

In the short term, though, the proposed tariffs could disrupt business operations. Those who don’t consider how they source the products, materials, and goods they rely on may have to handle higher costs, as well as supply chain disruptions.

How Tariffs Could Affect Your Business

The potential impact can vary depending on your company’s reliance on imported goods and your ability to adapt to changes in the marketplace.

1. Increased Costs

For many businesses, the most immediate effect of higher tariffs is the increased cost of goods. This is particularly impactful for manufacturers or any business that depends on raw materials or components from overseas.

For example, if you are a manufacturer of electronics and rely on semiconductors from Chinese companies, a tariff on these imports will raise your production costs. This could mean higher prices for the end consumer or lower profit margins for your business.

2. Supply Chain Disruptions

Tariffs can also create significant disruptions in supply chains. With an increase in the cost of imports, some suppliers may choose to delay shipments or even pass the cost of the tariff directly onto buyers. These supply chain interruptions could result in longer wait times for products, material shortages, and challenges in meeting customer demands.

If your business relies on quick deliveries to keep costs low and production moving, changes in U.S. tariff policy may require you to reassess your supply chain strategy. Before we turn the page to 2025, it’s important to consider securing alternative suppliers, adjusting ordering patterns, or rethinking your production schedules to avoid delays.

3. Consumer Behavior Changes

As businesses adjust to higher costs, the natural response may be to pass those costs on to consumers. This can result in higher prices on 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 could find that higher tariffs push prices beyond what their customer base is willing to pay. Similarly, businesses that produce consumer-facing products may experience pushback if the cost of living is rising and customers are becoming more price-sensitive.

4. Strategic Shifts in Sourcing

With tariffs raising the price of imported goods, some businesses might shift their sourcing strategies. Rather than sourcing from countries with higher tariffs, like China, businesses may choose to source materials domestically or from countries with lower tariffs. This shift could require a complete overhaul of supply chain management, including renegotiating contracts, finding new suppliers, or even relocating parts of the supply chain.

For manufacturers, this could involve reshoring or nearshoring some of their production processes – moving operations closer to home or to neighboring countries that offer more favorable trade terms. This could help mitigate the impact of tariffs, but it may also require businesses to invest in new facilities, workers, and technologies, which also comes at a cost.

Preparing Your Business for the Potential Impact of Tariffs

Despite the lack of transparency into the specifics of 2025 tariffs, there are steps businesses should take to ensure they’re prepared:

• Evaluate Your Supply Chain: Identify the goods and materials your business imports and determine whether any of these are likely to be impacted by tariffs. If so, begin researching alternative suppliers and make contingency plans for potential price increases or delays.
• Consider Diversifying Suppliers: If you rely heavily on imports from countries that may face higher tariffs, diversifying your supplier base could help mitigate some of the risks. Look for suppliers in regions that may be less affected by the proposed tariffs.
• Look Into Proactively Purchasing Goods Before 2025: Some companies are purchasing their 2025 inventory, materials, and other goods ahead of time to mitigate the impact of tariffs on their operations. If suppliers offer bulk order discounts, this strategy can also yield a lower cost of goods. National Business Capital can support these types of inventory orders, even when there’s a senior lender in place, through our subordinated debt.
• Adjust Pricing Models: Be proactive about pricing adjustments. If tariffs are passed onto your business, you may need to raise prices to maintain profit margins. However, be mindful of your customers’ price sensitivity and explore ways to minimize price increases without sacrificing quality or service.
• Stay Informed: As the political landscape evolves, keep a close watch on any announcements related to the tariffs. Government policy can shift rapidly, and understanding potential changes early can give you a strategic edge.

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 impacted by tariffs in the new year, it’s best to prepare your business ahead of time so you can mitigate any disruptions in your operations.

Cash flow may not support an order like this, but that’s where we come in. With a streamlined application process and expert guidance, you can ensure your business remains competitive and well-equipped to navigate the evolving landscape of global trade.

Expedited funding times enable your company’s quick ordering, and our subordinated debt solutions offer access to capital beyond existing senior credit facilities. Business moves fast, but we have the expertise and capability to keep your company moving forward, no matter the circumstances.

Complete our digital application to get started with a Business Finance Advisor.