Good morning. President Donald Trump announced 25% tariffs on steel and aluminum imports on Monday, and reciprocal tariffs also remain a possibility. That comes after Trump announced levies on Mexico and Canada last week. However, on Feb. 3, he put them on hold for 30 days, while allowing tariffs on China to take effect, later suspending taxes on its low-cost imports.
From small businesses to large corporations, leaders are left to navigate how tariffs would affect business. These discussions are happening at the C-suite level across sectors, Sameer Anand, EY-Parthenon Americas supply chain leader, said during an EY webinar on tariffs last week.
One thing that surprised Anand: “There are a number of companies that did not have a plan going into this,” he said. “Companies should be starting to come up with short-term and medium-term plans at least, and then have triggers to pull for the long-term perspective.”
But he’s also talked to companies that are more prepared after having evaluated several short-term solutions. For example, more firms are determining what they can do to reduce the dutiable value of goods, he said, and then analyzing commercial and supply chain aspects.
“It is very clear that a lot of companies are getting their draft communications ready to send messages about passing on the commercial pricing increases to customers,” Anand said.
This is all part of taking a longer view on cost increases, which entails well-prepared companies asking: “How can I share in some of this pain with my strategic partners?” he said. To stem passing on the entire cost increase to the consumer base, these companies seek to come into some agreement with suppliers to absorb some of the cost, he said.
Some finance chiefs have communicated potential price increases. For example, Anthony DiSilvestro, CFO at Mattel, Inc. said on the company’s Q4 earnings call on February 4 that his teams have been planning for a range of scenarios to mitigate the impact of tariffs. “We don't want to necessarily disclose our playbook,” he said. But actions include leveraging the strength of its global supply chain. “And they also include potential price increases,” DiSilvestro said.
Another finding from Anand's conversation with C-suite leaders: Some companies are looking across supply chains for opportunities to increase production capacity in the U.S. And it's a comprehensive evaluation, going beyond just the immediate supplier, he said. They're trying to understand “what are the inputs that go in ingredient A, and where are they coming from?” he explained. For example, they have to think about whether the input for a product came from China.
Mature and progressive companies are also thinking about the levers available to deal with tariffs and political volatility that’s simultaneously occurring, Anand said. There’s also a lot of long-term considerations that are ongoing, like advancing automation and AI strategies, he said.
Navigating the trade war will certainly become a top priority.
Sheryl Estrada
sheryl.estrada@fortune.com
