Managing through geopolitical uncertainty

The US decision to impose tariffs on virtually all imported goods has created significant economic and business uncertainty, which is expected to increase when other countries take retaliatory measures. This shock to global trade raises the prospect of a wide range of possible business consequences. During this period, planning, flexibility and professional guidance are essential for business.

Possible business consequences

• Reduced sales for products exported to the US due to higher costs
• Reduced sales of US-made products you might sell due to consumer boycotts and retaliatory measures
• Reduced sales due to an increase in cheaper alternative products as businesses increase sales to non-US markets
• Increased sales for products exported to the US if they come from a lower tariff jurisdiction
• Increased sales outside of the US for alternatives to US products
• Supply chain disruption as businesses move production to lower tariff markets or make other changes to reduce costs

CPA Australia recommends that affected business prioritise strategies to maintain their profit margins by passing on tariff costs to US customers and/or improving business efficiency. Impacted businesses should also focus on growing existing non-US markets and expanding into new markets. Additionally, impacted businesses should regularly assess their financial health and strengthen their cash reserves. 

Key strategies for businesses impacted by US tariffs:

1. Assess your exposure

• Calculate the percentage of your sales made to the US and the percentage of your sales that come from US-made products. 
• Model “what if” scenarios to understand potential business impacts, such as a 10, 20 or 30 per cent decline in sales due to US tariffs, or an increase in local competition if cheaper imports enter the market. 
• If you sell products that are alternatives to US products, model the impact a 10, 20 or 30 per cent increase in sales may have on your business. 

2. Conduct a financial health check

• Work with your accountants and finance teams to analyse your financial health using financial ratios.
• Monitor other indicators of financial health such as daily sales, pre-orders or stock turnover.
• Compare current and historical financial data to identify patterns
• Couple your financial health check with the ‘what if’ scenarios to determine future exposure 

3. Maintain your profit margins by passing on tariff costs and/or reducing your costs and improving efficiencies

Pricing

• Promptly increase pricing to reflect tariff costs on US customers and communicate these changes to customers in advance
• Research competitor responses but make your own decisions on pricing
• Gather customer feedback on your price increases through sales data, reviews and direct engagement

Business efficiencies

• In the short term:
  • cut discretionary spending while maintaining necessary investments
  • engage employees in cost-saving initiatives and set cost reduction targets
  • seek alternative suppliers to lower costs but be aware of potential changes to quality and supply times.
• In the medium term, make investments that improve business efficiency such as investing in artificial intelligence and automation

4. Diversity your markets and suppliers

• Focus on growing existing non-US markets and explore new markets 
• Avoid discounting in existing markets unless it increases gross profit through increased volumes
• Explore alternative suppliers from regions with lower US tariffs
• Consider sourcing from US suppliers to mitigate further risks

5. Adjust your product

• Reduce product size or adjust features while maintaining price and communicate such changes to customers
• Research customer preferences in new markets and adjust your products if required
• Offer value-added options to help justify prices increases 

6. Strengthen cash flow

• Improving your cash position can give you time to consider how best to respond to higher tariffs 
• Collect money owed to you quickly, and favour early payment
• Reduce inventory, especially slow-moving items, through discounts or bundling 

7. Market your unique selling proposition

• Emphasise what differentiates your business and products from competitors
• Promote higher margin items or cheaper items
• Target less price-sensitive US customers
• Track the effectiveness of each marketing campaign

8. Seek professional advice

• Consult accountants, lawyers and marketing specialists to understand the impacts on your business and develop clear strategies in response

9. Look for opportunities

• Tariffs and geopolitical uncertainty may create unexpected opportunities, such as increased demand for non-US products in other markets 
• Adjust business plans and budgets to capitalise on these opportunities.

Additional considerations:

• Expand your customer and supplier base to reduce reliance on specific countries
• Review contracts to ensure you can pass on the cost of tariffs
• Stay informed about tariff policy changes
• Maintain adequate inventories as a cushion against supply chain interruptions
• Be vigilant against frauds and scams targeting businesses impacted by tariffs
• Partner with local businesses in new markets to mitigate risks

 

Small businesses can minimise risks and seize opportunities through planning, pricing, operational efficiency, and market diversification. Resilience and adaptability are key to thriving in uncertain times.