Professional accounting advice can be a bridge over troubled tariff waters

Businesses and their customers affected by the evolving tariff situation are like a cruise ship’s passengers trying to keep their balance on turbulent, troubled waters.

Opponents of tariffs set by President Donald Trump on countries that trade with the United States say they’ll lead to recession, hiring cutbacks and an economic slowdown, while the president and his trade advocates call it needed medicine to treat long-practiced trade policies unfair and costly to the U.S.

Business leaders have three options: do nothing, and wait; do something, and wait; or do a lot, and wait.

Complicating matters is that announced tariffs are on, then might be off, then might be raised, depending on which countries are the focus of presidential approval or disapproval. On April 9, the president announced that he was suspending for 90 days “reciprocal” tariff increases on 75 countries that didn’t invoke retaliatory tariffs and have reached out to the U.S.

While all Americans may not be fluent on the intricacies of international trade policy, they know when they’re making or losing money. With 61% of Americans owning stock, the stock market’s gyrations – particularly a combined drop of 3,910 points on April 3 and 4 – are sit-up-and-take-notice moments.

In March, in advance of the president’s April 2 announcement of tariff “Liberation Day,” the research and advisory firm Gartner released a survey of 192 chief financial officers from a range of businesses. The survey found that the average cost pass-through to customers would be 73%. In a move to potentially help hold market share and customer base, 41% said they expected their businesses to absorb 49% within their cost base, but it’s an open question how long they can maintain that position.

In this environment, businesses are not well advised to sit on their hands and wait to see what unfolds. Three of many steps that could, or should, be considered:

• Evaluate new sources of supply. When China was shut down during the COVID-19 pandemic, there was much discussion in the U.S. that too much of manufacturing and materials streams are based in China, and there should be a reevaluation of such dependence. Whether it’s China or another source, events surrounding the pandemic and tariffs should compel a search for new supply chain sources. If it results in greater supply consistency, even a price increase may be worth it in the long run.

• Is cash king? Warren Buffet, the investing “Oracle of Omaha,” raised Berkshire Hathaway’s cash reserves to more than $334 billion by the end of 2024; as a result, Berkshire Hathaway is in a stronger position to respond to the country’s economic direction. In an uncertain environment, a company’s cash position can give it leverage other companies may lack.

• Examine your contracts: On April 11, Harvard Business Review published an article, “How Contracts Can Help Firms Navigate the Uncertainty of Global Tariffs.” Among its suggestions: “Implement Price Adjustment & Cost-Sharing Mechanisms: Contracts can include price escalation clauses structured with tariff pass-through clauses, where if a tariff increase raises costs beyond an agreed threshold (e.g., 5% or more), the contract allows for renegotiation of pricing.”

A variety of tariff responses exists, depending on the type and size of business, its geography, customer and supplier base, and other factors. Consult with an accounting firm experienced in finance, operations and trade. You may find it’ll be a bridge over troubled waters.

This originally appeared in KnoxNews.