Trading places: How CFOs are responding to tariffs

The 2020s have been a buffet of uncertainty for business. From a pandemic and global supply chain calamities to record-setting inflation, CFOs have had their work cut out. But this year, the US tariff policy has reset global trade dynamics and turned the temperature up to boiling point, especially for manufacturing businesses. And with no set playbook, CFOs are having to build the plane as they fly:

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Read time: 7 minutes 8 seconds
⧗ Written by Katishi Maake and Secret CFO

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On April 5, the Trump Administration on April 5 issued a 10% baseline tariff on imports for nearly all countries, alongside country-centric “reciprocal tariffs.” Chaos followed. The latter were initially paused for 90 days with the exception of China.

We’re not here to litigate whether tariffs are net-positive or net-negative. We’ll leave that to the political commentators. We’re here to dig into the broader implications for businesses and how CFOs have responded to the rejiggering of free trade.

Frankly, no one really knows the long-tail effects of tariffs. It’s too early to tell. The policy itself is still in motion: delays in application, shifting definitions, rolling exclusions, legal challenges, and retaliatory responses. Then comes the lag effect — supply chains working through existing inventory, which can take months in most industries. And finally, the corporate response: how businesses adjust pricing, sourcing, and investment once the pain starts to show up in their P&Ls.

In other words, the full impact is still loading. We’re only just starting to see the early signals surface.

But here’s a bit of what we understand so far. 

The big picture gives a glimpse into what businesses and their CFOs should be paying attention to. In the trenches, however, the trade war is far more nuanced, a push and pull, seeing CFOs adjust their responses throughout strategy, FP&A, pricing policy, and investment decisions.

No industry has been impacted more since “Liberation Day” than the automotive industry. And it’s not just the big name-brand car manufacturers.

Frank George is CFO at Summit Polymers, a large Tier 1 automotive supplier based in Ohio. He shared just how bad things got for the industry: overseas suppliers (designated as the importer of record) refused to ship products until they were reassured of full reimbursement for tariff effects.

Summit Polymers manufactures in the US and imports components from China, Japan, and Vietnam to sells to US-based companies, including Ford and GM.

To combat the tariffs, some suppliers that manufacture abroad now ship directly to plants in Mexico to avoid import levies. George said it’s natural for Tier 1 suppliers to pursue tariff recovery costs from customers. But it’s not as simple as just passing the cost down the supply chain – the automotive industry is too competitive for that. Manufacturers have had to work with customers to find ways to engineer cost out. For example, using a paint sourced in the United States that mimics chrome as an alternative to importing chrome from overseas.

Administering the tariffs themselves can also be a challenge. It’s critical to make sure all imports are correctly classified to avoid charges on high-tariffed products and materials. Misclassification is more common than you’d think, George said. And the price is high. Misclassified commodities can lead to quantifying the wrong level of tariff. Especially if a part is assigned an incorrect code that carries a much higher tariff, such as aluminum. So quality master data at a component level is more important than ever.

“Even if [a Tier 1 supplier] gets recovery from the customer, it’s not every month–it’s every quarter, it’s every six months,” George said. “It’s a cash issue.”

Tariffs haven’t changed the structure of George’s team. But it has shifted the focus. He has a quoting team responsible for calculating the costs of tariffs for new business, enabling the sales team to have transparency with customers.

Tariffs are now included as a separate line item on quotations and invoices from the company’s base pricing. That transparency has been critical to getting customer agreements on new pricing quickly.

Internal visibility has been crucial too. George’s teams are spinning up new reporting tools to track the impacts of tariffs on the cost and recovery side.

All that being said, tariffs aren't all gloom and doom.

“For us, [tariffs] provide some opportunity because some of our competitors were already in financial distress going into the tariffs,” George said. “To the extent that they struggle and have growing concerns, that could provide opportunity for us in quoting additional work. I don’t think tariffs threaten our existence but could for others.”

Most of the initial commentary on tariffs presumed they were a universal cataclysm, cratering the bottom line of all businesses in their path. The reality is much more complex.

There are winners and losers.

Ingenia, a UK-based manufacturer of ID cards, is benefitting from tariffs, thanks to the import taxes placed on China, group finance director Howard Thompson told us.

The company's US sales are up 800% YoY based on August’s revenue run rate and accounts for 20% of its business this year, compared to 5%-6% a year ago, Thompson said.

How?

“We had US customers coming to us saying, ‘Look, we used to go to China for our products, but actually, now you're the last hope. Because you're based in the UK and you're a lot more competitive,’” Thompson said.

Ingenia readily passed on the 10% tariff cost onto its customers, since its Chinese competitors faced a 200% burden.

Thompson explained that now their finance team is taking the extra step of making sure any tariff invoice is charged back to the customer.

For other industries, the tariffs are more of a nuisance than a fundamental threat.

Andrew O’Dell, Vice President Finance at Nelson Lumber Canada, explained that US import duties on Canadian softwood and anti-dumping measures have been in place for years and the industry is used to handling tariffs. Meaning, the company already has mechanisms in place to incorporate duties and tariffs into their cost calculations.

While the mechanisms of tariffs weren't new for O'Dell, the size of the shift and surprise nature were. He had to ensure his FP&A team had pricing methodologies ready to be competitive independent of any macro shocks.

At the end of September, the United States announced a 10 per cent duty on import of softwood timber and lumber, which is set to take effect Oct. 14.

O’Dell’s concerns are related to curtailments that force mills to slow down or stop production entirely, which will lead to temporary price increases. Although, those price hikes and deceleration in activity don’t affect long-term operations.

Nelson’s finance and accounting teams can model tariffs without overhauling business decisions, O’Dell said. The 10% tariff on US product “was not fundamental in changing the business… it’s more inflationary than transformative,” he said.

Tariffs simultaneously make it simple and difficult to plan for the future.

On one hand, the current administration is hard to pin down, so it’s not worth changing course on financial and/or investment planning, Thompson said. “There’s no point.”

On the other hand, CFOs and their finance teams don’t want to be caught flat-footed.

CFO David Herr and his company, American Fence Company, have eaten some of the tariff effects so far. For now, they’re assuming a maximum tariff impact and full turnover of inventory at a higher cost. They’re still deciding whether to break tariffs out as their own cost line or fold them into the broader pricing process, Herr said.

“It’s made the office of the CFO - the rock in turbulent water - even more important than it was before,” he said. “There needs to be someone in the business who is grounded in the numbers [and] grounded in the truth that’s coming in from all your vendors.”

Summit Polymers provides parts to GM plants in Mexico and the United States, but is starting to see production shift from the former into the latter, George said. This means Tier 1 suppliers are likely to follow suit.

The company is also weighing where to buy its equipment from to further mitigate costs. Although, there are still too many moving parts to land on robust decisions.

“The challenge here is that you don’t know how permanent the tariffs are,” George said. “Trying to line up long-term investments with short-term policies can be a difficult thing to stomach.”

American Fence’s approach is to evaluate pricing and structure on a quarterly basis rather than setting fixed, annual plans, Herr said. This allows them to recalibrate based on inventory turnover and shifts in vendor pricing.

Similarly to Ingenia, American Fence‘s growth investments, which includes expansion to new states, remains unchanged. Why? Private equity.

The industry, according to Herr, is facing extreme competitive pressure from private equity rollups. American Fence looks to maintain its position as a leading, family-owned operator while private equity consolidates the market and ramps up competition.

Given the company’s smaller size, Herr said they’ve taken a more conservative approach to FP&A. That approach centers around three main points: prepare for worst-case input costs, layer in losses on the margins, and avoid overreacting to short-term turbulence.

“Normally, you can ground yourself in a spreadsheet and say, ‘This is what the math says.’ Nationally, it’s hard to trust what’s going on when there’s volatility under the hood,” said Herr, adding that as CFO, he’s had to build, strengthen, and maintain stronger relationships with vendors as a result.

“It’s a lot more phone time.”

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