President Trump’s Tariff Gambit – A New Chapter in Global Trade Tension

On the campaign trail, U.S. President Donald Trump reiterated his commitment to using tariffs as a tool to address trade imbalances and counter what he perceives as exploitation of the United States by other countries. Since being sworn in, Trump has furthered this commitment by prioritizing protectionist measures over multilateral trade agreements. Trump’s first term was characterized by aggressive withdrawal from multilateral trade agreements (including the withdrawal from the Trans-Pacific Partnership (TPP) and renegotiation of United States-Mexico-Canada Agreement (USMCA)) and competitive tariff initiatives including Section 301 tariffs on China and Section 232 tariffs on steel and aluminum.

Earlier this month, Trump initiated his strategy by announcing proposed tariffs on imports from Canada, Mexico and China, set to take effect on February 4, 2025. Following discussions with Canadian and Mexican leaders on national security priorities, it was announced that the proposed tariffs on imports from these countries would be put on hold. However, a 10 percent tariff on imports from China, which is in addition to the existing tariffs, will proceed as planned.[1]

Tariffs – What Is at Stake

Tariffs may be imposed on all or a subset of imported goods, but their effects are rarely unilateral. For instance, in response to U.S. tariffs on Chinese imports, China has proposed retaliatory tariffs on U.S. goods and restrictions on the export of certain critical products to the U.S.[2]

If enacted, tariffs would increase import costs, forcing businesses to absorb higher expenses or pass them on to consumers through price hikes. This dynamic can reduce profit margins, dampen consumer spending and contribute to inflationary pressures, ultimately eroding household purchasing power. In the U.S., such inflationary effects could influence Federal Reserve decisions regarding interest rates, potentially creating ripple effects across global financial markets.

Adding to the complexity, the duration and scope of tariffs remain highly uncertain. The suspension of Mexican and Canadian tariffs illustrates how tariffs function as strategic tools rather than purely economic measures.[3] This fluidity underscores the broader geopolitical role of trade policy, where tariffs are leveraged to achieve diplomatic and security objectives. With semiconductors, critical minerals and supply chain stability ranking high among U.S. national security concerns, tariffs are poised to remain central instruments of coercion and negotiation in global trade relations.

How Business Can Prepare

Traditionally, tax and finance functions respond to operational or supply chain queries from the business. However, they should now take a proactive role, advising management on the impacts of tariffs, potential changes to transfer pricing models, and tax incentive planning to address these challenges effectively.

Below are some key strategies that companies may employ to mitigate the effects of potential tariffs:

• Frontloading Imports: Many businesses have already been accelerating their import schedules to bring in goods before the tariffs take effect. This strategy, known as frontloading, helps companies avoid the additional costs associated with the tariffs. However, it also requires additional storage space, which can increase warehouse costs and may be challenging to implement given the effective date.
• Supply Chain Adjustments: Companies can also explore alternative supply chains to source products from countries not affected by the tariffs. This can involve identifying new suppliers, negotiating new contracts and ensuring compliance with different tax and customs regulatory standards.
• Cost Management: Businesses can look at ways to manage the increased costs, such as adjusting pricing strategies to lower customs values or negotiating with U.S. importers to share the incremental costs. This approach helps to distribute the financial burden more evenly.
• Proactive Planning: Companies are advised to be proactive in their planning by anticipating the potential impacts of the tariffs and developing contingency plans. This includes engaging with legal and financial advisors to understand the full implications and exploring options for tax incentive planning.
• Consumer Communications: The increased costs from tariffs are likely to be passed on to consumers. Businesses need to communicate transparently with their customers about potential price increases and the reasons behind them.

By implementing these strategies, businesses can better navigate the challenges posed by new tariffs and minimize their impact on operations and profitability.

How Alvarez & Marsal Can Help

Alvarez & Marsal’s team of supply chain and operating model tax specialists has experience in assisting clients globally across various industries on indirect tax, global trade, transfer pricing and corporate income tax implications. Additional information is available here >>

[1] The White House, “Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China,” February 1, 2025, https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-synthetic-opioid-supply-chain-in-the-peoples-republic-of-china/

[2] Thompson Hine, “China Announced Retaliatory Tariffs and Other Trade Actions Against the U.S.,” SmarTrade, February 5, 2025, https://www.thompsonhinesmartrade.com/2025/02/china-announces-retaliatory-tariffs-and-other-trade-actions-against-the-u-s/?utm_source=chatgpt.com

[3] David Alire Garcia et al., “Trump pauses tariffs on Mexico and Canada, but not China,” Reuters, February 3, 2025, https://www.reuters.com/world/us/trump-says-americans-may-feel-pain-trade-war-with-mexico-canada-china-2025-02-03/?utm_source=chatgpt.com