How Are Businesses Responding to Increased Tariffs?

In 2024, the U.S. collected $77 billion in tariffs, amounting to about 1.57% of total federal revenue. Since then, recent moves by the White House added a 10% baseline duty to nearly all imports as well as additional levies on automotives, steel, aluminum, and imports from China. These changes are expected to increase federal income by $156.4 billion in 2025.

By design, tariffs add an additional cost to imports in an effort to protect domestic manufacturing. However, many businesses rely on imported materials and parts to create their end product or service. For this reason, heightened tariffs may have a positive impact on the federal budget, but their effect on business could be far more destructive. So, how are companies responding to the higher costs?

Some Companies Are Passing Tariff Costs to Consumers

According to research by the New York Fed, 75% of businesses in both the manufacturing and service sectors are passing along at least some of their elevated costs to their customers through higher prices. Further, almost a third of manufacturers and about 45% of service firms reported fully passing along all tariff-related cost increases, while 45% of manufacturers and a third of service firms said they passed along some but not all cost increases.

The manufacturers who were surveyed estimated their average tariff rate to be 35%, marking a significant increase from the 10% reported just six months ago. Similarly, service firms estimated an average tariff rate of 26% – up from 9% six months ago.

The concept of supply and demand dictates that higher prices could lead to lower sales for companies that pass their costs on to customers. This dynamic has led some businesses to explore other options for contending with higher input costs related to tariffs.

Some Prominent Companies Are Planning to Absorb Price Hikes

On the other end of the spectrum, New York Fed research shows roughly a quarter of both manufacturers and service firms said they absorbed all tariff-related cost increases. In other words, they won’t be raising prices to compensate for higher input costs.

Retail giant Walmart is the most prominent example of a company that plans to absorb the impact of the tariffs. Forbes reported that the world’s largest retailer aims to “emerge as the customer’s hero” by keeping prices stable despite tariffs. This strategy could make Walmart more competitive compared to its peers.

While Walmart may have the ability to absorb higher input costs without impacting consumers, other big brands don’t have the same opportunity. Instead, they are considering shifts in what they buy and who they buy it from to mitigate the impact of tariffs.

Diversifying Supply Chains Could Help Companies Minimize Tariff Impact

Between the extremes of passing all additional costs to consumers and absorbing the full brunt of the tariffs, there is another set of companies taking a different approach to cost management. These firms plan to modify their supply chains to avoid the tariff price hikes – thereby preserving their profits and competitive price point.

For example, Kimberly-Clark, the maker of personal care products like Kleenex, Huggies, and Scott, is among the companies seeking new suppliers. CEO Mike Hsu told shareholders that the company’s prices and long-term investment strategies will remain stable because the company will “mitigate most of the cost by switching sourcing.” This strategy could prove beneficial since some of their competitors are already sourcing inputs locally, making them less susceptible to tariff-related hikes.

While diversifying supply chains or even onshoring inputs can help reduce the impact of tariffs, this strategy can be difficult to implement. Many companies have decades-long relationships with their suppliers and may have very limited options for raw inputs. These companies are often left with few options to respond to higher input costs without raising prices significantly.

Companies Are Challenging Tariffs in Court

Some companies are turning to lawyers, not accountants, to solve the tariff dilemma. They argue that tariff policy should have been approved by Congress rather than implemented using the International Emergency Economic Powers Act [IEEPA].

One such lawsuit was filed by Liberty Justice Center on behalf of five businesses who claim to have been harmed by tariffs. The plaintiffs in this case are VOS Selections Inc., FishUSA, Genova Pipe, MicroKits LLC, and Terry Precision Cycling.

Dan Pastore, President and co-founder of FishUSA, explained the rationale behind the lawsuit. He stated, “it takes years working with factories to design and build our products, and we cannot just shift that business to the U.S. without starting the whole process over again.”

The Court of International Trade ruled in favor of the businesses in this lawsuit, but the case is now being reexamined in a federal appeals court. In the meantime, the tariffs have been allowed to continue.

Businesses Are Increasing Reserve Cash to Combat Trade Uncertainty

Whenever there is economic uncertainty, businesses need cash reserves to weather the possible changes. For this reason, many companies are increasing their cash reserves to help offset potential disruptions from tariffs and allow them more flexibility in their response.

Most importantly, their cash must remain safe – which is why many companies choose to invest with FDIC insured banks or NCUA insured credit unions. However, the FDIC / NCUA limit of $250,000 makes it difficult to secure adequate protection for large sums of money.

Fortunately, modern cash solutions offer an answer to both the problem of securing full government protection and the issue of capturing competitive rates of return. These solutions allow companies to access full protection for their cash while earning nationally competitive interest rates.

Fortify Your Cash Position with Deposit Management to Dampen the Impact of Tariffs

At American Deposit Management, we offer modern cash solutions that help businesses keep their cash safe and working as they adapt to tariffs. Our patent-pending technology provides access to full FDIC / NCUA insurance so that all a company’s cash can remain protected as they navigate changes to their business.

Along with unparalleled safety, we offer access to nationally competitive interest rates from our network of over 400 banks and credit unions across the country. Our solutions also feature liquidity to meet various needs and a simple online platform for managing cash. We provide all this with one account and a single, consolidated monthly statement.

Contact us to learn more and get started.