Tariffs trauma: business risks amid global trade wars

August 2025  |  COVER STORY | RISK MANAGEMENT

Financier Worldwide Magazine

August 2025 Issue

Global trade is currently in a state of uncertainty. Tariffs imposed by the Trump administration over the past six months – the largest increase in tariffs since the Smoot-Hawley tariffs in the 1930s – have significantly impacted the trading landscape, leading to increased costs, supply chain disruptions and heightened economic uncertainty.

Such has been their impact, in its latest ‘World Economic Outlook’, the International Monetary Fund (IMF) warns that the US tariffs could strain the global financial system and potentially cause a major negative shock, with the projected forecast for global growth predicted to be 2.8 percent (down from 3.3 percent in its January forecast).

Complementary analysis by Fitch Ratings’ in its recent ‘Global Economic Outlook’ reveals that while US annual growth in 2025 is expected to remain positive at 1.2 percent, it will slow throughout the year to 0.4 percent year over year in the fourth quarter of 2025.

Also forecast is for China’s growth to fall below 4 percent this year and next, while eurozone growth will remain stuck at well below 1 percent. Moreover, world growth is projected to fall below 2 percent in 2025, which would be the weakest since 2009 excluding the pandemic.

“Should the US tariffs remain largely in place, they will signal the end of the rules based global trade system that has been in place since the end of the Second World War,” notes Stephen Olson, visiting senior fellow, ISEAS at the Yusof Ishak Institute. “We will have transitioned from an era of steadily declining tariffs and non-tariff barriers, with trade relations governed by mutually agreed trade rules, to a much more mercantilist, law of the jungle situation in which might makes right in trade relationships.”

In the view of Kian Sarreshteh, chief executive of InvestiFi, the abrupt nature of the tariffs regime is causing businesses to be reactionary and make significant changes to their operations. “As a result, most are playing the wait and see game, which has stalled the global economy,” he says.

Trump’s tariffs

The tariffs imposed by President Trump stem from the ‘America First Trade Policy’ issued on 20 January 2025, which instructed the secretary of commerce, in consultation with the secretary of the treasury and the US trade representative, to investigate the causes of annual trade deficits and recommend measures to address them.

“President Trump spent much of his time on the campaign trail promising to impose tariffs and his second administration has done just that,” says Naomi Grossman, learning and content manager at VinciWorks. “Sweeping tariffs have been launched, starting with a universal levy on imports and escalating to punitive rates on certain countries.”

“Their stated aim was to reduce trade deficits and boost domestic manufacturing,” she continues. “The move triggered retaliation from some countries, disrupted global trade by increasing costs, undermined supply chains and, perhaps most significantly, rattled markets. Many see the tariffs as a turn toward protectionism, and they also strained international trade relations.”

Constituting a series of twists and turns, the chronology below provides but a flavour of the range of tariff announcements made by the Trump administration over the past six months. These declarations have, on innumerable occasions, been equally reciprocated and even exceeded.

In February, President Trump signed an executive order increasing tariffs on imported goods from China by 10 percent. Tariffs of 25 percent were imposed on Canada and Mexico for similar reasons. Canada responded with $30bn in retaliatory tariffs on US goods, effective simultaneously with US tariffs. Tariffs were then suspended for 30 days after agreements on border security with Canada and Mexico.

In March, President Trump raised tariffs on Chinese goods to 20 percent, while imposing a 25 percent tariff on all aluminium, steel and derivative goods imports. Canada retaliated with $29.8bn in counter-tariffs. The president then threatened to raise steel and aluminium tariffs to 50 percent.

In April, President Trump unveiled his ‘Liberation Day’ universal tariffs, which included an additional 34 percent tariff on Chinese goods on top of the existing 20 percent tariff rate, bringing the total tariff on Chinese goods to 54 percent. The US also announced that a flat 10 percent tariff rate will be applied to all UK goods entering the US from 5 April. At the time of the announcement (i.e., before the 90-day pause of additional tariffs was announced) this was the most favourable tariff rate levied on any G7 economy in the world.

In May, the US and the UK announced a trade framework that included reducing import taxes on 100,000 British cars and implemented a tariff-free quota on 13,000 metric tonnes of beef (the baseline 10 percent tariff on all other goods remained).

In June, two days of intense talks between the US and China took place in London to resolve conflicts that had emerged since the two sides agreed a truce in May. During the talks, President Trump also announced that he would set unilateral tariff rates specifying the terms of the new deals ahead of a 9 July deadline to reimpose higher tariffs on countries around the world.

Tariff risks

The volatility and continuing uncertainty surrounding US tariffs is making business operations challenging for business leaders. This landscape also leaves businesses questioning the benefits of expanding into the US market.

Amid myriad challenges, the following are perhaps the most pressing issues businesses are required to contend with as they seek to adapt to tariff impacts and remain profitable and competitive.

One major concern is the rise in costs. Tariffs increase the price of imported goods, which can compress profit margins or compel businesses to pass those costs on to consumers. This, in turn, can reduce the competitiveness of products in global markets, especially if other nations respond with tariffs of their own.

Another significant issue is the disruption of supply chains. Tariffs can make imported components or raw materials more expensive, prompting companies to seek alternative suppliers or modify their production processes. These adjustments can result in shipment delays, shortages, and higher inventory and logistics expenses.

Retaliatory measures from other countries also pose a serious threat. When foreign governments impose their own tariffs in response, it becomes more costly to export goods to those markets. This is particularly harmful for businesses that depend heavily on international trade.

Finally, these combined pressures can lead to financial instability. The increased costs and potential supply chain complications may erode profit margins, increase debt burdens, and in severe cases, push businesses toward bankruptcy.

“Businesses are facing the nearly impossible task of managing sourcing, production, supply chains and export strategies without knowing what the US tariff situation will be,” adds Mr Olson. “Although the US remains a large and important consumer market, many businesses will decide that the uncertainty, along with whatever higher tariffs remain in place, are simply not worth the risk.”

For Mr Sarreshteh, as a tech chief executive operating in the US, a major concern is that if tensions escalate with China, following the tariffs pause, the US will struggle to continue to make progress in key technical areas such as AI without its own ability to process rare earth at scale.

“While the manner in which the tariffs were introduced has introduced volatility that has hurt companies and the economy in the near term, the long-term implications will hopefully have a positive impact on the US’s ability to produce more key components of the supply chain domestically,” he suggests.

The smaller, the greater

While the challenges posed by the US tariffs are testing even the hardiest of global businesses, for smaller enterprises, their impact is particularly impactful – disrupting operations, and, in some cases, threatening their very existence.

“US tariffs present real challenges for smaller businesses that often lack the size and capital to absorb rising import costs or nimbly adjust supply chains,” says Ms Grossman. “And with their limited bargaining power with suppliers and narrower margins, smaller enterprises are also more vulnerable to price volatility and reduced competitiveness.

“To mitigate these impacts, these organisations can explore alternative sourcing options, renegotiate supplier contracts where possible or pass some of the costs to customers,” she continues. “Other good options are forming buying cooperatives and utilising digital tools for trade forecasting. This is the time for smaller businesses to engage with trade associations and policymakers to stay informed and advocate for support.”

An additional issue, notes Alex Durante, a senior economist at the Tax Foundation, is that smaller businesses are less likely to be able to argue for exemptions. “Unlike larger corporations, smaller entities cannot get within earshot of the American president and argue for exemptions,” he contends. “The end result is that there is more crony capitalism, because smaller businesses do not have that kind of access to the White House. And because large businesses are better capitalised, it is easier for them to adjust to tariffs than smaller businesses.”

Tariff strategies

Although the tariffs introduced by the US administration pose a serious threat to global trade, businesses are not without recourse. By taking proactive measures, they can reduce the negative impact of these trade barriers. Central to this approach are strategies focused on risk mitigation, ensuring regulatory compliance, and reinforcing both supply chain resilience and long-term competitive advantage.

“In a volatile trade environment, businesses, especially those in export-heavy sectors, should diversify their supply chains, invest in trade intelligence tools to make better-informed trade decisions and consider transferring operations to reduce exposure to geopolitical risk,” says Ms Grossman. “Risk managers play a critical role in identifying vulnerabilities, focusing on proactive responses and guiding strategic decisions.”

According to KPMG, the evolving US tariff landscape demands that businesses adopt the proactive and strategic measures outlined below to help mitigate the impacts of a new trading environment while preparing their organisation for change.

The first step involves staying informed. Keeping up with changes and announcements related to US trade policy remains essential, as the situation is expected to remain fluid with ongoing developments and reciprocal actions from other countries. Businesses may begin evaluating how these changes could affect their supply chains. In this context, trade data serves as a valuable resource for understanding the potential impact of tariffs on specific products and materials.

Next is the review and adaptation of supply chains. Evaluating the vulnerability of existing supply chains to tariff increases can provide early insights. An initial impact analysis, along with modelling the effects of tariffs on costs and demand drivers, can help inform strategic decisions. It may also be worthwhile to explore diversification opportunities by sourcing from countries with more favourable tariff arrangements.

Improving supply chain visibility represents another important consideration. Applying a comprehensive view across the entire supply chain, including upstream suppliers and manufacturers that may also be affected, can help identify potential points of disruption.

Contract renegotiation is another area where businesses may find opportunities to manage risk. Reviewing existing supplier agreements and incorporating clauses that address tariff fluctuations – such as force majeure provisions – can offer flexibility. Adjustments to terms of sale might also allow for the transfer of tariff responsibilities to suppliers.

Tariff mitigation strategies can also be explored. By analysing product classifications and considering modifications, businesses may become eligible for lower tariff rates. Leveraging existing free trade agreements could further reduce or eliminate tariff obligations.

Finally, optimising customs valuation and ensuring compliance can contribute to cost savings and regulatory alignment. Reviewing valuation methods to ensure accurate declarations and the exclusion of non-dutiable costs, along with implementing a duty reconciliation programme, may uncover overpayments and refund opportunities. Engaging trade compliance experts can help navigate complex regulations and ensure proper documentation.

“These insights can help businesses adapt to shifting tariffs, regulatory changes and logistical disruptions,” continues Ms Grossman. “Integrating risk management into executive decision making is more critical than ever to maintain competitiveness and continuity in an increasingly complicated global trade landscape. Businesses that do not do this are at heightened risk of disruption.”

Decline and redirection

A crucial but often overlooked aspect of tariffs is the negative consequences they have for business innovation and long-term competitiveness – consequences that, once again, are particularly significant for smaller businesses.

“Companies divert resources to manage tariff-related costs and compliance, making it inevitable that investment in research, development and technology declines,” asserts Ms Grossman. “This is especially true for small and medium-sized firms. This redirection of funds can also lead to reduced productivity gains and possibly even dull the US’s edge in high-value sectors.

“Tariffs can also strain international partnerships and minimise access to cutting-edge components or materials sourced globally,” she continues. “Over time, this could impact the adaptability and global integration critical for businesses navigating rapidly evolving industries such as cleantech, AI and advanced manufacturing.”

Tariff trajectories

While the de-escalation in US-China trade tensions offers some respite, the truce fails to address fundamental issues. The trajectory of US tariffs in other jurisdictions also remains volatile – with businesses scrambling to make the most of the 90-day pause – making their future impact uncertain.

“In the short term, US tariffs will likely continue to strain business costs and supply chains, particularly for manufacturers and import-dependent sectors,” contends Ms Grossman. “In the medium term, persistent trade barriers could lead to some reshoring and increased supply chain diversification, likely with higher operational costs.

“In the long term, if tariffs become entrenched, they could structurally alter global trade flows and reduce US competitiveness,” she concludes. “As for a global recession, this depends on several scenarios, such as the intensity of retaliatory measures, consumer demand and energy prices. While not inevitable, sustained trade friction combined with the current geopolitical instability does raise that possibility.”

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Fraser Tennant