Article

Trade and trade-offs: Exploring possibilities for businesses

Beyond the financial and operational impacts of tariffs, businesses may face trade-offs that require careful consideration of both short- and long-term effects. Trade-offs could impact sustainability initiatives, product quality, supplier concentration, and overall operational strategies.

The 90-day tariffs pause announced on April 9 could create further uncertainty for businesses regarding the implementation, exclusions, and permanence of tariffs and reciprocal tariffs. However, businesses may use this time to consider what proactive measures they can take to address the associated risks to seek to avoid significant operational disruptions and financial impacts.

In doing so, businesses may encounter trade-offs that require careful consideration. These trade-offs could affect sustainability initiatives, product quality, skills availability, supplier concentration risks, and overall sourcing strategies.

While these risks may not be immediately obvious and could take many years to materialise (for instance, investing in a new manufacturing hub), the 90-day reprieve has given companies time to establish or further develop their action plan. Using data-driven and informed insights, businesses can better prepare for what may come and avoid knee-jerk reactions to tariff announcements and swings that may prove to be ineffective and potentially damaging in the long run.

Potential trade-offs

1. Getting ahead versus hidden risks

Tariffs are the latest in a long series of disruptive events to supply chain resilience in recent years, forcing companies to take additional actions to protect operations and profitability.

Importers in countries affected by tariffs may seek to renegotiate contracts, reconfigure supply chains, frontload orders, and expedite shipping. These more short-term adjustments can lead to inefficiencies, including logistical complexities, increased transportation and storage costs, and the threat of additional supply chain disruptions.

Businesses may choose to move sourcing to new regions and connector countries to manage the effects of higher tariffs. However, this tends to create greater concentrations of suppliers, which is rarely without risk. Additionally, new suppliers may not deliver the same price, quality, or specification, and some may lack the skilled workforce to meet customer demands.

Beyond tariff-affected countries, suppliers of businesses elsewhere may be affected as much of the exposure is upstream. Not recognising these second-order impacts can be as or more impactful than the tariffs themselves. Acting swiftly without a solid plan or chasing quick wins may unintentionally undermine a company’s stability.

2. Tariff and transport costs today versus production and supply stability tomorrow

Supply chain adjustments can impact supply and demand for transportation. For instance, the shipping industry may be challenged with rerouted trade flows, fluctuating freight rates, port fees, and new compliance requirements, all of which may lead to higher transportation costs for companies importing goods. Frontloading can also drive up short-term shipping demand and shipping and storage costs. The value of goods being transported may also be affected, subsequently impacting insurance requirements for goods in transit.

Additionally, implementing insulation strategies — such as diversifying suppliers, investing in local production, or absorbing tariff costs — can potentially lead to higher short-term expenses and operational inefficiencies as new producers need time to scale, mature, and develop their capabilities, and as transportation sectors adjust.

However, should tariff changes remain in force for some duration or become permanent, these insulation strategies can provide long-term benefits by enhancing supply chain resilience, reducing dependence on specific markets, and promoting innovation. Companies must evaluate whether the shorter-term financial costs are justified by the potential for longer-term gains.

3. Sustainability versus cost efficiency

Tariffs can disrupt companies’ sustainability efforts by increasing the cost of more sustainable materials (including certain types of lumber), forcing companies to source from less sustainable suppliers to maintain profit margins, or prompting a swap to less sustainable commodities all together.

For example, a 25% tariff on aluminium imports in the US could increase the cost of cans, especially if they cross borders multiple times during food or beverage production. In response, companies may opt for cheaper, less sustainable alternatives like plastic, which could undermine their sustainability goals and harm brand reputation.

How to assess your tariff trade-offs

Use the current 90-day pause as a time to plan and build your resilience. You may consider the following steps to help navigate the complexities of tariffs and their associated trade-offs.

1. Conduct a comprehensive risk assessment

A first step in managing today’s tariffs is improving upstream visibility. Many companies are unaware of their suppliers’ suppliers, leaving true dependencies and risks hidden. A thorough risk assessment can identify your vulnerabilities, help you evaluate the quality of your suppliers, and allow you to see the potential financial implications of tariff changes. Quantifying tariff risks, including logistics bottlenecks, or identifying more favourable suppliers with scenario analyses and AI-powered data analytics tools like Marsh McLennan’s Sentrisk, can help you identify tipping points and create and implement contingency plans.

2. Diversify suppliers

After assessing the risks, you may determine that diversifying suppliers could help mitigate the effects of tariffs. By sourcing from multiple suppliers across different regions, you can potentially reduce your exposure to tariff-related disruptions or identify and onboard backup suppliers should you need to diversify in the future. Conducting a supplier due diligence process can identify vulnerabilities and exposures that new suppliers may introduce into the supply chain.

Despite potential initial higher costs, including those related to compliance verifications and cybersecurity controls assessments, this increased agility in your supply chain can become a competitive advantage. For some industries, such as pharmaceuticals, defence, or automotive, this may be harder to achieve.

3. Communicate transparently with stakeholders

Whatever path chosen, transparency about the challenges posed by tariffs and your strategies for addressing them can deliver benefits. Transparency can build trust and help preserve reputation and investor confidence.

4. Review and enhance insurance

Explore how your insurance programme might address tariff-related risks. Political risk, trade credit, property damage, business interruption, and cargo insurance are likely already a part of your risk management strategy and you can consider the extent to which they could potentially mitigate losses from tariffs and other trade actions.

For example, businesses whose suppliers could be adversely affected by tariffs could stand to mitigate their losses through credit insurance policies, which might include coverage for defaults related to the negative effects of tariffs.

Navigating disruption: A more efficient and secure path forward

As global trade and tariff regimes evolve, companies must be proactive and innovative in evaluating potential risk mitigation trade-offs. Managing these trade-offs offers an opportunity for businesses to leverage data, analytics, and organisational agility so they can better identify vulnerabilities and create a path forward for any future disruption in a faster, more efficient, and secure way.

As discussed in Marsh’s Political Risk Report 2025, while we cannot predict future challenges and opportunities or the direction of tariffs and trade policies, broader trends indicate we are in a geopolitical and geoeconomic era marked by more disruption and protectionism. As such, businesses should remain well-informed and prepared to adapt to tariff and trade actions when warranted.