In the current unpredictable geopolitical and economic landscape, tariffs are once again making headlines in the news and in the boardroom. As the U.S. revisits trade policy with China, Europe, and other key partners, directors of public and private companies alike must be prepared to assess how new or proposed tariffs could impact their businesses. Even companies that don’t import or export directly may be exposed through supply chains, customers, or competitors.
For private company boards, this is not just an operational issue – it is a matter of fiduciary responsibility. Directors must ensure management is actively identifying and mitigating tariff-related risks, while also exploring strategic opportunities that may emerge.
Why Tariffs Matter Now
Recent developments, including proposed increases in tariffs on Chinese electric vehicles, semiconductors, batteries, and solar components, signal a renewed focus on trade enforcement and industrial policy. Other nations may retaliate, potentially triggering broader trade tensions. These shifts can drive up input costs, squeeze margins, and disrupt long-standing supply chains.
Even businesses that seem far removed from global trade can be affected: A small manufacturer in Ohio may rely on steel priced by global markets; a consumer products firm may see competitors gain or lose pricing power due to tariff changes. Boards must understand these interdependencies.
10 Questions Boards Should Ask
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How does the potential tariff impact the company’s overall strategy in carrying out its mission?
Board directors are mostly responsible for a company’s mission and strategies. Consequently, it is appropriate and most relevant to ask questions from a strategic point of view, as tariff may impact companies in different ways, some are more fundamental which requires fundamental shift in corporate strategy, while others may be less meaningful, which only requires a slight pivot in execution of existing strategies.
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How is the company monitoring trade policy developments?
Staying ahead of tariff announcements is key. Does the company have internal or external advisors tracking trade policy developments in real time? Is the CFO, general counsel, or supply chain leader responsible for updates?
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Has the management modeled the financial impact of likely tariff scenarios?
Boards should expect to see sensitivity analyses that reflect various tariff scenarios, showing impact on costs, margins, and pricing. For example, directors could ask management to map exposure not just to direct imports/exports, but also to suppliers, customers, and competitors affected by tariffs. A heat map or scenario analysis can be useful here. Ask how these scenarios are integrated into strategic planning.
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Are we passing on costs, absorbing them, or shifting strategy?
Directors need clarity on whether the company is raising prices, finding alternative suppliers, redesigning products, or pursuing near-shoring / re-shoring strategies in response to tariffs, or a combination approach of all of the above.
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How resilient is our supply chain?
Tariffs often reveal concentration risks. Boards should assess whether the company is over-reliant on certain countries or regions and whether diversification efforts are in place.
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Are we taking advantage of tariff mitigation strategies?
Companies can use tariff engineering, bonded warehouses, or free trade zones to reduce exposure. Ask if management has explored all legal avenues for relief and if so, what were the strategies implemented.
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What are competitors doing, and how does that affect us?
A competitor that benefits from exemptions or has localized production might gain an edge. Boards should ask for competitive benchmarking on tariff exposure and require a strategic response.
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How are tariffs affecting our long-term capital allocation?
Tariffs can shift the ROI on capital investments. For instance, re-shoring may justify new domestic facilities. Boards should understand how tariff assumptions factor into major CapEx decisions.
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Are we communicating risks appropriately to stakeholders?
For companies with investors, lenders, or strategic partners, transparency around tariff risks and mitigation strategies is key. Boards should review communications for completeness and tone.
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Is our enterprise risk management (ERM) framework capturing trade risk?
Boards should confirm that tariff and trade policy risk are integrated into the ERM framework, not just as one-off items, but as part of ongoing risk assessment and governance.
10 Tariff Mitigation Strategies Boards Should Know
In addition to asking strategic questions, it is beneficial to the board to learn a bit more about the specific techniques companies can use to mitigate the tariff impact. We list 10 strategies below for your reference.
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Country of Origin Planning (Tariff Engineering)
Description: Structuring how and where products are made or assembled to qualify for lower or zero tariffs under specific trade rules.
Example: Moving modifications or final assembly from a country with higher tariff to a country with a more favorable trade agreement with the US.
Board Insight: This requires legal review to ensure compliance and may involve investment in new suppliers or facilities. In certain industries - such as auto, semi-conductor, or medical devices - such supply chain changes may take a long time or substantial capital expenditure. The board should proceed with caution.
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Free Trade Agreements (FTAs)
Description: Taking advantage of FTAs like USMCA (United States-Mexico-Canada Agreement), or other bilateral/multilateral deals that lower or eliminate tariffs.
Example: Shifting sourcing or production from Asia to Mexico or Canada where goods are currently covered by an FTA with the US and are likely to be exempt from US tariffs.
Board Insight: Ensure management understands the rules of origin and any documentation required to qualify. In addition, the board needs to monitor future development as the US engages Canada and Mexico in future trade agreement negotiations.
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Foreign-Trade Zones (FTZs)
Description: Designating part of a facility or warehouse in a US FTZ, where goods can be imported, stored, or processed without immediate duty payment.
Example: Importing components into an FTZ, assembling them, and only paying tariffs on the finished product sold in the US or do not pay any tariff on the finished goods, if they are exported.
Board Insight: Useful for manufacturers or distributors with high inventory turnover or re-export activity.
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Reclassification of Products (HTS Code Optimization)
Description: Carefully reviewing the Harmonized Tariff Schedule (HTS) classification to ensure products are not being misclassified into higher-duty categories.
Example: A part classified as a “finished product” may have a lower duty than as a “component.”
Board Insight: Changes must be legally defensible and may involve customs rulings or outside consultants.
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Duty Drawback Programs
Description: Reclaiming tariffs paid on imported goods that are later exported.
Example: Importing raw materials, using them to make a product in the US, then exporting the product and claiming a refund on the initial duties.
Board Insight: Requires documentation and compliance systems but can significantly reduce net costs. Companies must have a clear understanding of the law which levies the tariffs, as some of the provisions disallow drawbacks.
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Product Unbundling
Description: Segregate the purchase price into different components, some of which could be subject to low or no tariffs.
Example: If an importer is buying finished goods with high value associated with a trade name, it is possible to pay a lower price for the physical product while separately paying a royalty for the trade name. The royalty is not subject to tariff and as a result can be used to reduce the tariff impact.
Board Insight: This strategy requires careful valuation study and may require external advisors or trade ruling to successfully implement.
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Product Redesign
Description: Altering the product so that it falls under a lower-duty classification.
Example: Slight changes to size, function, or packaging that affect tariff code eligibility.
Board Insight: Legal review is crucial - US Customs scrutinizes attempts to game the system.
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Exclusion Requests and Waivers
Description: Applying for product-specific exemptions from new or existing tariffs. For example, certain medical devices may be exempt under certain Protocols to which US is a party.
Example: Submitting evidence that certain finished goods are eligible under those US Protocols.
Board Insight: Deadlines and documentation are strict. Boards should confirm that management is actively monitoring exemption opportunities.
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First Sale Rule
Description: The First Sale Rule allows importers to calculate duties based on the price paid in the first sale in a series of back-to-back sales, usually between the manufacturer and a middleman, rather than the higher resale price to the US importer.
Example: If a US company buys goods for $100 from a trading company in Hong Kong, which bought them from a factory in Vietnam for $50, the duty may be assessed on the lower Vietnamese factory price of $50 if all conditions are met, instead of the final $100 sale price.
Board Insight: This rule can significantly reduce dutiable value and overall tariff costs. However, it requires full transparency of the supply chain, proper documentation, and compliance with US Customs and Border Protection (CBP) standards. In addition, this strategy must be aligned with a company’s transfer pricing strategy - if there is one - or risk being challenged by local tax authorities. Boards should ask if this opportunity has been evaluated and whether internal controls are in place to support it.
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Lobbying and Industry Advocacy
Description: Engaging trade associations or lobbying directly for changes in policy or targeted relief.
Example: Participating in rule-making processes or commenting during tariff review periods.
Board Insight: Smaller firms may benefit by aligning with broader industry coalitions or larger trade organizations.
The Board’s Role
Tariff risk sits at the intersection of strategy, risk management, operations, and finance, making it a board-level issue. While management owns the execution, boards must provide oversight and challenge assumptions. This includes ensuring the company is agile, informed, and resilient in the face of trade disruptions.
Boards should also recognize that tariffs may create opportunities. Domestic producers may benefit from new protections. Companies may find new partners or markets as trade routes shift. Directors should ask how the company is positioned to seize these upside scenarios.
Conclusion
In an election year, trade policy is inherently uncertain. For public as well as private company directors, the best defense is preparation. By asking the right questions and invoking the right tariff mitigating strategies now, boards can help their companies navigate the turbulence and even turn disruption into advantage.
Acknowledgement: The author wishes to thank Anne Parsells, VP Tax and Customs at Ferrero for her kind review and suggestions.
ABOUT THE AUTHOR
YANG YE
Yang Ye is VP of Finance and Tax at Vantive, a vital organ therapy company recently spun out of Baxter International Inc. Yang has served on the boards of numerous European holding and investment companies and is the Audit Committee Chair at Marnita’s Table, a nonprofit focusing on inclusive belongings.