CFOs Say Tariffs Spark New Uncertainties as They Scramble to Reconfigure Supply Chains
With U.S. tariffs on Canadian, Chinese and Mexican imports now in full force, American companies are racing to retool their business playbooks amid a global trade war.
For CFOs of middle-market firms with $10 million to $1 billion in gross annual revenues — typically enterprises with global markets and complex supply chains — the uncertainty comes at a steep price.
We’re on track to publish a new installment on Friday (March 7) examining the state of business uncertainty confronting middle-market enterprises and its financial toll. But ahead of that update, here are some findings from our forthcoming report.
In a survey of 60 CFOs, PYMNTS Intelligence found that executives in the retail and goods segments were already eyeing higher costs of raw materials. Eight in 10 executives in those segments said that higher costs for supplies and potential shortages of essentials would have an impact on their bottom line. Moreover, the ripple effect could be significant: Short supply means that prices would rise even more sharply for end consumers under the simple laws of supply and demand. In general, the majority of CFOs surveyed — at least 60% — see greater economic uncertainty and planning challenges.
Another key insight from the forthcoming survey is that companies don’t rank price increases for their goods and services as a top tool for responding to uncertainty. That finding comes amid concerns about the persistence of inflation and consumers potentially shifting their spending on everything from clothing to electronics to cheaper alternatives or pulling back altogether.
At the same time, some 40% of goods-centered firms and 56% of service-oriented companies foresee potential layoffs, or at least reduced hiring in the offing. A vicious cycle could be taking shape, as job insecurity forces workers (who are also consumers) to rein in their own spending, which hits demand, which impacts supply chains.
It’s all in reaction to President Donald Trump’s blanket 25% tariffs against Canada and Mexico, which went into force on Tuesday (March 4), while imports from China were slapped with a 20% levy.
America’s major trading partners immediately clapped back. China slapped a 15% duty on several classes of U.S. exports, and Canada retaliated with levies on a reported C$155 billion ($107 billion) of goods coming from the U.S. Mexico promised to announce its own tariffs on U.S. exports later this week.
Seven in 10 of the executives that we surveyed for the forthcoming report said retaliatory levies would have a negative impact on their ability to export into foreign markets. In effect, the goods they produce would be stuck in warehouses rather than generating revenues.
The Price of Uncertainty
As PYMNTS Intelligence previously reported in December, a lack of certainty about the business climate robs firms of about 6% of their yearly revenues. Nearly half, or 47%, of executives in that earlier study said that cost pressures were fueling challenges to staying competitive. But even having the end demand in place doesn’t guarantee success. The chart below shows that “higher uncertainty” firms would feel the sting of shortages and delays in getting what they need to satisfy their customer bases more keenly than the overall sample.
Reconfiguring supply chains is no panacea, as it costs time and money. Moreover, domestic supply chains would become more competitive, as near-shoring or onshoring materials would mean greater competition for suppliers on higher demand and, thus, supply crunches.
What’s clear is that the long-term “positive” effects of enhanced supply chain resilience, cited by half of our respondents, would be a long time in coming. The upshot: The trade-offs of a trade war are tough to navigate, and companies seeking to avoid financial pain over the long term need to revisit their corporate strategies.
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