Tariffs as Turning Points: What Businesses Might Lose – and What They Stand To Gain

The international trade environment is changing rapidly, and trying to respond to each news alert is a losing battle. While it’s impossible to eliminate tariff risk entirely, meaningful steps can be taken to better manage the uncertainty.

Drawing on insights from KSM subject matter experts, this article examines some of the most pressing tariff-related risks and opportunities – and offers practical ways to prepare for what’s ahead.

Opportunity: Tariffs will help uncover supply chain inefficiencies.

No business owner believes supply chain management is simple – and for companies with complex networks, it’s often a job best left to the experts. But even if a company isn’t in the market for a supply chain consultation, gaining a better understanding of networks can be invaluable, regardless of the tariff environment.

Jason Patch, partner and leader of KSM’s Manufacturing & Distribution Services Group, compares today’s tariff uncertainty to the economic disruption of COVID-19. The businesses that weathered that storm most successfully were those with a clear understanding of where their materials and supplies were coming from. “Conceptually, it’s the same thing,” Patch explains. “You should understand your supply chain so that you know what your options are.”

A thorough supply chain analysis can uncover ways to:

• Identify where bottlenecks originate so future disruptions can be avoided
• Assign a cost to each link in the chain to understand where changes will have the most impact
• Diversify a network of suppliers and better negotiate with existing ones
• Develop sourcing strategies that reduce complexity and lead time

Tariffs shouldn’t be viewed as a reason to overhaul a supply chain, but they can be a powerful catalyst for understanding it better. And with that understanding comes the ability to address inefficiencies – whether driven by tariffs or other market forces.

Risk: Tariffs could make mergers or acquisitions more complex.

If a business is considering an acquisition, it’s essential to do due diligence and evaluate how the target company is managing tariffs.

Tariffs can significantly impact a target company’s cost structure, margins, and overall competitiveness – especially if that business relies on cross-border trade. Overlooking these exposures could lead to overpaying for the deal or acquiring a company that fails to perform as expected.

Jennifer Miller, partner and co-leader of KSM’s Transaction Advisory Services Group, encourages buyers to:

• Model different tariff scenarios to assess earnings sensitivity
• Review supplier and customer concentration by country
• Scrutinize contracts for pricing flexibility or cost pass-through mechanisms
• Structure earnouts or price adjustments to account for potential volatility

Opportunity: Financial modeling will build resilience.

Financial modeling is a powerful tool for understanding how tariffs could impact a business – and its value extends far beyond trade policy. When done well, modeling can clarify options, improve agility, and help a business make more confident decisions in any environment.

Zach Sauder, partner and leader of KSM’s Outsourced Finance & Accounting Services Group, describes financial modeling as “building a runway for action.” Sauder says, “A strong model lays out what needs to happen before change occurs, giving you time to respond instead of react.”

When building a model to manage tariff-related risks, consider questions like:

• Can I raise prices to offset added costs?
• When will I need to reorder inventory?
• Are there viable alternate sources for materials?
• How quickly could I establish relationships with new suppliers?
• How valuable is my relationship with current suppliers?
• Where does my domestic wholesaler source their materials, and how likely will tariff costs be passed on to me?

Sauder emphasizes that the most effective financial models are dynamic – flexible enough to update factors as conditions shift. “Dynamic modeling is absolutely necessary,” he says. “You may not be able to account for 100% of the variables, but if you can get 80% of them, that’s often enough to guide meaningful action.”

Risk: Falling behind without the technology to drive data-backed strategies.

Data modeling is only possible if a company has the technology to do it.

David Eckel, managing director of KSM’s Information Technology Services Group, points out that with modern technology tools, businesses can visualize key metrics – such as tariff exposure by product, profitability by region, and forecasted margins – and make more informed decisions. The right AI tools, for example, can be used to perform predictive analyses, drawing on historical tariff actions, global trade trends, and broader economic conditions to help estimate potential outcomes.

Eckel also underscores the importance of enhanced data analytics. “The key components of an analytics platform include a centralized data warehouse, scenario modeling engine, business intelligence dashboards, and predictive analytics.” And when these tools are integrated with existing ERP systems, even better. Doing so will ensure a team considers tariff risks not just during periods of volatility, but as part of ongoing strategic planning.

Opportunity: Retooling operations to manage tariffs could count as R&D.

If a business has researched and tested new processes to mitigate the effects of tariffs, those expenses may be eligible for the research and development (R&D) tax credit.

The R&D credit can be a lucrative tax credit available to eligible businesses. While the credit is subject to specific qualification criteria, it applies to a broader range of activities than many taxpayers realize.

Ryan Miller, partner in KSM’s Tax Services Group, states, “For example, if you’ve invested in and experimented with new ways to simplify your supply chain – such as onshoring part of your production, developing alternative inputs, or upgrading your existing domestic manufacturing process – you may be eligible for the benefit at both the federal and state levels.”

Risk: Tariffs may trigger additional filing obligations, inflate sales tax liability, or cause compliance errors.

Do tariffs increase a tax base for sales tax purposes? It depends on the state and how the tariffs are incorporated into the selling price.

Businesses may get creative in how they choose to pass this additional expense to their customers. Rising tariffs could mean rising prices, which generally leads to increased sales tax liability. Separately stated charges to “pass through” tariffs add sales tax complexity.

Donna Niesen, partner and leader of KSM’s State & Local Tax Group, encourages businesses to evaluate state tax laws to understand when and how a company may exceed economic nexus and what invoice items are includable in the sales tax base. These evaluations should be completed in conjunction with a review of the company’s sales tax software system, which, in some cases, may erroneously exclude (or include) tariffs depending on how they’re invoiced and classified in the system.

To avoid errors, first ensure an understanding of the applicable tax rules. Then, review system settings and self-audit tax returns to confirm tariffs are being classified appropriately.

Opportunity: Onshoring could lead to economic development incentives.

Onshoring isn’t the right move for every business – but for those that do bring operations to the U.S., incentives may be available.

Many state and local jurisdictions offer economic incentives to encourage businesses to relocate. These incentives can include tax credits, grants, training support, and even loan opportunities.

Katie Culp, CEO of KSM Location Advisors, notes that these incentives can be especially helpful for companies looking to grow their U.S. footprint. But she cautions that decisions about where to locate operations require a broader strategic view. The decision about where to locate a warehouse, manufacturing facility, or headquarters is generally influenced by the following factors:

• Tax liability (sales/use, income, and property taxes)
• Operational costs
• Labor availability
• Brand perception
• Customer base
• Climate-related risks

For businesses considering onshoring, relocation incentives can be a valuable lever – but the real advantage comes from choosing a location that positions them for long-term success. With the right data and guidance, a relocation decision can serve as both a tax-savings opportunity and a strategic growth move.

Opportunity: Changing how inventory is valued could accelerate expenses.

Switching from a first-in, first-out (FIFO) inventory method to a last-in, first-out (LIFO) method could help recoup tariff costs sooner.

However, changing how a business values inventory should not be made lightly. Changes in valuation methods (or in accounting principles) require formal disclosure on financial statements and tax returns. Katherine Malarsky, partner in KSM’s Tax Services Group, also cautions that “LIFO can be administratively challenging.” For example, while it is an allowable method for tax purposes, it may require a company to switch to LIFO for book purposes as well.

Inventory valuation changes require long-term planning and assumptions about future pricing trends. While the potential impact could be significant, any decision should be discussed with an auditor or advisor to evaluate both the risks and benefits.

Opportunity: Transfer pricing can soften tariff volatility.

Transfer pricing – the pricing of transactions between related parties – presents a strategic opportunity to lessen the impact of tariffs on costs of goods sold.

While intercompany pricing must follow the arm’s length standard, the right analysis by transfer pricing experts can help businesses strategically allocate costs to lessen the effects of tariffs between related parties.

Malarsky and (Ryan) Miller both emphasize the value of this approach. Miller notes, “As long as a proper arm’s length analysis supports it, businesses have flexibility to adapt their transfer pricing policies to match changing conditions.” Malarsky adds, “Even outside of tariff concerns, it’s a smart investment to spend the time to understand your costs. A solid transfer pricing analysis is valuable either way.”

Stay the course.

Sauder’s advice to all companies in this uncertain environment? “When you’re on a roller coaster, stay strapped in.”

Changing course the moment your path becomes unclear can lead to costly missteps. A steady, informed approach often yields better results.

KSM professionals are closely monitoring this evolving landscape and are ready to help you make sense of what it means for your business. If you’d like to explore how these developments could impact your strategy, connect with your KSM advisor or fill out the form below to start the conversation.