Navigating the disruptive impact of tariffs in 2025

It will come as no surprise to anyone that tariffs were top of mind in my recent discussions with CFOs and Treasurers at the SAP CFO Exchange and SAP Treasury Council event.

It is not simply the tariffs themselves that are the challenge, it is the unpredictability as to how, where and when they will be implemented. On Thursday we woke up to the news of a new 25% tariff being levied by the US on all car imports. The impact of this alone is significant and is on top of the tariffs already implemented, which in themselves are worth more than the GDP of Switzerland.

There is no doubt that the ripple effect will create further challenges. Germany’s debt reform announcement and the impact it has had on the interest rate on 10-year German bonds (increasing by almost 0.5% in just a few days) is a perfect example.

The uncertainty coupled with the additional costs that tariffs bring are placing substantial financial strain on businesses, leading to tighter cash flows and reduced profit margins. To navigate this challenging environment, companies are being compelled to shift their strategies and implement robust contingency plans to anticipate and respond quickly and effectively to the financial repercussions.

Technology as a strategic enabler

Technological advancements, particularly in the realm of artificial intelligence (AI) and data analytics, are emerging as invaluable tools for businesses seeking to manage the high level of uncertainty on many fronts.

AI-powered tools can provide predictive insights into potential tariff changes, identify vulnerabilities within supply chains, and optimize, for example, inventory levels to ensure adequate stock without excessive overheads.

By leveraging these technological capabilities, businesses can make informed decisions and proactively adjust their operations to minimize the impact of tariffs. Very often, these scenario analyses are still done in silos by sales, procurement, and finance, often involving home-grown spreadsheet solutions.

Without a doubt, this raises more and more concerns among CFO and Treasurers as it essentially means flying half-blind, making decisions without seeing the full picture.

Restructuring supply chains for resilience

In response to the uncertainties and disruptions caused by tariffs, businesses are reevaluating and restructuring their supply chains.

A notable trend is the shift towards sourcing from suppliers located in closer proximity to reduce reliance on imports and mitigate the risks associated with trade disputes. However, as we have seen with the tariffs levied against Mexico and Canada, nearshoring is not always the answer.

Last week Nvidia announced that it will be spending hundreds of billions on a shift towards a more US-based supply chain. Hyundai also announced a record investment in the US of $26 billion.

Of course, for some organizations, the answer is not to do more with the country imposing the tariffs, but less. Airbus for example, recently announced that it may simply prioritise other markets. As arguably the world’s most successful aircraft manufacturer, it has the ability to make those kinds of choices, but not every business can do that.

And reconfiguring supply chains comes with its own costs. Longer-term operational and workforce costs may increase in addition to the short-term costs associated with the shift in strategy.

Financial strategies for cash flow optimization

Tariffs not only impact profitability they have a direct impact on liquidity. The imposition of a 25% tariff may also mean a 25% hit to a company’s free cash flow.

Mitigating against this is difficult, especially with the uncertainty around the size, timing, and geographical impact of the tariffs. This is where effective scenario planning becomes so important.

AI can be hugely useful here. Give it access to the full set of data (sometimes a challenge in itself), and not only will it give you ‘if this then that’ insights, but it can also make recommendations as to the best routes to take to mitigate risk and seize opportunities.

Economic implications and recessionary risks

Beyond the business, tariffs can have far-reaching consequences for the overall economy, potentially leading to slower growth rates and increased risks of recession. Therefore, liquidity becomes even more critical to maximize, evening out cashflow, and bridging funding gaps.

With uncertainty rising around inflation and interest rates, exploring innovative financing options that won’t increase debt, such as supply chain financing with flexible funding models, is also prudent.

Collaboration with experts for strategic advantage

Partnering with financial and technology experts can provide businesses with the specialized knowledge and tools necessary to navigate the complexities of the tariff landscape and the overall economic uncertainty.

These experts can offer valuable guidance on financial risk management, supply chain optimization, and technology implementation, enabling companies to develop and execute effective strategies to mitigate tariff-related risks and capitalize on emerging opportunities.

Conclusion: Proactive adaptation for sustainable success

Tariffs represent a formidable challenge for businesses engaged in global trade. However, by embracing technological advancements, restructuring supply chains, implementing sound financial strategies, fostering open communication, and collaborating with experts, companies can position themselves for sustainable success in an increasingly complex and uncertain trade environment.

Effective scenario planning, proactive adaptation, and a commitment to innovation will be the key differentiators as, once again, we enter an age of uncertainty.