How firms can strategise around tariff hikes

As the second Trump administration gets underway, European exports face renewed threats of tariffs as high as 25%, leading to mounting uncertainty in global trade. Businesses must assess exposure to different tariff scenarios, identify strategic levers to mitigate financial and operational risks, and explore supply chain optimisation options, such as supplier diversification and market flexibility.

In 2024, the European Union’s collective economy exported €582.5 billion worth of goods to the United States. The largest single sector in this figure was the pharmaceutical industry – which sent €122.1 billion in products and materials across the Atlantic. At the same time, the EU imported goods worth €356 billion – with mineral fuels accounting for the largest single share, at €76 billion.

This illustrates both the importance of the US economy for the growth of European economies, and the precarious position they find themselves in now. With Donald Trump having returned to power in one of the bloc’s key trading partners, his administration’s proposed tariffs on European imports to the US could have wide-ranging impacts on the strength of the Eurozone. Depending on the sector, European exports could be stung by charges between 10% and 25% – something which could also weaken the euro, and driving up import costs for essential goods such as energy and raw materials. According to a new report from consulting firm H&Z, now is the time for businesses to plan for the worst.

Examining the most volatile sectors when it comes to the threats of tariffs, H&Z notes that automotive exports may be hardest hit. Tariffs in the sector could rise from 2.5% to 25.% – the highest figures alongside steel and aluminium. But the chemicals industry may be in the hardest spot of all, as it has traditionally benefitted from low tariffs of around 1%, and so could struggle to absorb the costs of 20% - leading to either a loss of market share, or higher costs for US buyers.

Past tariff implementations have shown that price increases on imported goods will affect both businesses and consumers. These pressures mean that inflation is once again likely to rise in both the US and EU, slowing economic growth and reducing global competitiveness. So, what can businesses do to avoid falling victim to this trend?

Mitigation assessment

According to H&Z, the first step for organisations to mitigate the risk of US tariff threats is to understand their level of risk. This can be achieved by scrutinising the bill of materials, origin, destination, and HS Codes for each product, enabling businesses to calculate cost exposure and trade risks at a product level. By understanding and visualising this risk, companies can identify vulnerable goods within their portfolio, and enable them to prioritise high-risk areas to safeguard their operations – as well as comparing their risk exposure with that of key competitors, offering valuable insights for strategic positioning.

Team-building

Once this step has been taken, the researchers argue that “organisations must adopt a proactive, multi-pronged strategy”. The first step for that, is to assemble a dedicated response team, empowered by senior leadership, to monitor policy developments, analyse organisational exposure, and drive strategic decision-making.

Mapping out needs

The mitigation team will first need to conduct a “thorough profitability analysis”, in order to identify key profit centres and assess price adjustment feasibility, while actively monitor tariff announcements and market volatility. This can further inform strategic decision-making, enabling responsive supply chain mapping, as tariff-related cost increases may stem from upstream suppliers. Legal teams should meanwhile undertake contract reviews to clarify cost absorption responsibilities within the supply chain.

Building strategies

Finally, businesses need strategies that go beyond immediate assessments, to strategise for long-term security. A tariff sensitivity model can help simulate cost scenarios and adjust pricing strategies. Optimising HS/HTS classifications, cost structures, and diversifying suppliers or materials can minimise tariff exposure. In some cases, “strategic capital investments – like expanding production in the UK or US, as Volvo Cars did with its South Carolina plant – are essential”. Companies that take a data-driven approach will be best positioned to navigate the changing trade landscape, protecting profits and growth opportunities.