Mitigating the Impacts of Tariffs

President Trump has implemented sweeping tariffs that will fundamentally reshape global trade patterns. On April 2, 2025, he signed an executive order imposing a 10% baseline tariff on almost all imported goods, with higher "reciprocal tariffs" of 11-50% on countries with trade deficits with the US. And then just yesterday(Wednesday), he paused them for 90 days, except for China.

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These tariffs are causing significant economic disruption. For small and medium businesses, the challenge is particularly acute - and amplified by the extreme uncertainty about what's going to happen next. This is a prime opportunity to leverage generative AI-powered approaches to both scenario and mitigate the impacts of tariffs.

Here's how.

Step 1:
Understand Your Tariff Exposure

The first step is understanding exactly how your business might be affected. Given the scale of these tariffs, nearly every business will feel their impacts - including services businesses (like mine) which serve sectors which are impacted more directly. 

If you're in a services business, adapt the following steps to focus on your clients and their supply chain risks. 

Build a "Tariff Analyst" Jig

Remember, a jig is a simple, low-investment tool that helps guide something. Similar to the Cash Flow Advisor and the Inventory Optimizer jigs described in previous editions, let's build a custom Tariff Analyst jig. 

Create a new Project, GPT, or Gem with the following custom instructions:

You are my AI Tariff Analyst specializing in understanding and navigating the 2025 Trump tariffs. Help me analyze how these tariffs impact my business and identify strategies to mitigate risks.

Context: I run a [describe your business type, products/services, and supply chain; copy/paste from another jig!]. My goal is to understand our tariff exposure, identify vulnerabilities, and develop strategic responses.

Analysis Areas:
- Identify which products/services in our portfolio are most exposed to tariff impacts
- Analyze both direct (imported goods) and indirect (price increases from suppliers) tariff effects
- Identify countries and supply chains with highest risk exposure
- Quantify potential cost increases across our business
- Recognize secondary effects that might impact our customers and their buying behavior
- Identify potential competitive advantages if we respond effectively

Format your analysis as:
1. Key Exposure Areas: Identify specific products, services, or operations most vulnerable to tariff impacts.
2. Cost Impact Analysis: Estimate potential cost increases and timeline.
3. Strategic Options: Recommend specific mitigation strategies with pros/cons.
4. Competitive Assessment: Analyze how competitors might be affected and potential market shifts.

Tone: Data-driven, practical, and focused on actionable insights rather than theoretical economics.

For your jig to provide useful analysis, upload these documents to its knowledge:

• Your product catalog with country-of-origin information
• Recent supplier lists with pricing and countries of manufacture
• Import records for the past year
• Customer data showing purchasing patterns
• Industry reports on supply chains in your sector (which you should absolutely find using generative AI's search features - especially Perplexity). 
  
  

Don't worry if your data isn't perfectly organized. One advantage of generative AI is its ability to work with messy, incomplete information - though the quality of outputs will reflect the quality of inputs.

Once your Tariff Analyst jig is built, start with these prompts:

Based on our product catalog and the recent Trump tariffs, which of our product lines face the highest tariff exposure? Please rank them by potential cost increase percentage and total dollar impact.

For our top 5 suppliers, analyze how they might be affected by the new tariffs. Which are likely to pass costs to us? Are there alternative suppliers in countries with lower tariff rates?

What secondary effects might our business experience from these tariffs beyond direct import costs? Consider supply chain disruptions, customer behavior changes, and competitive dynamics.

Your jig will help you understand both obvious and hidden impacts, allowing you to prioritize your response strategy based on a comprehensive understanding of risk exposure across your business.

Make sure that you're usig the most recent data about the tariffs, as the sitauation is changing quickly. Each time you start a new conversation, either provide direct links to the latest information about the changing tariffs or ask it to search for you - but make sure to check for accuracy. Running this analysis on the wrong data could quickly mislead you. You may even want to set-up Google News alerts about the specific countries that will impact you the most. 

The incredibly dynamic and unpredictable nature of this current tariff regime also means that you are likely going to have to revisit this analysis over time. I would avoid trying to play the game of predicting what is going to happen in the future; rather, you should focus on being nimble, agile, and leveraging AI as the landscape changes.

Step 2:
Scenario Planning and Cost Modeling

Now that you understand your exposure, use AI to model different scenarios and develop mitigation strategies. This approach transforms tariff analysis from a one-time exercise into an ongoing strategic capability.

Rather than simply calculating the direct tariff costs, use AI to model various scenarios including supplier price increases, inventory adjustments, and potential market responses.

Try prompts like:

Model three scenarios for our business over the next 12 months:
1. Base case: all current tariffs remain unchanged
2. Escalation case: tariffs increase by another 10%
3. De-escalation case: tariffs are reduced following negotiations

For each scenario, show projected COGS, pricing implications, and margin impacts.

If we absorb 50% of the tariff costs and pass 50% to customers, model the projected impact on:
1. Sales volume
2. Revenue
3. Profit margins
4. Cash flow

Compare this to fully passing costs or fully absorbing them.

For product businesses, be sure to model inventory strategies such as stockpiling before tariff implementation dates versus just-in-time purchasing with higher tariff costs.

For service businesses, focus on how input costs (equipment, software, materials) might affect your pricing models and service delivery costs.

And remember; if/when there are negotiations that change tariffs for certain countries, you'll need to repeat this process. 

Supply Chain Re-optimization

Use AI to identify alternative sourcing strategies and resilient supply chain configurations based on the new tariff landscape.

Ask your Tariff Analyst:

Based on our supplier data and the new tariff structure, what opportunities exist to:
1. Shift to domestic suppliers
2. Source from countries with lower tariff rates
3. Work with existing suppliers to modify country of origin

For each option, analyze cost impacts, quality considerations, and implementation timelines.

If we wanted to maintain current pricing despite tariff increases, identify which components or ingredients we could potentially source domestically or from USMCA countries to offset other tariff costs.

This analysis proves especially valuable considering that many companies are already increasing domestic procurement to mitigate tariff impacts.

Step 3:
Market Analysis

The tariff landscape creates both threats and opportunities depending on your positioning. Not all businesses in your industry will be equally affected by tariffs. Those with different supply chain configurations may face very different cost pressures.

Try prompts like:

Based on public information about our top 3 competitors and their known supply chains, how might the tariffs affect them differently than us? Are there competitive advantages we could develop?

Identify industries or product categories where domestic producers might gain significant advantage over imports due to the tariff structure. Are there expansion or partnership opportunities for our business?

Customer purchasing behavior will be significantly affected, with price increases potentially hitting most dramatically in categories like apparel  and consumer electronics. Ask your Analyst:

Analyze our customer segments to identify which might be most sensitive to price increases from tariffs. What retention strategies could we implement for these segments?

For our B2B customers, research how their businesses might be affected by tariffs and how that could change their purchasing from us. Identify potential early warning signs of changing demand.

Step 4:
Cash Flow Management and Inventory Trade-offs

These tariffs force difficult decisions about cash deployment. Many businesses are stockpiling inventory before tariffs take effect, but this creates significant cash flow constraints that limit other investments.

Use AI to model these trade-offs:

Analyze the financial impact of these two strategies:
1. Stockpiling 6 months of inventory for our top 10 products before tariffs hit
2. Purchasing inventory normally and absorbing/passing on tariff costs

Consider impacts on:
- Cash reserves
- Ability to make planned investments (hiring, equipment, marketing)
- Warehouse/storage costs
- Risk of inventory obsolescence 
- Working capital requirements

For our planned hiring of 2 new staff members, model how delaying those hires by 3, 6, or 9 months to preserve cash would affect:
- Our ability to service customers
- Projected revenue growth
- Team morale and burnout risk
- Market share

These analyses help you make intentional rather than reactive decisions about where to deploy limited resources in a challenging environment.

Step 5:
Stakeholder Management

Effectively communicating with customers, suppliers, and internal stakeholders about tariff impacts is crucial for maintaining relationships and managing expectations.

Use AI to craft tailored communications that explain necessary price adjustments without damaging relationships:

Draft a customer communication plan to explain potential price increases due to tariffs. Include messaging templates for different customer segments and communication channels.

Create an FAQ document addressing common customer questions about tariffs and their impact on our products/services, pricing, and delivery timelines.

Your suppliers are likely also struggling with tariff impacts. Use AI to prepare for these conversations:

Based on our supplier data, draft negotiation strategies for our top 10 suppliers. Include key talking points, potential compromise positions, and alternative suppliers if negotiations fail.

Create a supplier assessment rubric that weighs factors like tariff exposure, flexibility, willingness to share costs, and strategic importance to help prioritize our negotiation efforts.

Building Resilience

The businesses that will thrive in this environment aren't necessarily those with the least tariff exposure - they're the ones that can navigate multiple simultaneous challenges while maintaining strategic focus.

Small business owners find themselves facing what some describe as a "tornado" of challenges: tariffs, federal agency disruptions, economic uncertainty, and re-emerging inflation pressures. The complexity exceeds what most humans can analyze without assistance.

By leveraging generative AI's ability to process complex information, identify patterns, and generate strategic options, even small businesses can develop nimble, sophisticated responses to the tariff landscape.

As with all major disruptions, the key is not hoping for the perfect strategy, but rather developing the capability to continuously adapt as conditions change. A well-designed AI approach becomes an essential decision support system, helping you preserve cash, maintain customer relationships, and identify opportunities while competitors struggle with reactive decision-making.

For many businesses, this period will be remembered as the crisis that broke them or the challenge that made them better. The difference often comes down to how quickly and strategically they adapt. Generative AI can provide the advantage you need to emerge stronger.

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As always, if you have ideas for future newsletters, I'd love to hear them.