Give me liberty…or give me the tools to navigate reciprocal tariffs.
President Trump called April 2, 2025, the day he announced universal tariffs on all US trade partners, “Liberation Day.” Private equity sponsors and their portfolio companies, particularly those with global supply chains, may rightfully think of it as “Consternation Day”—such was the shock and anxiety caused by a tariff plan that’s arguably more wide-ranging than many experts had predicted.
There were many sponsors and portfolio companies who took President Trump at his word and proactively planned for expected tariffs. Anticipating that China would be heavily targeted, these companies began the process of transitioning facilities, logistics, and goods production to alternative Asia-based countries. The new policy upends that planning by imposing particularly heavy tariffs on many of these alternative regions, like Vietnam and Cambodia, tariffed at a rate of 46% and 49% respectively.
Other sponsors and companies who had taken a more cautious, wait-and-see approach are finding that their scenario plans are ill-equipped to address the universal nature of the tariffs. The alternative strategies that they had devised simply do not account for tariffs from, say, Laos, or Botswana, or Mauritius.
Enter consternation, followed by confusion.
If you’re a sponsor or PE-backed CFO/COO wondering ‘what now?’, you’re not alone. That said, there are ways to mitigate the already-announced tariffs, plan for certain uncertainty, and navigate a landscape that may change on a dime. Here are 5 of them:
1. Comb for caveats
The wide-ranging nature of the tariffs means that there won’t be a lot of exemptions or loopholes, but it does appear that there are some.
At this point in time, goods from Mexico and Canada that qualify for USMCA tariff-free treatment are not subject to the newly imposed reciprocal duties. In addition, the reciprocal rates only apply to non-US content value of goods where at least 20% of the value is US originating. (US content is “the value of an article attributable to the components produced entirely, or substantially transformed in, the United States.”)
The US content exemption, therefore, may enable tariff reductions or allow for creative cross-border/nearshore shipping and assembly strategies as a way to avoid paying fully-assessed tariffs. Of course, there are administrative burdens and considerations here. Companies would need to be very mindful of filling out all relevant entry paperwork to verify the US content value of an imported article and the extent to which it is substantially finished onshore. And companies would need near-shore facilities at the ready.
In addition to exemptions, CFOs will also want to look for extensions (to help with cash flow). For example, they can designate certain warehouses as free trade zones. While this approach won’t reduce the tariff rate, it will allow the company to delay payment, making it a good option for CFOs seeking more short-term liquidity.
The bottom line: Mine for hidden pockets of exemptions and extensions. By working with partners who can advise on in-real-time reciprocal tariff policy exemptions and ongoing HTSUS modifications, CFOs/COOs can devise manufacturing, shipping, assembly, and supply chain strategies to creatively avoid the most punitive duties.
2. Reshore right away
The new Trump tariff directives are an explicit administration effort to swing the pendulum back toward “made in America” manufacturing and investment.
PE sponsors and their portfolio companies can seek to answer that call by reshoring goods and production back to the United States to avoid tariffs altogether.
That’s not to say there won’t be cost implications. There will need to be investment in onshore facilities and a workforce—the costs of which are substantially higher than typical offshore locations. But there will also be cost benefits beyond the avoidance of tariffs.
Reshoring can substantially shorten lead time by as much as 5X, allowing for a significant inventory reduction and a related increase in liquidity. Shortened lead time will also increase speed to market, a particularly critical element for new product launches. Additionally, by bringing back domestic operations, onshoring can also bolster brand reputation in some markets.
But of course, this strategy is also fraught with complications and limitations related not only to cost, but to the availability of capacity, technical skills, and quality assurance. US capacity here is a critical element and may prove the ultimate differentiator. After a quarter of a century of offshore outsourcing, America has a more limited manufacturing footprint, both in terms of facilities and expertise.
Given these challenges associated with full-scale reshoring, CFOs/COOs may want to consider a hybrid reshoring model. With a partial reshoring strategy, instead of importing finished products, companies could import components and then tackle assembly in the US.
The bottom line: If reshoring is a viable option for your company, know that the only winners here will be the first-movers. In the wake of the universal and reciprocal tariffs, demand for onshore facilities and labor will absolutely outpace supply (particularly because many companies began this process proactively months ago). Work with partners who can help create partial or full reshoring plans… now.
3. Assess alternative areas
Perhaps the cost of reshoring is just too great an investment. Or, as a late-mover, you no longer have viable onshore facility and labor options. There are some surprising alternatives.
For years now, companies have looked toward outposts in Asia (beyond China) including Malaysia and Vietnam, but given reciprocal tariff numbers, Asia is, largely, no longer a low-cost environment.
But there are locations that live at the magical intersection of appropriate infrastructure and lower/baseline tariff rates. Most of these countries are in South America, where the relative strength of the dollar may also work in companies’ favor.
Of course, this will only work for some companies, as Brazil, Colombia, Argentina, and Venezuela have typically lacked the expertise and facilities required for producing very technical products.
The point is that companies will have to take a hard look at their long-term manufacturing and supply chain strategies and create alternative models. For PE companies readying for exit, they’ll want to articulate this strategy to potential buyers in order to properly assess how logistical and manufacturing changes will impact (and hopefully drive) future value.
The bottom line: Expand your universe. It’s time to look beyond the typical outsourcing areas that have been targeted with the most heavily assessed tariffs. Alternatives with governments and a labor force hungry to embrace manufacturing and logistics investment exist. But you’ll need a partner to help you analyze and identify which locations are viable, and which are not.
4. Be ready to reengineer
Companies have played the tariff engineering game for a long time. It’s a strategy wherein companies modify the design or packaging of a product to fit a different tariff code that has a lower duty rate. This practice can involve making small changes to the product, like altering its composition, assembly process, or components, to qualify for a more favorable tariff treatment.
Given Trump’s universal application of tariffs, this type of engineering no longer serves as a workaround. But there’s another type of engineering—or rather, re-engineering companies may undertake.
The need to avoid certain locations may serve as a forcing function for companies to simplify or change the actual assembly of a product. We’re talking about operational and process re-engineering. This type of re-engineering is a staple of PE ownership, where sponsors look for cost take-outs in the assembly of a product or good. Traditionally, sponsors engineer based on the cost of raw materials. Here, the re-engineering would be more regional-specific—looking to re-engineer product design based on where materials (not what materials) can be purchased for less.
The bottom line: Apply the most basic PE principle to product and workflow engineering. Re-engineer all inefficient workflows so that the main variable becomes the cost of materials. And then comparison shop by country.
5. Cut out non-core costs
Tariffs will fundamentally raise prices across the board. Companies may mitigate some of those increased costs by leveraging the strategies above—but costs will still increase. As a result, it’s critical for companies to look at other cost take-outs where they can. And it’s equally critical for them to operate with as much cash and liquidity on hand to enable a quick response to what promises to be a constantly shifting tariff and trade environment.
For some companies, that may mean divesting non-core assets. For others, it will mean redesigning core finance processes (like close acceleration and accounts receivable) to be more efficient and capture revenue quicker. And for others, it may mean evaluating labor spend, particularly where adding automation can reduce or allay costs.
The bottom line: Tariff mitigation will have its limits. It’s time to take a hard look at where you can find hidden value by pulling other operational and financial levers that will allow you to reduce costs while having enough cash on hand to navigate uncertainty.
Sweeping tariff changes have certainly disrupted previously laid plans, but with agility and strategy, there are ways to navigate these new economic realities. From combing for exemptions to reshoring production or seeking alternative markets, sponsors and PE-backed companies have the tools to weather the storm. By reengineering processes and cutting out non-core costs, PE-backed firms can bolster their resilience in an ever-shifting trade environment. Though the future remains uncertain, the key to liberating companies from the handcuffs of tariff policies lies in proactive planning, flexibility, and a sharp eye for hidden opportunities.
If you are concerned about the impact of new tariff policies on your company, or your portfolio, Accordion can help. Our Tariff Impact Analysis Solution assesses your exposure to current and potential tariffs, identifies specific SC&O strategies and alternatives to mitigate impact, and supports you as you execute identified strategies. More specifically, we:
- Assess sourcing exposure and identify/implement alternative strategies/locations
- Identify optimal inventory management models
- Uncover potential exemptions and navigate required filings
- Scenario plan for current tariff regulations, model the impact of inevitable tariff changes, and plan alternative options to reduce impact to margins