Using data to plan for the impact of tariffs and further change

Tariffs are coming. Whether you're in manufacturing, distribution or retail, it's important to understand how importing from Canada, Mexico and China or making locally, can affect your business and bottom line. We want to encourage you to analyze your data before tariffs go into effect, so you plan for the changes immediately not retrospectively.

Many business owners, particularly distributors, have expressed concerns about tariffs and economic uncertainty. A recent study by MBM with 450 National Association of American Wholesale Distributors’ members revealed that the most frequently mentioned worry for 2025 is the impact of tariffs. So, the best way to allay your concerns is to be ready and have all the data you need to make the most viable decisions.

What is a tariff?

Import tariffs, like those being introduced by the current American government in March 2025, are taxes placed on goods imported from three countries, with the possibility of more being added. In simple terms, a tariff is a tax on imported goods. There are various types of tariffs, and the kind being implemented is known as an ‘ad valorem tariff’. This means the tax on imported goods is calculated as a percentage of the product’s value.

The purpose of a tariff is to increase the cost of imports, which theoretically makes locally made goods more competitive. For instance, if an HVAC part costs $200 to produce in China but $210 to produce in America, a 10% tariff raises the price of the imported good to $220, making the domestic option less expensive. However, local producers must still be able to produce the product and at the right price. According to Felix Tintelnot, Associate Professor of Economics at Duke University, it is also possible that the exporter could lower its price to maintain competitiveness to not lose market share.

It is understood that several factors influence the decision-making process regarding product mix and supplier selection, beyond just cost. These factors include quality, reliability and availability and need to be taken into consideration.

Who pays for tariffs?

Tariffs are paid by domestic importers (shipping goods in from Canada, Mexico and China) and are collected by the government that has imposed the tax. Historically, it is common for parts of the cost of tariffs to be passed on to consumers. Distributors face higher costs for imported goods due to tariffs and may transfer these costs to customers if they can’t source cheaper local products. Manufacturers also face increased material costs, prompting them to seek alternative suppliers or pass the costs onto customers. Retailers experience price volatility, which can impact demand and overall profitability.

What data is required?

Comprehensive and up-to-date data is essential for businesses to manage tariff challenges effectively. Many companies lack the detail about all the components and costs of a product, nor is this information validated from its source and structured in a single database for analysis at the transaction level, as a whole or in various parts. This data is often dispersed across spreadsheets, ERP systems and different supply chain functions, making it difficult to evaluate the impact of tariffs on a product-by-product basis.

Featured video

Get started in no time

Watch now

For effective analysis, consolidate data from all relevant sources into a BI platform like Phocas, then use FP&A software for Budgets and Forecasts to conduct scenario planning and analysis of all your products and their related costs, lead times and profit margins.

Why be across tariffs?

These new tariffs are likely to impact supply and demand, manufacturers might already be increasing production to meet rising demand or potentially you’re not sure yet if distributors are going to make the switch to you. As a distributor, you’ll have been talking to your overseas suppliers but cost implications are still not final from the government. If you use products like steel, aluminium or lumber and source from outside of America, these will need to be managed effectively because there is uncertainty about whether there is enough local supply domestically which could lead to higher prices and shortages.

Using data for scenario planning

Identifying where and how tariffs affect your business is pivotal. Scenario planning ensures businesses can move fast and in an informed way when the policies take effect. The data can reveal risks across products and regions.

Featured video

Scenario planning

Watch now

A good place to start is to review your current budget and run various scenario plans based on different assumptions:

Manufacturer – Best case: Assume a 40% increase in demand for a specific part that is heavily imported during the months of April through December, as several distributors have already inquired about increased production. This analysis can be conducted for all affected products using the lookup tabs in Phocas Budget and Forecasts.

Manufacturer – Worst case: Assume a 20% decrease in demand for a particular part due to other local producers manufacturing on a larger scale

Distributor – Analyze the potential increase in costs if continuing with the existing overseas supplier or switching to a local supplier who cannot match the previous prices but may reduce delivery costs and carbon emissions. Set different assumptions and assess both best-case and worst-case price increases using the look-up tabs and purchasing data.

Distributor – Evaluate the potential decrease in product costs if a local supplier can produce at a lower cost than the increased tariff costs, considering both best-case and worst-case scenarios.

Running this type of analysis will help you prepare for all possible situations in advance. You then understand the price implications for all the different scenarios, which will help you decide which option will be optimal for your business. You can also do various scenario models based on other drivers like lead-time (it may take a while for the u.s manufacturers to get set-up), delivery costs, carbon emissions or you might be locked into a contract for another year – you can model all of these scenarios in your budget. These models can help in adapting your budget for the remainder of the year and lead discussions with local and overseas trading partners.

Do you need to diversify your supply chain?

Broad-based tariffs will make it necessary to spread your sourcing strategies risk just as many manufacturers and distributors discovered during the pandemic. Moving some production to the US can reduce geopolitical threats but requires careful planning for labor and capital costs. Many companies are adopting a “China Plus One” model – keeping capacity in China for local demand and shifting exports to Southeast Asia.

To further mitigate risks, businesses should consider diversifying their supplier base globally, incorporating suppliers from regions less likely to be affected by tariffs. Establishing partnerships with multiple suppliers can create a buffer against sudden policy changes.

When the pandemic hit the global supply chain, many distributors experienced the bullwhip effect. One example that comes to mind was households bulk buying toilet paper so this change of demand at the retail level caused larger fluctuations at the wholesale and distributor level. The situation then was many businesses did not predict Covid was going to happen, so they had to react in real time. Tariffs on the other hand can be managed. We know prices are going to change within a range and what products will be affected (we know currently it is all products from those three countries except for energy resources from Canada).

Use the tariff disruption to spark further change

A trading environment where 25% tariffs on Canadian and Mexican imports, as well as 10% on Chinese goods, could expand or be joined by EU duties requires proactive measures from manufacturing, distribution and retail businesses. The global trade landscape is becoming increasingly complex, involving not only tariffs but also new regulatory challenges, retaliatory tariffs and sustainability initiatives to also address.

Tariffs represent just one element within the broader context of trade disruption. The real opportunity is to use your data and BI and FP&A technology to rethink operations continually for greater efficiency and to holistically improve supply chain networks, preparing for all future challenges.