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Navigating the Tariff Turbulence

Amy Bernstein Avatar
Amy Bernstein

The issue on everyone’s mind right now is U.S.’s evolving tariff policy and its convulsive effect on trade and the markets. This month we’ll look not at the policy itself, but at the challenge of navigating its sudden shifts and reversals. How do you, as a leader, actually move your organization forward in a moment like this?

According to a recent article by Philipp Carlsson-Szlezak, Paul Swartz, and Martin Reeves of BCG, you start by developing a deeper understanding of the primary and secondary macroeconomic effects of tariffs, along with their plausible long-term consequences, so that you can continuously assess the impact on their markets and businesses. As they note, you have to first distinguish between the supply-side and demand-side shocks, both for the US and its trade partners.

Then consider the secondary shocks of what they call a “360° trade war.” These include:

  1. Confidence: Tariffs may reduce consumer and firm confidence, leading to hesitancy in spending and investment.
  2. Wealth Effects: Equity market declines post-tariff announcements could reduce wealth and consumption.
  3. Monetary Policy Errors: Increased inflation and reduced growth complicate Federal Reserve decision-making, raising risks of policy missteps.
  4. Competitiveness: Higher costs for imported production inputs may harm U.S. business competitiveness.
  5. Additional Shocks: Financial market instability or external events (e.g., wars, pandemics) could exacerbate economic weakness.

Then think about the possible long-term impacts. For example, the tariff policy aims to reshore production to the U.S., but tariffs targeting all products risk lowering productivity if resources are diverted from high-value sectors (such as semiconductors) to lower-value ones (such as toys). Tight labor markets may limit the ability to expand domestic production without negative consequences. 

What are you supposed to do with all this? Clearly, “planning” as such is an exercise in frustration. The authors offer three recommendations: 

  1. Build analytical capabilities: Develop tools to monitor and respond to evolving tariff policies rather than relying on static masterplans.
  2. Revisit assumptions regularly: Adapt strategies as trade dynamics evolve.
  3. Think in multiple timescales: Balance short-term tactical responses with long-term strategic planning. 

Given that the radical instability we’re seeing now could last for quite a which, it’s essential to learn how to manage it and balance near-term urgency with long-term health. As the authors write, “The next few quarters shouldn’t matter more than the next decade.”

Thanks for reading,

Amy Bernstein

Editor in Chief, HBR

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