Tariff increases are often at the forefront of economic news, creating ripples across industries and sectors. While such policy changes may initially appear to affect only multinational corporations, their impact extends deeply into supply chains, influencing both public sector government organizations and private for-profit enterprises. Enterprise Risk Management (ERM) provides a strategic framework to address these challenges, ensuring that organizations can mitigate risks and seize opportunities in a volatile trade environment.

Understanding the Impact of Tariff Increases

Tariffs are government-imposed duties on imported goods, intended to protect domestic industries or as leverage in trade negotiations. While they may serve policy objectives, the consequences for supply chains can be significant, affecting cost structures, operational efficiency, and strategic planning.

- Operational Risks:  Supply chain disruptions often arise when organizations must find alternative suppliers, reroute logistics, or manage sudden inventory shortages.

- Hazard Risks: Heightened trade tensions can exacerbate geopolitical risks, potentially leading to embargoes or sanctions.

- Financial Risks: Increased costs of raw materials and goods may strain budgets and erode profit margins.

- Strategic Risks: Organizations reliant on international suppliers may face long-term challenges in maintaining competitive positioning.

Public Sector Challenges and Responses

Government organizations are not immune to the impact of tariffs. Whether managing infrastructure projects or procuring essential goods, tariff increases can disrupt operations and budgets.

Key Challenges:

1. Procurement Costs: Higher tariffs on imported goods can inflate the cost of materials and equipment needed for public projects.

2. Operational Delays: Customs and regulatory hurdles may slow down the delivery of critical supplies.

3. Budget Constraints: Public sector organizations often operate under strict budgetary guidelines, leaving little room to absorb sudden cost increases.

ERM Strategies:

- Diversification of Suppliers: Explore domestic alternatives or suppliers from non-tariffed regions to reduce dependency on a single source.

- Contract Flexibility: Negotiate procurement contracts with built-in contingencies to account for cost fluctuations.

- Collaboration and Advocacy: Work with trade associations and policymakers to gain early insights into potential tariff changes and advocate for exemptions when feasible.

Private Sector Challenges and Responses

For private enterprises, tariffs can directly impact profitability, customer pricing, and market competitiveness. Companies heavily reliant on international supply chains are particularly vulnerable.

Key Challenges:

1. Increased Production Costs: Higher tariffs on raw materials or components directly raise production expenses.

2. Customer Backlash: Passing increased costs onto consumers may result in reduced demand or damage to brand reputation.

3. Strategic Uncertainty: Tariff changes often occur with limited warning, making it difficult to plan for the long term.

ERM Strategies:

- Scenario Planning: Use data-driven models to assess the financial impact of different tariff scenarios and identify optimal responses.

- Nearshoring: Shift production closer to key markets to reduce exposure to international trade risks.

- Risk Transfer Mechanisms: Leverage trade credit insurance or similar financial instruments to mitigate potential losses.

Cross-Sector Collaboration

Tariffs present an opportunity for public and private sectors to collaborate. Public organizations can share insights into policy shifts, while private enterprises can provide data on real-world impacts. Joint initiatives, such as public-private partnerships (PPPs), can foster resilience in critical supply chains.

Building Resilience Through ERM

Both sectors can adopt core ERM principles to navigate the challenges of tariff increases:

1. Risk Identification: Continuously monitor geopolitical and economic developments to anticipate changes in trade policy.

2. Risk Assessment: Evaluate the potential operational, financial, and strategic impacts of tariff changes.

3. Risk Mitigation: Implement proactive measures such as diversifying supply chains, investing in technology to improve forecasting, and engaging with stakeholders.

4. Risk Monitoring: Establish a governance structure to oversee and adapt risk strategies as conditions evolve.

Tariff increases are a reminder of the interconnectedness of global supply chains and the importance of proactive risk management. Whether in the public or private sector, organizations must adopt a holistic ERM approach to mitigate vulnerabilities and maintain operational continuity. By planning strategically and acting collaboratively, businesses and government entities alike can turn challenges into opportunities, building resilience in an ever-changing global trade landscape.