Navigating tariffs with a geopolitical nerve center

Tariffs and trade controls are expanding rapidly around the world. Macroeconomic uncertainty is growing. Second-order effects of government actions are multiplying.  The first global economic shock since the COVID-19 pandemic has arrived.  While geopolitical tensions have been rising for several years, the recent wave of trade controls and reciprocal tariffs has come on quickly and intensely. Not since the 1930s has the world seen this level of tariff activity.  The impact on businesses is high, unevenly distributed, and likely to remain that way.

While business leaders confess to feeling overwhelmed at times, they are addressing day-to-day issues as best they can. Many companies have calculated initial estimates of their exposure to new tariffs and are taking steps to reduce it.  Even as they grapple with immediate challenges, company leaders are unsure about what comes next. With the pandemic crisis still fresh in their minds, they find themselves again facing a highly uncertain environment with few parallels to guide them and no clear sense of when normalcy might return. They hesitate to make strategic moves because they are unsure how long the tariffs may last. They realize that a range of tariff consequences—from a sharp macroeconomic impact to trading-partner responses to national-security reassessments—could cause sudden changes in trade regimes.

Given the web of interdependencies that govern global trade, business leaders realize that they can’t define and prepare for the path forward using traditional forecasting and planning methods. What they need is a geopolitical nerve center—a central hub that tracks new developments in global trade, plans across several horizons, and guides decision-makers on ways to mitigate the impact of the expanding tariffs and trade controls.

To effectively address today’s radical uncertainty, business leaders can lean on a mechanism that many found essential for navigating the COVID-19 crisis. A nerve center can help companies move from a focus on immediate tactical responses to more comprehensive plans balanced across time frames. However, since the situation today is dramatically different from the pandemic, a geopolitical nerve center requires a unique structure.  A nerve center needs to accomplish three tasks. 

1. Stand up cross-functional initiative teams.  Companies should establish teams focused on tracking the impact of tariffs across their operations. We recommend nine targeted initiatives, although the number and nature of the initiatives may vary based on company context.  Tariff operations.  Inventory and supplier operations.  Stakeholder engagement.  Product engineering and classification management.  Commercial optimization.  Cost reduction and cash preservation.  Manufacturing and remanufacturing.  Supplier network and supply chain optimization.  And business portfolio shifts.
2. Split team focus among immediate, medium-term, and long-term horizons.  Companies’ current responses to evolving tariffs cover multiple planning horizons and timelines. A discussion about accelerating the shipment of specific parts can suddenly shift to a debate about the right time to diversify suppliers. To ensure that nerve center teams stay focused on the right actions, it is important to align on the time horizon that each team should target for impact and the level of rigor required in its analysis.  Should plan for three horizons: horizon one (this week to this month), horizon two (this quarter to this year), and horizon three (the next normal).
3. Create a central planning team to enable and coordinate initiative teams.  The initiative teams need the support of a planning team that organizes daily coordination meetings and creates situation reports to ensure aligned assumptions. Given the fast-evolving environment, companies should invest in analytics and accurate data to capture signals relevant to their operations in new tariff-related announcements and to assess their positions relative to competitors. Six analyses that organizations should consider conducting.  Tariff scenario modeling.  Tariff cost modeling.  Tariff competitive advantage modeling.  Trade flow analytics.  Demand modeling and pricing implications.  And risk identification across supplier tiers.