How to Navigate Inflation and Tariffs in Financial Markets

𝗖𝗠𝗢’𝘀 𝗣𝗲𝗿𝘀𝗽𝗲𝗰𝘁𝗶𝘃𝗲: 𝗖𝗮𝗻 𝗖𝗣𝗚 𝗯𝗿𝗮𝗻𝗱𝘀 𝗽𝗿𝗼𝘁𝗲𝗰𝘁 𝗺𝗮𝗿𝗴𝗶𝗻𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗻𝗲𝘄 𝘁𝗿𝗮𝗱𝗲 𝗿𝗲𝗮𝗹𝗶𝘁𝘆? (Welcome to 2nd Trump Tariffs Era) Tariffs are back, and they are hitting the bottom line harder than ever. With new trade barriers on China, Canada, and Mexico, CPG brands face a triple threat: rising costs, shrinking consumer demand, and disrupted supply chains. But here’s my question: Are we playing defense, or are we strategically pivoting? From what I can see, data tells us a clear story. Historically, high tariffs = lower trade competitiveness. Let's take a look at the U.S. Average Tariff Rates (1821-2016) and trade balance trends: ✅ When tariffs were high (pre-1940s), trade was limited, and the U.S. maintained a surplus. ✅ Post-1945, lower tariffs (via GATT & WTO) fueled economic expansion and trade growth. ❌ After the 1971 Bretton Woods collapse, trade deficits deepened as low tariffs persisted. 🚨 Today, reintroducing high tariffs could lead to cost-driven inflation, supply shocks, and loss of global competitiveness. ++ 𝗪𝗵𝗮𝘁 𝗧𝗵𝗶𝘀 𝗠𝗲𝗮𝗻𝘀 𝗳𝗼𝗿 𝗖𝗣𝗚𝘀 & 𝗗𝗶𝗴𝗶𝘁𝗮𝗹 𝗖𝗼𝗺𝗺𝗲𝗿𝗰𝗲 ++ - Higher Input Costs → Tariffs on raw materials (aluminum, steel, packaging) increase COGS, cutting into margins. - Consumer Price Sensitivity → Higher shelf prices = lower demand. Consumers switch to private labels, local substitutes, or DTC (Direct-to-Consumer) models. - Erosion of Market Access → Retaliatory tariffs make U.S. brands more expensive abroad, favoring European and Asian competitors. - Disrupted Global Supply Chains → Companies must rethink sourcing, warehousing, and last-mile logistics. ++ 𝗖𝗠𝗢 & 𝗖𝗙𝗢’𝘀 𝗣𝗹𝗮𝘆𝗯𝗼𝗼𝗸 𝗳𝗼𝗿 𝗡𝗮𝘃𝗶𝗴𝗮𝘁𝗶𝗻𝗴 𝗧𝗮𝗿𝗶𝗳𝗳𝘀 ++ 1️⃣Pass-Through Pricing? Be Selective. Don’t just raise prices. Instead, optimize pack sizes, value-tiered offerings, and bundling strategies to maintain affordability. 💡Data-driven pricing elasticity is key—test price sensitivity before making abrupt hikes. 2️⃣ De-Risk Your Supply Chain Nearshoring & Friendshoring → Reduce tariff exposure by shifting suppliers to Mexico, Vietnam, and Eastern Europe instead of China. 💡Dual-sourcing strategies ensure supply continuity amid trade wars. 3️⃣ Digital Commerce is the Safety Net DTC & eCommerce are the antidotes to tariff turmoil. 💡Selling via Amazon, Shopify, or localized fulfillment centers avoids tariff-heavy distribution routes. 💡Localized production + micro-fulfillment hubs = reduced cross-border shipping costs. 4️⃣ Work Capital & FX Strategy Matters More Than Ever Hedging currency risks & cash flow forecasting is critical when tariffs disrupt inventory costs. 𝗧𝗼 𝗮𝗰𝗰𝗲𝘀𝘀 𝗮𝗹𝗹 𝗼𝘂𝗿 𝗶𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗳𝗼𝗹𝗹𝗼𝘄 ecommert® 𝗮𝗻𝗱 𝗷𝗼𝗶𝗻 𝟭𝟯,𝟱𝟬𝟬+ 𝗖𝗣𝗚, 𝗿𝗲𝘁𝗮𝗶𝗹, 𝗮𝗻𝗱 𝗠𝗮𝗿𝗧𝗲𝗰𝗵 𝗲𝘅𝗲𝗰𝘂𝘁𝗶𝘃𝗲𝘀 𝘄𝗵𝗼 𝘀𝘂𝗯𝘀𝗰𝗿𝗶𝗯𝗲𝗱 𝘁𝗼 𝗲𝗰𝗼𝗺𝗺𝗲𝗿𝘁® : 𝗖𝗣𝗚 𝗗𝗶𝗴𝗶𝘁𝗮𝗹 𝗚𝗿𝗼𝘄𝘁𝗵 𝗻𝗲𝘄𝘀𝗹𝗲𝘁𝘁𝗲𝗿. #tariffs #CPG #FMCG #CMO

I’ve built companies through 3 major recessions, including the Great Financial Crisis. I've seen the collapse of Bear Stearns, Lehman Brothers, and many others. If Trump doesn't change course, that is where we are headed... So, how should we react now that the US is reshaping the global economic order and triggering a self-inflicted recession?  The playbook for navigating the new tariff regime is straightforward. The fundamental characteristic of this new world is uncertainty. And Profitable Efficient Growth (PEG) is the proper antidote to uncertainty. Here's how executives can successfully navigate the next 9 months (broken out by MACRO, BUSINESS and MINDSET lessons): MACRO 1. Review your supply chain and understand component pieces and what exposure you have to various suppliers and customers. 2. Review your customer base by geography and understand your exposure, not just for tariffs but for retaliatory behavior impacted by country-specific animus. 3. Understand currency exposure and estimate impact of dollar-denominated contract erosion. BUSINESS 1. Improve the frequency of your forecasting and ensure you’re forecasting cash, expenses and revenue on at least a monthly basis. 2. Develop a clear POV on fixed vs variable costs and leverage non-FTE hiring for maximum flexibility in case things go poorly. 3. Review your messaging to illustrate why your product is essential in a downturn. Enable your Sales and CS teams with talking points so they can lean into price and budget when the objection arises. 4. Make growth investments but ensure they're tranched. Avoid more than 2x-ing any growth investment. Layer in 1.5x investments, monitor for performance, and then invest again. 5. Ensure you're not over-extended. Leaning too far into growth on the expectation that things will go up may create financial jeopardy later this year. MINDSET 1. Leverage healthy mindset practices to ensure you remain calm and clear including meditation, exercise, and visualization. 2. Understand: Every crisis is an opportunity for the confident and those willing to lead. 3. Pause and ask yourself the question, “How is this a huge opportunity for our business?”. Journal what comes to you from a focused session. 4. Project clarity and confidence to your team. Let them know your organization has intentionally been designed to weather storms like these. We just got out of the post-COVID tech recession. These lessons should be fresh in our minds but they bear repeating. The folks that lectured us that we should stop thinking about margins and profitability were premature. We all need to be smart, responsible and prudent. This doesn't mean fearful. And this doesn’t mean we shouldn’t try to grow. But it does mean it’s not the time for foolishness. We need to understand our market and our exposure. We need to design our businesses for anti-fragility. Our bets need to be sized. And we need to find the opportunity in the chaos.

How to Think About Tariffs (and Supply Chain Chaos) in 2025 Most people think working in supply chain is about moving goods from point A to point B. That’s only half the story. The other half is risk arbitration: measuring, absorbing, and pricing uncertainty across time, distance, and counterparties. If you’re running finance or ops in a product company, you’re likely already in fire-fighting mode most days. Freight delays, chargebacks, missing credits, etc. The latest round of tariffs adds a different kind of pressure that hits your working capital strategy, not just your margins. A better way to think about tariffs is that they aren’t a line item—they’re volatility. They behave like FX or commodities exposure: unpredictable, external, and able to distort your gross margins without notice. If they’re not modeled with that in mind, they quietly inflate your buffer cash and force you to carry extra inventory. What this means for your financial strategy: 1. Reforecast more frequently. Quarterly modeling isn’t enough when duty rates shift mid-shipment. Monthly (or even weekly) adjustments to landed cost assumptions can help protect gross margin targets. 2. Segment volatility by SKU and supplier. Not all tariff exposure is equal. Use weighted landed cost modeling to understand where variability is highest and treat those SKUs differently in pricing and purchasing. 3. Treat receivables as risk assets. Tariffs are just one layer of noise. Add in ad hoc deductions and inconsistent customer behavior, and treat AR as a portfolio of debt-like instruments. 4. Push for better terms on volatility passthrough. If you can’t eliminate the risk, share it. Revisit contracts to bake in mechanisms for dynamic cost adjustments. Tariffs will come and go, but the bigger theme is this: structural volatility has always been part of supply chains. The companies that model for it, price it, and hedge against it will be the ones that stay liquid and aggressive while others pause.

I’ll be blunt: If these tariffs caught you off guard, that's on you. Big players stockpiled inventory last year because they saw this coming. The real question isn't "how do we deal with this crisis?". It’s "why weren't you prepared for an obvious economic shift?". When tariffs slash your margins, you have two levers to pull: 1. Increase your product costs. 2. Decrease what it costs to get that product to you. That’s where most businesses fail catastrophically - they never even thought of a flight plan. They can't model basic scenarios because they don't track their fundamentals religiously. I need you to stop everything and examine your Q1 - COGS - AOV - Ad spend - All operational costs. Model April with the tariff impact if nothing changes. On price increases: Forget blaming tariffs - consumers don't give a shit. Focus entirely on increased value. If you can't articulate why your product deserves that 20-30% bump, you'll hemorrhage customers. On supplier negotiations: Your suppliers are panicking too. They're losing business - that's the whole point of tariffs. Be prepared to walk away. Competitors in lower tariff regions will cut aggressive deals to win your business, which gives you leverage with current partners. Too many brands operate on gut feeling instead of modeling variable changes. If you're making decisions without running these projections, you're flying blind. And in 2025's economic landscape, that's a guaranteed path to failure.

Tariffs are back—and they’re not just a geopolitical headline. They’re a financial variable. This is going to be a core topic of discussion among corporate finance professionals for the foreseeable future, so let’s break it down… Yesterday, the White House rolled out a sweeping package of new trade measures, including significant tariffs and new levies across a range of sectors. The move — pitched as a broader effort to “rebalance” international trade — immediately sparked fear of retaliation threats from the EU and China, and market reactions were swift—futures dropped, gold spiked, and companies are already seeking tariff exemptions for critical parts. But let’s step back and understand the fundamentals… What exactly is a tariff—and why should finance professionals care? At its core, a tariff is a tax on imports. It’s imposed at the border and often framed as a way to protect domestic industries. But the implications go far deeper than politics: • It’s a cost input. Tariffs increase the landed cost of imported goods. That shows up in a company’s COGS, pricing decisions, and eventually EBITDA margins. • It shifts behavior. Companies re-engineer supply chains to avoid tariff exposure, which requires upfront capex, long lead times, and often introduces new geopolitical risk. • It fuels inflation. When tariffs are applied at scale, price pressures increase. That forces central banks—already walking an inflationary tightrope—to reevaluate the balance between growth and price stability. • It distorts markets. Tariffs can introduce artificial winners and losers, masking underlying fundamentals and complicating investment theses. So while these tariffs may sound like just another policy headline, it’s anything but. It’s a tax, a signal, and a catalyst—all rolled into one. This isn’t just a trade story. It’s a margin story, a volatility story, and—if it continues—a move that will impact everything from the price of your next car to global commerce infrastructure and the health of the economy. #Tariffs #TradePolicy #GlobalEconomy #CorporateFinance #RiskManagement #Inflation #BusinessStrategy #Tax #Finance #Leadership

So... what do you do when whiplash feels like an understatement? Today, even with the S&P 500 up an eye-watering 9.52% as of market close in response to the tariff pause, we are not making further adjustments to our macro scenarios or allocation views. Why? We already baked this possibility in. As Lauren Goodwin, CFA and I said in Monday's Market Matters episode, temporary reprieve from tariffs represents not an end to the uncertainty, but an additional point of uncertainty (Will this 90-day pause stick? What happens on the other end?). The net result: ongoing volatility. This aligns with our longer-standing expectations as a team: for the past year, we've called for higher and more volatile inflation and interest rates. While tariffs are now the more explicit and explosive driver of this volatility, our baseline expectation holds. Accordingly, we: - Do not expect equities to continue their past two years’ 20%+ returns, so are leaning more into the fixed income and alternatives side of allocation - Still believe in earnings and credit quality rather than outright defensive positioning - Believe now is the time for U.S. investors to lean into diversification, by right-sizing steep underweights to international equities - Expect further volatility in the 10Y - we'll follow with more analysis. See our full suite of allocation views in our latest Macro Pulse outlook and podcast here: https://lnkd.in/e_UxjUq4

We can expect inflation and tariffs to drive bigger forecast misses in 2025. Financial models should capture the impact of both. Here's how: 𝗖𝗼𝘀𝘁 𝗼𝗳 𝗚𝗼𝗼𝗱𝘀 𝗦𝗼𝗹𝗱 (𝗖𝗢𝗚𝗦) 𝗮𝗻𝗱 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 The most obvious negative impact of inflation and tariffs is on the cost of imported goods or raw materials. While inflation drives the cost up over time, tariffs artificially inflate the cost of goods through what's essentially an import tax. Higher input costs from inflation and tariffs also increase the carrying cost of inventory. How can a financial analyst capture the impact appropriately? - Break out material costs into domestic and imported components. - Apply the inflation rates to both and apply the impact of tariffs to the imports. 𝗦𝗮𝗹𝗲𝘀 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 If you think that tariffs will only penalize foreign businesses, think again. Higher input costs may force companies to raise rates, potentially impacting the price consumers pay. It may also have a profound impact on the supply and demand. It won't be a matter of consumers choosing domestic goods over foreign goods. It might be a permanent reduction in goods produced. How can a financial analyst capture the impact appropriately? - Don't just forecast sales in total. Make it the product of volume and price, allowing for each to be modeled independent of the other. - Consider contingency scenarios, which can be activated based upon customer responses and the implications on revenue targets. 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗘𝘅𝗽𝗲𝗻𝘀𝗲𝘀 Inflation and tariffs can increase operating costs across most categories. This includes wages, utilities, and logistics among others. Financial planning & analysis professionals may need to aid in the restructuring of operations depending on the outcomes of their forecast models. How can a financial analyst capture the impact appropriately? - Include an inflation escalation factor for key operating expenses. - Separate tariff-related costs from inflation for greater visibility and influence. Inflation and tariffs in 2025 will have major disruptions on a global scale. Forecasting failure comes from a lack of consideration about future realities. Operational failure comes from a lack of imagination around how to deal with them. #BigIdeas2025

Recent risk assessments have highlighted the escalating concerns surrounding macroeconomic and geopolitical risks, particularly in relation to shifts in policies and priorities impacting operations and market conditions. The sensitivity of businesses to geopolitical and security issues, such as tariffs, sanctions, embargoes, and trade restrictions, poses a real threat to operations. To address these risks effectively, proactive risk organizations are implementing integrated risk management practices. These practices involve continuously reassessing enterprise risks, updating exposure information, and aligning operations to develop informed contingency plans. Some of the key considerations and actions being taken include: - Supply Chain Diversification or Re-location: Exploring options to diversify supply chains or relocate operations to mitigate risks associated with geopolitical and macroeconomic uncertainties. - Negotiated Price Lock-ins, Cost-sharing, or Hedges: Engaging in negotiations to secure price lock-ins, cost-sharing agreements, or hedging strategies to manage financial exposure to fluctuating market conditions. - Inventory Buffers: Building up inventory buffers to cushion against supply chain disruptions or delays resulting from geopolitical tensions or policy changes. - Tariff Engineering, Product Reclassifications, or Exemption Filings: Strategizing tariff engineering tactics, reclassifying products, or filing for exemptions to navigate changing tariff landscapes effectively. - 'Wait and See' :): Monitoring developments closely and adopting a cautious 'wait and see' approach to assess the evolving geopolitical and macroeconomic landscape before making strategic decisions. By aligning risk management practices with operational strategies, organizations can enhance their resilience in the face of geopolitical and macroeconomic uncertainties, ensuring a more robust and adaptive business model.

Predicting the impact of #tariffs with confidence is difficult, evidenced by guidance being broadly pulled in this latest set of earnings announcements. Over the last month, I’ve had conversations on this topic with dozens of talented business leaders, and there are three themes I’m seeing work well:  1. Run scenario planning models with different rate fluctuations. This will allow you to forecast the impact of tariffs on your margins and working capital, while preparing for swift changes in rates.   2. Enhance supply chain resilience through granular mapping, strengthened supplier relationships, and proactive tariff defense. Develop a detailed understanding of all supply chain tiers to identify dependencies and vulnerabilities, foster open communication with suppliers, and proactively incorporate protective tariff language into pricing.   3. Seek counsel from people you trust. Whether in-house or external, engaging experienced professionals will help you stay ahead of changes and advocate when needed. With a thoughtful, proactive strategy, you can find or bolster your advantage in the market.   #ShapeTheFutureWithConfidence #SupplyChain #Leadership #Strategy  

I have spoken with many CEOs who are looking for practical approaches to navigate the complex landscape of changing tariffs and trade controls. One effective strategy that many leaders are adopting is the establishment of geopolitical nerve centers to stay proactive and informed. These cross-functional teams: - Analyze Tariff Impacts: Utilize tariff scenario and cost modeling, competitive advantage analysis, trade flow analytics, demand modeling, and supplier risk assessment. - Implement a three-horizon strategy: 💠 Horizon 1: Tackle the most significant tariff exposures 💠 Horizon 2:  Focus on cost control, classification management, commercial actions, and stakeholder engagement 💠 Horizon 3: Re-evaluate manufacturing, supply chains, and business portfolios My colleagues Cindy Levy, Shubham Singhal, and Matt W. share how companies can navigate the evolving global trade landscape. Read the latest here: bit.ly/3RiAu9l #TradePolicies #SupplyChain #BusinessStrategy