Understanding Tariffs and Their Effects on Business

Global business rarely runs smoothly—and few factors spark more questions (or confusion) than tariffs. One day, import costs rise unexpectedly; the next, clients worry about margin erosion or supply chain chaos. For accounting professionals, every headline about new tariffs can translate into urgent questions: What do these changes mean for my clients—and how do I prepare them for what’s next?

The complexity of tariffs comes from their reach: they affect pricing, profitability, purchasing strategies, and even the pace of international partnerships. This article untangles that web, offering a clear blueprint for understanding tariffs—so you can empower clients to navigate the global market with confidence.

Defining Tariffs

Think of a tariff as a toll gate on the highway of international trade. At its core, a tariff is a tax attached by a government to goods and services as they enter a country. Governments have a handful of motivations for imposing them—protecting fledgling domestic industries, generating revenue, and balancing trade deficits are chief among them.

Historically, U.S. tariffs began as a vital funding tool, supporting government infrastructure before the era of federal income taxes. The focus, now and then, is enabling domestic industries to compete and reducing reliance on imports for key goods. More recently, tariffs have been used as negotiating tools or leverage points in a broader international policy arena, with the past decade seeing them weaponized in trade disputes well beyond traditional commerce concerns.

Types of Tariffs Explained

Not all tariffs are created equal. The most prevalent is the ad valorem tariff, a percentage-based tax on the value of imported goods. For example, if there’s a 10% ad valorem tariff on imported computers, a $5,000 shipment faces a $500 duty—flexible, but it means cost increases as product values climb.

Contrast this with a specific tariff, where a fixed fee applies per unit, regardless of price. Both target imports but operate differently in practice. Then there’s an embargo: unlike a tariff, it outright blocks trade for certain goods or nations, often for political or security reasons.

Accounting pros should recognize the broader term duty. While tariffs are one kind of duty, duties also include customs, excise, and VAT, each designed for distinct trade, regulatory, and fiscal goals.

Tariffs' Economic Role and Function

Imposing a tariff is rarely just about filling government coffers. A key function is to make foreign goods more expensive, nudging businesses and consumers toward locally sourced products. Recent U.S. tariffs on imported steel, for instance, aimed to bolster American manufacturing and counteract perceived unfair overseas competition.

Governments turn to tariffs for:

• Raising funds for public projects and services
• Safeguarding jobs in key domestic industries
• Shielding industries tied to national security, like defense or energy

Tariffs also form the backbone of international negotiations; retaliatory tariffs often escalate quickly, affecting everything from agriculture to tech. Think of the tit-for-tat measures between the U.S., China, Canada, and Mexico in the last decade. Such disputes ripple through global supply chains, reminding professionals that trade strategy is rarely a one-sided equation.

Who Ultimately Bears the Cost of Tariffs

On paper, importers pay tariffs at the border. The reality is more nuanced: often, those costs pass through the chain. Businesses facing higher import duties might raise prices for consumers or absorb costs to stay competitive, compressing profit margins—especially punishing for small and medium-sized firms.

Consider a U.S. retailer importing clothing. When tariffs make overseas fabric pricier, the business either increases retail prices or accepts reduced margins. This logic extends to manufacturers, especially those relying on tariffed raw materials.

To respond, smart organizations explore regulatory relief (like duty exemptions), re-examine supply chain sourcing, or leverage trade programs that legally reduce duty obligations. Proactive tax and accounting advice is crucial here—from identifying Free Trade Agreements to optimizing inventory to qualifying for programs like Foreign Trade Zones.

Current Landscape for U.S. Tariffs

The terrain for U.S. tariffs evolves rapidly. Since 2018, major policy shifts have targeted imports from strategic competitors like China (especially under Section 301 of the Trade Act) as well as steel and aluminum (via Section 232). These moves have broadened to affect far more than one industry or country and have sparked vigorous reactions worldwide.

Today, about 94% of U.S. merchandise imports by value are industrial goods, with the average import tariff rate for those products sitting around 2%. However, these rates mask powerful volatility—the specifics change with each policy update, administration, and negotiation round.

Tariffs are increasingly used beyond traditional trade: as leverage in foreign policy and as a tool for economic signaling. Trade professionals now operate in a world where tariff changes can happen overnight. Staying adaptive and vigilant is critical.

Communicating Tariff Impacts to Stakeholders

The onus is on advisors to make the complex understandable. Start by summarizing the direct financial impact: increased input costs, the potential need to adjust pricing, or supply chain risks. Next, highlight how government revenue from tariffs can rebound on businesses indirectly through fiscal or policy changes.

For rapid wins, focus on three action points:

• Clarify how tariffs might increase operational costs or alter pricing for end customers
• Identify paths to recapture value, such as duty optimization or shifting sourcing strategies
• Highlight trusted, up-to-date sources for trade and tariff regulations to keep decision-makers agile

Accounting and tax professionals who demystify these dynamics—and offer actionable mitigation tactics—can position themselves as indispensable business partners in an unpredictable trade environment.

Staying Ahead with Reliable Trade Information

In fast-moving markets, today’s insight can become tomorrow’s blind spot. Make it a habit to consult continuously updated, reputable sources for international trade changes. Webinars, government advisories, and industry news should be part of every professional’s toolkit for tariff tracking.

A proactive approach will help business leaders not only weather volatility but also spot opportunities as global trade rules evolve. With the right understanding and timely information, tariffs can become another navigable challenge—not an insurmountable wall.