How Board Members Should Think about the Trump Administration’s Tariffs

Just weeks into his second term, President Donald J. Trump has wasted no time proposing dramatic changes to American trade policy.

Earlier this month, he instituted a new 10 percent tariff on Chinese imports and pledged to impose a 25 percent levy on goods from Canada and Mexico—though the North American tariffs were delayed for 30 days after Trump said those countries had agreed to more aggressively curb the flow of drugs and undocumented immigrants into the United States. President Trump announced later in February that he would enact a 25 percent tariff on all aluminum and steel imports.

The Chinese tariffs are just “the opening salvo,” Trump reportedly told journalists at the White House after unveiling the policy shift. “If we can't make a deal with China, then the tariffs would be very, very substantial.”For business leaders, the turbulence has ushered in an era of extreme unpredictability. Some pundits believe the Trump administration is simply posturing in an effort to extract concessions from trading partners. Others believe the president is willing to enter a trade war in an attempt to bolster American manufacturing. 

“I used to work at the Federal Reserve, and what we’d say is that forecasting is hard, especially if it's about the future,” said Ryan Monarch, who researches international trade at Syracuse University. 

“We know that President Trump is not afraid to have an actual trade war,” he continued. “We saw it in 2018 and 2019, where almost all goods coming from China were hit with the highest tariffs we've seen in almost 100 years. And those were very disruptive.” 

Prices increased for consumers and certain businesses, Monarch recalled. In his view, members of the Trump administration appear to feel that those earlier measures didn’t go far enough, and that the United States still must do more to “reorient the global economy” toward its interests.

The proposed tariffs have received mixed reactions within the business world. Some firms, such as publicly traded steel producer Nucor Corp., have applauded the policies. Nucor’s chair and CEO, Leon Topalian, said in a statement that the company welcomed “the first steps taken by President Trump in his America First Trade Agenda." 

To the contrary, Jay Timmons, CEO of the National Association of Manufacturers, released a statement expressing concern about levying tariffs against the United States’ North American trading partners. 

“A 25 percent tariff on Canada and Mexico threatens to upend the very supply chains that have made US manufacturing more competitive globally. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs,” he said. 

Neal Kissel, an advisor to senior executives and the global practice head at Marakon, noted that “roughly 30 percent of the S&P 500 revenue comes from abroad.” Additionally, he said, most US firms are “dependent on global supply chains that in some instances have taken decades to set up.”

Michael Marquardt, a global business advisor who has served on the boards of nine nonprofit groups or private firms, said he worries the tariffs will hurt America’s reputation as a reliable commerce partner, particularly since some of the proposed import taxes contravene earlier trade agreements.

“Without taking any political side of any sort, I think most international businesspeople are in a conundrum, because they love doing business with the United States…. But having such a lack of certainty all of a sudden is really problematic,” he said. 

Marquardt, who also serves as CEO of biotech start-up Epi One, thinks the Trump policy proposals are likely a negotiating strategy. That doesn’t mean the posturing comes without risks, he said. 

“Is it a situation where you essentially start telegraphing to the world that, you know, what we tell you today may not be in effect tomorrow?” he questioned.

Jon Lieber, head of research and managing director for the United States at Eurasia Group, agreed that Trump appears to be using tariffs as a means to extract concessions. “But he’s also clearly willing to stoke a trade war to get what he wants,” Lieber said. He predicts that risk will persist for the duration of the administration. 

Terence J. Lau, dean of the Syracuse University College of Law and a veteran of multiple boards, offered a third perspective. 

“President Trump, like most US presidents, is pragmatic and has shown repeatedly that he cares very much about stock market performance and earnings of US companies. Given the tremendous disruption that tariffs can take on supply chains, it seems highly unlikely to me that an across-the-board tariff on Canada and Mexico is going to stick,” he said.

For board members weighing how to respond to the volatile climate, Marquardt suggested remaining vigilant and encouraging executives to plan responses to various hypotheticals. For instance, if a company imports 30 percent of its goods from Vietnam, how might its profitability be affected if Vietnam suddenly faces a 10 percent or 25 percent tariff? Where else might the firm source its goods?

Corporate leaders might also consider being more conservative about spending, perhaps suspending dividends or major investments until the dust settles, Marquardt said. They should also consider engaging with industry groups or lobbyists to make sure that business interests are being sufficiently weighed in Washington, he continued. In short: the current climate may require a more hands-on approach from board members than less volatile political periods.

“You have to be very cautious. And that's a smart thing to do,” echoed Monarch. 

Even for companies that want to produce more goods domestically, pivoting is often “easier said than done,” said Alan Prushan, a management consultant who advises CEOs. He cited car manufacturers as one example; many American-made automobiles are assembled using parts from overseas vendors. “Changing that equation quickly isn’t easy,” he said. Each company must evaluate how quickly it could pivot production.

Julie Daum, a consultant at Spencer Stuart, said that boards “must remain agile and forward-thinking while staying true to the long-term strategic vision of the organization.” Specifically, she said, it is crucial for executives to conduct risk assessments and stress test how their businesses would react to changes in the geopolitical or economic landscape.

Daum also suggested evaluating leadership teams and succession plans, paying particular attention to whether the incumbent leaders are best suited to “navigate uncertainty.” Moreover, boards and management should take care to communicate proactively with stakeholders—such as investors, customers, and employees—who are “increasingly looking to boards for stability and transparency.”

It is difficult to predict whether the Trump administration will impose additional tariffs moving forward. On Feb. 1, the day the measures were first announced, the administration signaled “that the United States’ trade treaty commitments come with a caveat: trading partners must support US policy priorities,” said Barbara Matthews, nonresident senior fellow at the Atlantic Council and CEO of BCMstrategy. 

Monarch noted that Trump previously threatened to tariff Denmark if it does not agree to sell Greenland to the United States, and he pledged similar measures against Colombia over immigration disputes. “There is certainly this aspect where it's not just about economic policy,” he said. That may make forecasting even more difficult for corporate boards. 

“If you're not sure what the world's going to look like in six months [and] you're not sure what your supply chain is going to look like in six months, you're going to pull back on investment. You're going to pull back on hiring,” Monarch said. 

The views expressed in this article are the author's own and do not represent the perspective of NACD.

Noah Kirsch is a contributing writer for Directorship and Directorship Online.