Beating Tariffs: How to Zero Out the Margin Hit
A 15% tariff or sudden raw-material spike can slash margin by W%.
But most mid-market manufacturers can claw that back, if they hit the right mix of three levers:
1️⃣ Supply-chain moves – re-source, duty-drawback, near-shore.
2️⃣ Internal cost reduction – lean operations, yield improvement, SG&A trim.
3️⃣ Strategic pricing & mix – targeted pass-throughs and portfolio focus.
The math is simple but urgent:
Can X% + Y% + Z% ≥ % in your P&L?
If you haven’t run the numbers, now’s the time.
The Big-Company Signal
In the past few months, some of the world’s largest companies have been explicit about tariff impact:
Apple (AAPL) – Expects tariffs to cut earnings by nearly $2 billion for the six months ending September 30.
Caterpillar (CAT) – Calls tariffs a “more significant headwind to profitability” in 2H 2025; saw a 0.7% revenue hit, with COGS up 6.5%.
Hershey (HSY) – At least $170 million in tariff costs this year.
VF Corp. (VFC) – $250 million hit to earnings through 2026.
Molson Coors (TAP) – $20–35 million in costs from higher aluminum prices in 2H 2025.
Berkshire Hathaway – Attributes a 5.1% revenue drop in its consumer goods division partly to tariffs.
Stanley Black & Decker – $800 million in tariff costs this year.
Nike (NKE) – Tariffs expected to trim profit by around $1 billion in FY 2025.
Tariff Reality Check
Based on recent deals:
15–20% is becoming the norm for most products.
Steel and aluminum remain at 50% (EU still pushing to swap for quotas).
Country updates: UK – 10% (May 2025), Japan – 15% (Jul 2025), EU – 15% (Jul 2025), Philippines – 19% (Jul 2025), Indonesia – 19% (Jul 2025).
And now, semiconductor tariffs are entering the mix, with potential ripple effects across electronics, automotive, and industrial equipment.
Pricing Pressure Already Starting
Even before the latest U.S. semiconductor tariff announcements, chipmakers had begun moving on price:
Micron started applying a tariff-related surcharge on certain memory modules and SSDs from April 9, while also signaling a broader ~11% price increase due to tightening supply and rising demand.
TSMC raised chip prices by as much as 20% during the recent shortage cycle, underscoring how upstream pressure can cascade into finished goods.
Other semiconductor manufacturers are still assessing their tariff pass-through strategies, but the industry’s history suggests cost moves travel quickly through the value chain.
From Impact to Action
If your raw material or component costs are climbing, focus on:
Fast-payback levers first – Pricing and internal cost reduction can move faster than re-sourcing.
War-room clarity – Who owns each lever, by when, with what payback?
Supplier & customer conversations – Keep them fact-based and anchored in value.
Bottom line: Tariffs are here, and they’re not waiting for your budget cycle. The companies that model their W%, identify their X + Y + Z mix, and execute fast will be the ones still protecting margins.
#Tariffs #CostInflation #Manufacturing #PricingStrategy