The year 2025 has brought economic turbulence throughout the globe. The new US administration assumed office in January with a promise of economic revival and a warning to countries not to take advantage of the nation. In a bid to fulfil this objective, the US administration has announced sweeping tariffs on all trading partners of the nation. Here are some of the risks that companies will incur in the face of the tariffs.
Supply Chain Risks
The tariffs have already triggered supply chain disruptions with businesses racing to secure supply of their products before the tariffs come into effect. Mounting pressure on global logistics will drive up the operational costs of businesses and drive an immediate shift in their strategy.
In addition, the introduction of tariffs can impact the supply of goods and services to the end consumer. Owing to rampant globalization, supply chains have become interconnected and companies usually source their products or services from other countries. The introduction of tariffs threatens a reduction in the availability of imported goods, which can lead to price hikes, product shortages, and reduced competitiveness in the market.
Vendor Risk
Vendor risk is the threat emanating from external suppliers or vendors of a company. Owing to the imposition of tariffs, companies in the US will face a steep increase in the prices of products sourced from abroad. Additionally, suppliers located outside US will either lose customers based in US or face roadblocks in supplying their products, ultimately affecting their sales.
Vendor risk can result in financial losses, operational disruptions, cybersecurity breaches, reputational damage, and regulatory violations.
Market Risk
Market risk emerges when companies experience losses due to factors that affect the overall performance of financial markets. Owing to the freefall in capital markets following the announcement of the imposition of tariffs, the market risk for companies specializing in derivatives, financial securities, capital markets, and other financial instruments increased significantly. Moreover, banks, equity research companies, currency markets and commodity traders are also at a danger of dealing with market risks due to tariffs.
Stock market investors also bore the brunt of the tariff announcement and suffered hefty losses.
Political Risk
Political risk refers to the potential impact of government actions, political instability, or shifts in policy on a company’s operations and profitability. With the imposition of tariffs, businesses face a heightened level of political risk, particularly in cross-border trade.
Changes in trade agreements, such as those resulting from geopolitical tensions or shifts in foreign policy, can affect companies’ ability to access markets, increase operating costs, or expose them to retaliatory measures from foreign governments. The uncertainty surrounding political decisions makes it difficult for companies to plan long-term.
Political risks can impact everything from regulatory compliance to the general business environment in which a company operates.
Reputational Risk
Reputational risk stems from negative public perception or the damage to a brand’s image due to its actions or the actions of those it is associated with. Companies facing the imposition of tariffs may be accused of contributing to higher costs for consumers, leading to a loss of trust and loyalty among customers.
Moreover, businesses that do not manage their tariff-related challenges with transparency and integrity may find themselves under intense scrutiny from consumers, investors, and regulators. Social media and public opinion can amplify these concerns, and reputational damage can take a long time to repair, potentially leading to decreased sales, declining market share, and heightened difficulty in attracting top talent or securing investment.
Cross-Border Commerce Risk
Cross-border commerce risk refers to the challenges and uncertainties faced by companies engaged in international trade. The imposition of tariffs can exacerbate these risks by disrupting established trade flows, altering competitive dynamics, and introducing new barriers to entry in foreign markets.
Companies that depend on global supply chains may find it more expensive or difficult to source raw materials, components, or finished goods from overseas. Currency fluctuations, legal complexities, and changing trade regulations also pose risks to cross-border commerce.
As markets react to tariffs and protectionist measures, businesses may need to rethink their international strategies to maintain competitiveness and mitigate these cross-border risks.
Operational Risk
Operational risk encompasses the potential for loss or disruption due to failures in internal processes, systems, or external events such as tariffs and regulatory changes. The introduction of tariffs can significantly affect a company’s operational efficiency by increasing the cost of raw materials or finished products, creating logistical challenges, and forcing businesses to adjust their supply chains.
These disruptions often require companies to reassess their operational strategies, potentially leading to delays, increased costs, or reduced output. The strain on operational resources can also amplify risks related to workforce management, technological systems, and internal controls, especially when rapid changes are required to address new external conditions like tariffs.
Anti-Bribery ESG Risk
Anti-bribery and environmental, social, and governance (ESG) risks pertain to a company’s exposure to legal, financial, and reputational harm stemming from unethical business practices or failure to meet regulatory and societal expectations. In the context of tariffs, companies may face pressure to navigate new regulations while adhering to anti-bribery and anti-corruption standards, particularly in markets with less stringent enforcement.
The changing landscape of global trade could lead some businesses to face ethical dilemmas in securing deals or entering markets where bribery and corruption are more prevalent. Furthermore, the imposition of tariffs may prompt businesses to reconsider their supply chain practices and ESG commitments, as they seek to balance economic pressures with the need for sustainable and socially responsible operations.
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