Commercial Insights

Understanding tariffs and international trade

Understanding the impact of tariffs may help ease the uncertainty.

In the usually calm seas of international trade, tariffs came in like a tsunami, sending ripples across the markets for consumers and corporations alike. The impact on businesses varies and sometimes rocks the boat in unexpected ways. With the recent levying of tariffs - big and small - from the new administration, some business owners and executives are battening down the hatches to weather the economic storm.

“We’ve been having these conversations with clients since November 2024,” says Carson Strickland, head of Regions Trade Finance team who noted that some clients are concerned about the tariffs and have been taking steps to mitigate some of the expected impact as the ‘Liberation Day’ approached.

To get ahead of the tariffs, some businesses began bolstering their inventory by speeding up their purchasing plans while others already shifted their supply chains to countries anticipated to be less likely impacted with new taxes on imported goods. Others still acknowledge that in the short-term they will either need to absorb the costs or pass the increase on to their consumers.

What are tariffs?

Before we get into the impact of tariffs on corporations, consumer, and the economy, let’s explore what a tariff is and why it might be levied.

A form of tax applied on imports from other countries, tariffs have been used to help protect domestic industries, such as agriculture and renewable energy, according to the Council on Foreign Relations. Increasing the price of goods produced outside of the country may serve to bolster domestic production by making the imported goods less attractive. For goods that may not be as readily produced domestically and consumer still have a demand for the product, the tariff serves only to raise the end price of the good.

Governments may also impose tariffs to raise revenue or exert political leverage over another country. But they can also have unwanted consequences, including higher prices for consumers.

Market speculations on tariffs trends cautious

Another consequence of tariffs levied is the speculation on Wall Street that consumers, corporations and the economy will be negatively affected by the imposed import taxes.

“We have a risk-off/flight to quality move taking place in the markets due to uncertainty surrounding how long this round of tariffs may remain in place, as well as concerns surrounding the prospect of additional tariffs to be levied,” says Brandon Thurber, chief market strategist at Regions.

Thurber noted that both consumers and corporations appeared to be increasingly cautious at the end of February with consumer confidence readings pointing toward inflation concerns. With tariffs, on balance, likely to put upward pressure on prices, consumers could be unwilling or unable to spend on non-essential items in the near-term, weighing on U.S. economic growth given two-thirds of the economy is consumption-based.

“Combine this dynamic with businesses sitting on the sidelines unwilling to invest due to the uncertainties surrounding trade, and the near-term direction for the U.S. economy, and you had a recipe brewing for a pullback in riskier assets such as stocks and corporate bonds such as we’ve seen post official tariffs announcements made on April 2, 2025, while perceived risk-free assets such as U.S. Treasuries garner more interest,” says Thurber.

Ultimately, Thurber noted that there are too many moving parts to have much confidence in how this trade spat will shake out in the near-to-intermediate-term.

How tariffs are impacting business

The tariffs on China are nothing new – rather an expansion on what was put into place in 2018 – so some businesses have already been moving their manufacturing out of that market with mixed success notes Strickland.

“We’ve seen inventories rise as U.S. companies began ramping up purchases from impacted countries in late 2024 and early 2025 to get ahead of the proposed tariffs,” said Strickland. “There are concerns around sales that were already made and even more so around the timing of shipments. Sales could be booked, or shipments could be on the water at current tariff rate and once those goods arrive, the new tariff rates could already be in effect.”

Strickland notes that in some cases, his team is seeing companies take collaborative efforts to absorb the increased costs where the suppliers are absorbing a percentage, the buyer is absorbing a percentage, and the remaining increase of cost is passed along to the end consumers.

“On a positive note, we have some manufacturing clients where their primary competition is in China,” notes Strickland. “Larger U.S. customers are coming to them with potential new orders since tariffs may offset cost savings of buying from China.”

He does note that this is not the norm, however.

Considerations for businesses embroiled in tariff turmoil

“Looking for ways to minimize risk and maximize working capital for our import and export clients is key as we seek to support their financial needs during the tariff turmoil,” says Strickland. In terms of working capital availability businesses can work to extend their accounts payable days to suppliers, reduce their accounts receivables days from buyers, and ensure they have a sufficient availability under their line of credit. Regions offers multiple solutions to support working capital needs.

“Additionally, with tariff increases, new or larger import customs bonds will be needed.”

“When importers owe tariffs to the government, there are often customs bonds they have to post to U.S. Customs and Border Protection, and frequently those will need to be collateralized,” notes Strickland. “Regions can provide collateral in the form of a standby letter of credit (LOC). During the last round of tariffs, we saw companies that never had to collateralize their bonds require collateral or those that did have increased collateral requirements.”

Supporting clients through the days ahead are the primary focus for the banking and advisor teams at Regions.

“We remain focused on our clients and helping them manage their working capital needs regardless of the many and various external factors that may exist,” notes Bryan Ford, head of Regions Treasury Management. “Regarding trade, this includes helping manage accounts receivable, inventory and accounts payable. All can be impacted - in some cases positively, in some cases, negatively. Our approach is to discuss solutions that can ultimately improve working capital for companies.”

But the news isn’t necessarily all bad.

What about U.S.-based subsidiaries of foreign-owned companies?

There have been a lot of negative headlines on the potential impact of tariffs on many consumer products, notably on automobiles, automobile parts, and other transportation products leading to a wave of car-buying activity.

“Many of our clients have expressed plans to expand production of key components in the U.S. to reduce reliance on imports and/or take advantage of tax benefits,” says Laerte Barros, head of Regions International Subsidiaries Group. “While many companies have already developed localization strategies, the expected rise in tariffs has accelerated these efforts.”

Barros also notes that in recent conversations with Economic Development Office representatives – who are in charge to attract foreign direct investment to their states - have revealed that international companies – previously limited to distribution of their products in the U.S., are now considering U.S.-based production as well.

“While this remains dependent on a clearer definition on the tariffs levels implemented, the trend is evident,” says Barros.

This circles back to one of the noted intents of tariffs where increasing the price of goods produced outside of the country may serve to bolster domestic production by making the imported goods less attractive.

This shift may create new opportunities for companies to make new investments in fixed assets, such as building new plants and/or expanding existing facilities to increase domestic production. Overall, while higher tariffs may pose challenges for companies heavily reliant on imports, they also create significant opportunities as these businesses establish or expand local manufacturing operations.

Ultimately, sustainable business isn’t just about ambition – it’s about foresight. With a proactive, pressure-tested plan and the right professionals by your side, businesses of any size can confidently navigate whatever comes next while staying focused on what truly matters.

Investor resources

Access the most recent Regions Weekly Market Commentary from Regions Wealth Management. You can find additional economic commentary and resources on Regions.com.

The Weekly Market Update Calls are presented live on Fridays at 11 a.m. CT / 12 p.m. ET as part of an ongoing weekly series hosted by Regions. You may submit questions in advance of each call to RegionsAssetManagement@regions.com for panelists to potentially address during the live call.

Discuss options on mitigating tariff impact with a Regions Commercial Relationship Manager today.

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