The Hidden Costs of Tariffs

In the past three months, how many ad hoc meetings have you been pulled into to discuss the implications of tariffs? How much time have you spent going back and forth on potential scenarios and mitigation actions? Probably more than you can count. 

You’re not alone. Kearney estimates that a typical multinational corporation spends 1,000 working hours per week dealing with tariff uncertainty. This means that, collectively, the top 2,000 US-owned MNCs lose more than 2 million working hours per week responding to tariff news.

Valuing this time conservatively at $100 per hour, that equates to $10 billion lost each year. Extend the formula to the 100,000+ small and mid-sized enterprises with over 100 employees, and the total economic impact on the United States easily surpasses $100 billion a year.

The damage goes beyond wasted hours. Tariff volatility drives frustration and fatigue, erodes job satisfaction, heightens workplace stress, and delays investments and strategic decisions.

New Challenges, Priorities and Skill Sets

Today’s dynamic and uncertain trade environment creates a wide range of new challenges, requirements, and priorities. These include:

• Customer and supplier renegotiations to revisit commercial terms, lead times, service levels, and more have spiked recently due to tariffs. This places a significant burden across the organization, with a large amount of time being spent preparing for and conducting negotiations with customers and suppliers, as well as adjusting existing processes to incorporate the negotiated outcomes.
• Scenario modeling exercises provide rapid “what if” assessments of the financial, operational, and customer impacts of new policies, pricing, or disruptions. Volatility means these exercises must be repeated multiple times with shifting assumptions, creating a drain on analytical resources.
• Legal and regulatory reviews involve frequent consultation with legal and compliance teams to assess new tariffs, customs regulations, and trade classifications. These require coordination across global jurisdictions, resulting in time-intensive alignment cycles.
• Pricing adjustments are needed to react to cost fluctuations and recalibrate pricing strategies for both suppliers and customers. This involves finance, sales, procurement, and product teams, and requires extensive rounds of alignment, review, and sign-off.
• Forecasting revisions are constant, as continually changing conditions impact demand and supply forecasts and must be constantly updated. Here again, time is spent aligning stakeholders on assumptions and reconciling gaps between functions such as sales and operations.
• Rewiring supply chains becomes a core task as dramatic swings in trade policies require cross-functional coordination to shift suppliers, change distribution networks, and revisit make-vs-buy decisions. The process involves myriad details and strict implementation timelines. Meanwhile, teams are distracted by daily firefighting.
• Capital expenditure (capex) reprioritization follows the re-evaluation of planned investments in areas such as automation, infrastructure, or technology in light of new risks or cost structures. These evaluations require detailed scenario analysis and stakeholder alignment, and often result in delays of transformational initiatives.

A 5-Pronged Approach to the New Normal

Here are five actions for addressing these new requirements, staying on track, and minimizing the impact of tariff volatility on people, productivity, and strategic focus.

1. Define clear roles and a simple governance model—and stick to it. Create a mini operating model that defines who will play what role, how various functions (such as sales, sourcing, supply chain, and engineering) will work together, and who will make what decisions at what forums. Precise clarity around roles and processes can help you deal with today’s uncertainty and avoid too many people getting pulled into too many unstructured meetings.
2. Don’t treat every news update as an “all hands on deck” moment. Rather than reacting to every announcement, empower teams to digest news, model potential scenarios, and present the key implications at planned forums or meetings. Trusting teams to do the right thing can avoid knee-jerk and time-draining responses from leadership that create unnecessary churn and organizational stress.
3. Reconsider traditionally hierarchical decision-making. Dealing with tariff uncertainty requires rapid responsiveness and in-depth understanding of SKUs, components, suppliers, and countries of origin. Most decision-making processes, meanwhile, involve chains of command and multiple reviews and stage gates—an inefficient use of leadership time that can lead to ineffective solutions. Instead, establish cross-functional “tiger teams” to make decisions and apply the principle of subsidiarity, which decentralizes decision-making to the lowest appropriate level, while maintaining a simple governance framework to manage oversight.
4. Future-proof talent and capabilities. Tariff uncertainty creates a wide range of new skills requirements, and talent strategies need to adjust accordingly. For example, multivariate long-term scenario modeling has traditionally been a once-every-few-years exercise, often conducted by external experts. Today, tariff mitigation requires continuous access to robust modeling capabilities to support short-term actions as well as long-term capex investment decisions related to macroeconomic scenarios. Some Fortune 500 companies are already looking ahead by adding dedicated roles and hiring new talent for tariff risk management strategy and scenario modeling.
5. Rethink organizational design to create the right accountability. Trade compliance has traditionally sat outside of the supply chain function, resulting in a disconnected approach that reactively flags risks as needed. Today, the two functions need to be closely integrated to enable proactive accountability that minimizes global trade exposure. Some Fortune 500 companies are establishing a geopolitical risk unit within operations with clear accountability for all scenario modeling, quarterbacking tiger teams, and facilitating governance and decision-making. 

While these changes might seem overly drastic for a short-term tariff challenge, uncertainty is the new normal. In response, organizations must go beyond short-term crisis management, and adopt people-focused strategies that preserve productivity, morale, and organizational effectiveness over the long term.

The authors would like to thank Tulika Vardhan, and Luca Wernick for their valuable contributions to the article.

Aman Khan and Alyson Potenza are partners and Aleem Damji is a Consultant in the Leadership, Change & Organization practice of Kearney, a global strategy and management consulting firm.