Late-night hosts have mocked them, and public markets have yet to take them seriously, but Fortune 500 companies can’t afford to play down the risks of Trump’s tariff plans. Instead, many are building “tariff war rooms” to be ready for countless possible trade policy scenarios.
David Garfield, the newly named co-CEO of AlixPartners, a consulting firm, explains that his organization is working with major companies across every industry to build a mechanism for responding to the ever-shifting sands of trade tariffs, including those already in effect and those that remain theoretical but highly probable.
Protectionist trade policies were among the most impactful initiatives Trump followed through on during his first administration, and tariffs were a major part of the economic agenda of his campaign. Last week, the president imposed a 10% tariff on Chinese goods, although he agreed to a one-month postponement for potentially catastrophic 25% tariffs on nearly all goods from Canada and Mexico. The markets have been buoyed by this change of heart, but it would be risky if not disastrous for companies to assume they know what happens next.
Launching tariff-focused war rooms allows companies to map out possible responses and consider all the angles of this situation without radically reshaping their company for what may become a temporary problem, says Garfield. Thus, companies can build resilience in rapidly changing market conditions. “You want to build the capability into a business,” he says, “without having to start from scratch each time.”
Consequential strategy decisions
The idea of a “tariff war room” may conjure visions of executives huddled in a bunker or at an offsite for a marathon planning session, but it’s mostly a mechanism to regularly bring together C-suite members and other company leaders. “It’s setting up a model, or models, and a decision-making framework and process that gets sustained,” Garfield explains.
War rooms don’t require full-time hours or hiring new team members. And while a CFO or COO may take a lead in launching a war room, there is no single role assigned to responding to all the what-ifs around tariff questions. Instead, it becomes a C-suite-wide responsibility.
With a scenario-planning and decision-making framework in place, a company can look at the types of strategic pivots that may become prudent should tariffs hit their businesses. To develop their tariff-response playbook, a firm may be able to change where they source some of their goods, and shop around for the best prices, even when several countries are facing levies, says Garfield. Or they may want to tweak their pricing, especially if they can confidently predict that their competitors will do the same. Making such significant operational changes requires countless small but consequential decisions, he adds.
The co-CEO offers a hypothetical example of a company that uses equipment featuring microelectronic components, including printed circuit boards. “Let’s say tariffs are placed on China for microelectronic assemblies,” he says. The company that uses those parts would need to ask: Which of our products are impacted? Do we have alternative suppliers in other regions? What is the total value of the content in our products made up of those components? How will our competitors react? Tariffs can also trigger currency fluctuations, which ought to be factored into financial models. “There’s quite a bit of math to figure out,” says Garfield.
With data in hand, leaders can debate whether or how to respond to a tariff. For example, if a company knows its manufacturing costs are 10% lower than its closest competitors, it has a choice: absorb the tariffs and protect its market share by leveraging its existing cost advantage or protect its margins and pass the tariff cost to customers.
No time to wait
Companies have responded with varying levels of urgency to looming tariffs, Garfield says.
For some, tariff planning has become a one-off exercise in the margins of a document or an overly simplistic spreadsheet. “Most companies were taking what I’ll call the policy projections, the things that the Trump administration said they were going to do, and developing forecasts,” he says. Other companies—those who have already built war rooms—were “front-footed,” he adds, and have begun estimating what the tariffs could mean over months, quarters, or years.
Still other firms are waking up to the need for sustained complex planning now, Garfield adds, but he can hardly blame them. The pace of change has caught some by surprise. “It used to be that dealing with legislative agendas and macro policy issues like trade policies or environmental initiatives were these long-cycle things where companies could say, ‘Oh, let’s see what happens in the next G7 meeting,” says Garfield. “Now they’re like every day.”
