The impacts of the erratic approach to tariff policy are wide ranging and generally have sewn uncertainty for CEOs and business leaders. That uncertainty, by extension, is disrupting the existing plans and growth strategy of many businesses.
“Tariffs are creating a distraction as it relates to the day-to-day operations of many businesses, affecting how products are priced and what markets to cultivate today versus in the future,” says David Legeay, Relationship Manager, Portfolio Management, and Managing Director, at Glenmede. “This is also interfering with business leaders’ ability to engage in significant long-range planning — for their businesses, as well as themselves.”
Smart Business spoke with Legeay about the impact tariffs are having on the market and what business leaders can do to navigate them.
What impact are tariffs having on the market?
Economic growth expectations have fallen, and the economy has moved closer to recession while stagflation concerns have kept the Federal Reserve on the sidelines watching employment and inflation closely. All of this has led consumers to express less confidence in today’s economy. However, the data shows paradoxically that while there’s a professed discomfort with the uncertainty, consumers continue to spend at impressive rates.
Feeding recession fears are concerns that the current policy adds a level of potential price and margin impacts for businesses. Increased inflationary pressure is also a threat as not all the burden of the tariffs will be passed through to consumers. All these factors create the potential for lower growth, higher inflation and a lack of certainty when it comes to interest rate policy.
Conversely, the implementation or threat of tariffs has driven some countries to the table to negotiate existing trade deals. More favorable agreements could be a benefit to the U.S. by lowering the cost of goods while increasing opportunities for employment and better wage growth if onshoring or greater investment follows.
Businesses in the U.S. that source raw materials organically and sell domestically will see benefits as tariffs serve to erect barriers to entry. Businesses are also compelled to re-examine their levels of productivity, find ways to increase margin or profit elsewhere and explore efficiencies.
How are tariffs affecting M&A?
Tariff policy has brought a chill to the M&A market. Middle-market equity deal multiples may begin to moderate alongside their public market counterparts. CEOs of acquisitive companies willing to engage in M&A activity post-election have seen their confidence wane in the wake of tariffs. As uncertainty dissipates, better financing terms for leveraged loans may be a tailwind as will the accumulating cash on private equity firms’ balance sheets.
The decision to monetize a business has significant implications for business owners’ personal balance sheets as they see increased volatility and uncertainty in their personal portfolios, and thus less visibility into the personal financial impacts. The transition from owning a business to a liquidity event can be paused when there’s uncertainty — business leaders are more likely to stay in their business than sell because they’re waiting for better market conditions.
What should business leaders consider?
Business owners and leaders should consult with trusted advisers, members of an industry trade association or peers in the industry, and listen to their experiences; gathering a breadth of ideas is critical right now. From a personal perspective, owners should be reviewing their non-business-related assets and plans as they may provide more stability or liquidity during times of greater volatility.
Disruption introduces uncertainty, but it also presents strategic opportunities. Organizations that thoroughly evaluate the evolving landscape and identify potential competitive advantages will be better positioned to navigate challenges effectively. Those that execute effectively may find growth beyond previous expectations. ●
This article presents general information and is not intended to be financial, investment, tax, legal or other advice. It contains information and opinions which may change after publication. Views expressed herein do not necessarily reflect the views of the author’s employer. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Readers should consult with their own financial, tax, legal or other advisors to seek advice on their individual circumstances.
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