Tariff Turmoil of Early 2025: Impacts on Third Party Risk Management and Supply Chain Risk ​

Quick Summary
In this blog post, we examine how the global surge in tariffs and trade barriers in early 2025 is shaking up Third Party Risk Management (TPRM) and supply chain strategies. 

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Global trade relies on complex supply chains, which are now facing new pressures from tariffs and trade barriers.

The world of global trade entered a new era of tariff turmoil in early 2025, and businesses are feeling the strain. In the United States and beyond, sweeping tariffs, sanctions, and trade disruptions are reshaping third‑party risk management (TPRM) in profound ways. Companies that depend on international vendors and suppliers are suddenly grappling with surging costs, supply chain upheavals, and regulatory uncertainty.

In this blog post, we’ll take a conversational look at what’s happening and why it matters exploring real-world examples from North America and around the globe and highlighting practical strategies to manage these risks. Whether you’re a seasoned risk professional or just curious about how tariffs affect vendor relationships, read on to understand how to navigate this turbulent trade climate.

The Early 2025 Trade Landscape: Tariffs Are Back in a Big Way

If it feels like trade tensions have ramped up in 2025, you’re not imagining it. After a period of relative calm, tariffs have roared back to center stage as a tool of economic policy. In the United States, newly inaugurated leadership moved quickly to impose sweeping import tariffs under the banner of “reciprocal trade.” In fact, President Trump declared a national emergency in early 2025 and rolled out broad tariff measures on virtually all imports. Starting April 5, 2025, a universal 10% tariff hit goods from every country, and just days later higher country-specific duties kicked in for nations with which the U.S. has large trade deficits. This meant hefty tariffs on allies and rivals alike, 25% on imports from Canada and Mexico, up to 20% on Chinese goods, 46% on Vietnam, 37% on Bangladesh, and so on. No corner of the supply chain was left untouched by these sudden cost increases.

Other countries didn’t sit idly by. Major trading partners responded in kind, escalating a tit-for-tat trade conflict. China, for example, announced retaliatory tariffs that pushed duties on U.S. goods as high as 84% (up from 34% previously) in April 2025. This rapid escalation quickly started to resemble the trade wars of a few years ago but on steroids. Within weeks, companies worldwide were watching nervously as negotiations, exemptions, and further threats filled the news. Global finance leaders at the IMF–World Bank Spring Meetings in April 2025 identified U.S. tariff policy as the dominant issue of concern, with countries like Japan and South Korea urgently seeking exemptions or delays to the new U.S. measures. What used to be routine economic meetings turned into high-stakes trade discussions, underscoring just how dramatically the rules of global commerce had changed virtually overnight.

North America Feeling the Squeeze

The North American supply chain one of the most integrated in the world is feeling intense pressure from these tariffs. Under the USMCA (the free trade agreement linking the U.S., Canada, and Mexico), most goods flowed tariff-free for years, enabling tightly woven cross-border production networks. Now, with 25% U.S. tariffs slapped on Canadian and Mexican products, manufacturers face whiplash. Automakers and aerospace firms, for instance, rely on parts crossing the U.S.-Mexico border multiple times during assembly. Suddenly, those parts incur extra taxes each trip, driving up costs and threatening just-in-time delivery schedules. One immediate consequence is higher prices and potential bottlenecks as noted by analysts, these broad tariffs risk causing out-of-stock items and even empty shelves for U.S. consumers if supply lines falter, though the full effects might take weeks or months to materialize. In Canada and Mexico, exporters are scrambling to adapt as their once-preferential access to the U.S. market is eroded, at least temporarily. Some businesses are examining whether they can reroute goods or perform final assembly in the U.S. to dodge some tariffs, but such workarounds often add complexity and cost.

Meanwhile, sanctions and trade restrictions continue to compound the situation. Sanctions related to geopolitical conflicts (such as those targeting Russia since 2022) remain firmly in place and even saw new expansions in 2025. For example, U.K. authorities rolled out a fresh package of trade sanctions against Russia in April 2025, further restricting Russian access to key supply chains. These measures have forced companies worldwide to restructure their procurement industries from oil to precious metals and have had to find new suppliers as Russian sources are off-limits. The cumulative effect is a trade environment rife with barriers, whether tariffs or sanctions, and that means more uncertainty for any organization that relies on third parties for goods or services.

Global Ripples and Reactions

Beyond North America, the tariff shockwaves are rippling across Asia, Europe, and beyond. Global trade volumes are expected to take a hit in 2025 as a result of these tensions. The World Trade Organization (WTO) warns that merchandise trade could decline by 0.2% this year, a stark reversal after modest growth in 2024. In a worst-case scenario say, if the tariff war further escalates or spreads global trade might drop by as much as 1.5%, according to the WTO’s projections. Particularly striking is the impact on export-dependent regions: North American exports are forecast to plummet by 12.6%, reflecting how hard U.S. and Canadian industries could be hit by both tariffs and any foreign retaliation. In short, every open economy that relies on trade is bracing to “get squeezed” by this new reality.

Countries are taking note and, in some cases, taking sides. China has been vocal in warning other nations not to make side deals with the U.S. that might undermine China’s position. There’s a sense of a reshuffling global order where will companies source critical components if traditional corridors become too expensive or politically charged. In Europe, policymakers are cautiously navigating the U.S. stance. The European Union is even exploring technical solutions to prevent new trade frictions, such as finding ways to help U.S. energy exports meet EU environmental standards to avoid conflict over regulations. All of this underscores that tariffs are not just a U.S. issue; they’re a global challenge. Supply chains today are so interconnected that a tariff in one country can reverberate across multiple continents. And for businesses, that means third-party risks are growing in ways they can’t afford to ignore.

Why Tariffs Matter for Third Party Risk: The Vendor Relationship Under Strain

At first glance, “tariffs” might sound like an abstract trade policy issue far removed from day to day vendor management. But in reality, tariffs strike right at the heart of third-party risk exposure. If your organization works with any external suppliers, manufacturers, or service providers (which is almost every company in some form), tariffs can directly impact those relationships and introduce new risks. Let’s break down how tariffs increase risk exposure in vendor and supply chain relationships:

  • Soaring Costs and Pricing Pressures: Tariffs are essentially taxes on imports, so when a tariff hits a product your vendor provides, the cost of that product shoots up overnight. Businesses then face an unpleasant choice absorb the higher cost or pass it on to customers either way, margins suffer. Many U.S. companies have responded to past tariffs by passing costs to consumers, but there’s a limit to how much customers or the market will bear. These cost pressures can strain your vendor relationships too. Suppliers may demand to renegotiate contracts, or worse, they might become financially unstable if they can’t sell enough at sustainable prices. A recent stress-test analysis showed tariffs could cause a 111% increase in the number of private companies rated as high-risk financially. In other words, many suppliers’ finances are deteriorating under tariff burdens, doubling the pool of vendors that might be at risk of failure. Third-party risk managers must now keep a closer eye on vendors’ financial health because a once-stable supplier might edge toward bankruptcy due to a tariff-induced profit squeeze.
  • Supply Chain Disruptions and Delays: Tariffs (and their cousin, import quotas) can act like speed bumps or outright roadblocks in your supply chain. When tariffs are imposed suddenly, shipments can be delayed at ports as logistics providers grapple with new paperwork or scramble to reroute goods. There have been cases of companies rushing to import critical components before a tariff deadline, front-loading inventory to beat the clock. That kind of scramble can temporarily fill warehouses but later lead to gaps if the supply lines are reorganized. In early 2025, we’ve seen companies expediting orders in Q1 to get ahead of the April tariff hikes, followed by a potential lull as they figure out the next steps. Over the longer term, persistent tariffs might force certain suppliers out of the U.S. market, causing you to find new sources. Every change like this is a disruption risk – introducing potential delays, quality issues, or inability to meet demand. Supply chain managers report that even before the latest tariffs, forecasting and inventory planning were disrupted by trade policy volatility. Now those disruptions are only more frequent. It’s telling that in a recent survey, supply chain professionals ranked disruptions as their number one strategic concern – tariffs are a big reason why those disruptions are so frequent in 2025.
  • Compliance Complexities and Regulatory Risk: Every new tariff comes with new rules – harmonized codes, country-of-origin determinations, exemptions, etc. For companies importing goods (directly or indirectly via vendors), this means more complex compliance requirements. Documentation needs might increase (forms to claim tariff exemptions or reduced rates, affidavits of origin, etc.), and the chance of errors or violations goes up. If a vendor mis-classifies a product to avoid a tariff and you as the buyer don’t catch it, your company could face penalties or reputational damage for customs non-compliance. Tariffs can also blur into sanctions territory. For example, some of the U.S. tariff actions in 2025 were justified on national security grounds, invoking emergency economic powers – this approach intertwines with export controls and sanctions. Companies now must ensure none of their third parties are attempting illicit tariff evasion or routing through sanctioned entities, which would pose legal risks. Simply keeping up with the fast-changing tariff rules has become a task; experts note that companies need to monitor regulatory updates weekly to stay compliant. Falling behind on these updates is risky – a tariff rule you missed could mean a shipment gets stuck or fined. This places a premium on the “governance” aspect of TPRM, making sure your contracts, customs processes, and vendor oversight are all up to date with the latest trade regulations.
  • Geopolitical and Concentration Risks: Tariffs are often a byproduct of geopolitical tensions – and they can signal deeper risks with certain countries or regions. If your supply chain is heavily concentrated in one country (say, China or Mexico), tariffs immediately expose that concentration risk. A single geopolitical decision can impact all your key suppliers at once. We saw this in early 2025: companies that had offshored a large share of their production to China or Southeast Asia suddenly saw huge portions of their procurement hit with 20%+ duties. That kind of shock underscores why diversification is vital (we’ll discuss strategies soon). Additionally, tariffs can provoke retaliation or broader trade wars, which raise the risk level of operating in certain markets. For instance, after the U.S. moves in April, China’s warning to other nations and its retaliatory steps signalled that companies doing business in China might face a more hostile trading environment. Third-party risk isn’t just about the financial stability or cyber security of your vendors it’s also about the macro risks of where they operate. In 2025, understanding the political/trade dynamics of a vendor’s home country is becoming as important as understanding their SLA performance. A vendor in a country caught in a trade dispute can inadvertently become a high-risk third party through no fault of their own.
  • Quality and Operational Risks from Rapid Supplier Changes: Tariffs can force companies to switch suppliers or change sourcing strategies very quickly. If a key component from overseas becomes too expensive, you might seek a local or alternate foreign supplier. However, onboarding new vendors under time pressure can introduce quality control issues and operational hiccups. There’s less time for thorough vetting, trials, and gradual integration. A study of past tariff waves found that rushed supplier changes often led to product quality problems, as companies had to adjust on the fly. If a new supplier isn’t fully up to speed or lacks sufficient capacity, you could face defects, late deliveries, or production downtime. All of these are third-party risks manifesting in operational performance. Furthermore, contractual relationships might be immature you might not have the same level of understanding or trust with a new vendor as you did with one you’ve used for years. That can make dispute resolution or collaboration more difficult when issues arise. Essentially, tariffs can inject turbulence into the usually steady process of supplier management, making everything from onboarding to quality assurance more fraught.
  • Fraud and Cyber Risk in the Chaos: One of the more surprising side effects of the tariff upheaval is a spike in vendor-related fraud risk. How so? Think about the chaotic environment: companies are scrambling to re-route supplies, sign on new vendors quickly, and maybe stockpile goods. In this rushed atmosphere, fraudsters see opportunity. They know businesses may not have all their normal verification processes in place when urgency is high. According to fraud prevention experts, the upheaval from tariffs has opened the door for scammers to impersonate vendors or manipulate payments. For example, a company might get an email that looks like it’s from a newly contracted supplier asking for an urgent wire transfer for a rush shipment when in fact it’s a clever impostor. Nearly 70% of companies were targeted by vendor impersonation scams in the past year, and that was before tariffs ramped up. Now, one in four organizations expects that recent supply chain changes will increase their risk of payment fraud. This is a vivid reminder that TPRM isn’t just about analyzing high-level trade risks; it also means ensuring your vendor onboarding and payment controls are solid, even when you’re moving at warp speed. As one treasury expert noted, the tariff-fueled supply chain disruptions are creating “fertile ground for vendor fraud” because teams are so focused on avoiding tariffs that they may be less vigilant about who they’re paying and whether proper controls are in place. It’s akin to the early days of the COVID-19 pandemic when emergency sourcing led to lapses in normal vetting and a spike in procurement fraud. The lesson: don’t let your guard down on due diligence, even amid tariff chaos.

In sum, tariffs have a multi-dimensional impact on third-party risk. They squeeze finances, rock supply logistics, complicate compliance, and even create side-door risks like fraud. For organizations in North America and globally, this means TPRM programs need to expand their scope. If you haven’t traditionally included “trade policy risk” or “geopolitical risk” in your vendor risk assessments, now is the time. The next section will explore some real-world scenarios of how these tariff-induced risks are playing out before we dive into concrete strategies for mitigating them.

Real-World Examples: Tariffs Driving Third Party Risk Around the World

To truly grasp the impact of early 2025 tariffs on third-party and supply chain risk, let’s look at a few real-world examples across industries and regions. These examples illustrate the challenges companies are grappling with and set the stage for discussing how to respond:

  • Manufacturing (Automotive): The auto industry in North America is a poster child for intricate third-party networks. A typical car assembled in Michigan might contain engines from Mexico, electronics from China, and steel from Canada. With new tariffs, automakers are facing an immediate cost spike on imported parts one estimate suggested a popular mid-sized vehicle could see its production cost jump by several hundred dollars due to the April tariffs. This puts automakers in a tough spot: raise vehicle prices (hurting demand) or swallow the costs (hurting profits). Many are pushing suppliers to share the burden, leading to tense renegotiations. Smaller parts suppliers, already operating on thin margins, could be pushed into financial distress or forced to cut corners to reduce costs elevating the risk of a weak link in the supply chain. The just-in-time delivery model is also under threat. Some auto manufacturers resorted to stockpiling critical components in Q1 2025 to create a buffer, but that’s a short-term fix. If tariffs persist, they may need to redesign cars to use more U.S.-sourced parts or work with entirely new overseas partners (for instance, seeking suppliers in countries not hit by the U.S. reciprocal tariffs). Each of those moves carries third-party risks: new suppliers need vetting; and design changes require careful quality control. The operational complexity is enormous, and risk managers in auto firms are working overtime to monitor all these moving pieces.
  • Technology Sector: Tech companies, from smartphone makers to data center equipment providers, have long global supply chains with critical suppliers in Asia. The 2025 U.S. tariffs on China and other Asian countries directly hit many electronic components semiconductors, circuit boards, and finished gadgets now cost more to import. A U.S.-based electronics manufacturer that relies on Chinese contract manufacturers suddenly faces a 20% tariff on its finished goods. This company might try to shift assembly to Vietnam to dodge China-specific duties but wait, Vietnam was tagged with an even higher tariff (46%). Perhaps move to India? India isn’t on the high-tariff list and has been courting manufacturers, but ramping up a new facility or partner in India could take time and involve due diligence challenges (will the new partner meet quality and IP protection standards?). Some tech firms are exploring Mexico as an assembly hub (the nearshoring trend) because of geographic proximity, only to be whipsawed by the 25% tariff on Mexican goods. So the tech sector is making some hard choices: pay the tariffs for now and accept lower margins or disruption, or invest in a long-term supply chain realignment which is costly and risky in itself. On top of this, export controls (a form of “reverse tariff” where countries limit what can be sold to certain nations) are adding risk. For instance, U.S. sanctions on Chinese tech firms mean you must ensure none of your third-party suppliers violate those rules, or you could end up unable to get key components. We’re seeing a new wave of supplier audits in the tech industry not just for quality, but to verify that suppliers are not, say, using blacklisted sub-suppliers or violating trade rules, which could boomerang back on the U.S. company. This deep level of third-party scrutiny is becoming essential to keep the tech supply chain running in a compliant way under the new trade regime.
  • Retail and Consumer Goods: Retailers and consumer product brands are on the frontlines when costs increase, as they have to decide how much to pass on to shoppers. Consider a U.S. retail chain that imports a large share of its inventory of electronics, apparel, and furniture. Many of these goods come from Asia or Mexico. The tariffs mean higher import costs across dozens of product categories. This retailer is now pressuring its vendors (the third-party manufacturers and distributors) to find cost savings or risk losing shelf space. Some vendors might attempt to source raw materials cheaper (which could raise sustainability or quality concerns e.g., switching to a lower-grade material), or they might relocate production to tariff-exempt countries. We’re hearing stories of companies looking at places like Malaysia, Thailand, or even Turkey as alternate sourcing locations since those might not have extra U.S. tariffs. But shifting production geographically isn’t simple it requires vetting new factories, understanding local logistics, and maybe dealing with different regulatory standards. Several consumer goods importers were caught off guard by how fast the tariffs hit; they had expected maybe a slower phase-in or some negotiations. Instead, it was “effective next week, 10% on everything.” That urgency meant orders placed earlier in the year suddenly incurred unexpected duties on arrival, leading to confusion and some finger-pointing between importers and suppliers about who bears the cost. Going forward, these companies are rewriting their contracts to include tariff clauses an issue we’ll expand on in the strategy section. The bottom line is that retail supply chains, often optimized for low-cost efficiency, are being forced to become more flexible and resilient, which is a polite way of saying they need to build in buffers and alternatives that cost money. It’s a classic risk vs. cost trade-off, now brought to the forefront.
  • Energy and Commodities: Tariffs and sanctions combined have had a major impact on commodities like steel, aluminum, and energy. The U.S. continued specific tariffs on steel and aluminum imports (a carryover from earlier trade policies), which, when layered with the new broad tariffs, make metal imports very expensive. A construction firm or equipment manufacturer that buys foreign steel must either pay much more or switch to domestic steel suppliers. If everyone switches to domestic sources at once, supply could become scarce, creating a new kind of disruption. In the energy sector, sanctions on Russian oil and gas mean many Western companies won’t touch those supplies, shifting demand to other sources. Europe’s need for non-Russian gas has increased demand for U.S. LNG (liquefied natural gas), which ironically could become a point of trade negotiation between the U.S. and EU (as noted, the EU is working to accommodate U.S. gas within its environmental rules to prevent conflict). For an energy company, third-party risk can mean ensuring your traders and suppliers are not breaching sanctions a compliance risk as well as managing price and supply risk if a major source country is suddenly off the table. For example, a European refinery might have long bought Russian vacuum gas oil via a trader (a third party); now it must find a new supplier from perhaps the Middle East. That’s a new relationship to vet, new shipping routes to secure, and potentially higher costs due to longer distances and limited availability. These are not traditional “vendor risks” in the sense of onboarding a new IT service provider, but they fall under third-party risk management in a broad sense managing critical supply relationships under volatile geopolitical conditions.

As these examples show, tariff impacts are multifaceted and far-reaching. No industry is completely immune. The early 2025 tariffs and related trade actions have effectively stress-tested the resilience of third-party networks worldwide. Many businesses have discovered painful weak points whether it’s over-reliance on one region, lack of contingency suppliers, or inadequate clauses in contracts to handle sudden cost changes. The big question now is: What can companies do about it? In the next section, we’ll shift to a more optimistic gear and discuss practical TPRM strategies to mitigate tariff-related risks. The good news is that organizations are not powerless here there are several proactive steps and best practices that can significantly reduce exposure and even turn these challenges into opportunities.

Mitigating Tariff Related Risks: Strategies for Effective TPRM

Facing a whirlwind of tariffs and trade barriers, companies are seeking ways to adapt and protect their operations. Third-party risk management plays a central role in this adaptation. By strengthening TPRM practices, organizations can mitigate tariff-related risks and even find silver linings (like a more resilient supply chain or improved processes). Let’s explore a set of practical strategies consider this a toolkit that blends good business sense with targeted risk management techniques. We’ll cover diversification, due diligence, contract management, agility, collaboration, compliance, and the all-important factor of upskilling your team.

1. Diversify and Localize Your Supply Chain

Perhaps the most oft-repeated advice (for good reason) is: to avoid putting all your eggs in one basket. Tariffs expose the danger of an overly concentrated supply chain. If 80% of your components come from one country and that country gets hit with a tariff, you’re in trouble. The solution is to diversify your supplier base across multiple regions. By sourcing from different countries ideally those with lower tariffs or stable trade relations you reduce the vulnerability to any single trade policy change. For example, if you currently source entirely from Asia, explore adding a supplier in Latin America or Eastern Europe. This way, even if one region becomes costly, you have alternatives.

Diversification isn’t just about geography; it can also mean having a mix of global and local sources. Indeed, many companies are revisiting the calculus of offshoring versus nearshoring. With tariffs factored in, the math has changed local sourcing might now be more competitive than it was before. A U.S. manufacturer might find that buying certain parts domestically (or from Mexico/Canada if those tariffs ease in the future) could be comparable in cost to importing from across the ocean after tariffs. Additionally, local or regional suppliers can shorten your supply chain, giving you more control and responsiveness. As one report noted, in 2024 even before this tariff wave, 10% of U.S. and EU procurement had already shifted closer to home to cut lead times and improve control. Tariffs will likely accelerate this trend. So, consider a “China + 2” strategy (China plus two other sourcing countries), or a “nearshore one product line” experiment to test local sourcing viability.

The key is to avoid single points of failure. If you have one critical sole-source supplier, that’s a red flag in a high-tariff world. Develop a portfolio of suppliers so you can flex output among them as needed. This might require qualifying new vendors, which takes effort, but it pays off in resilience. A more diverse supplier network is not just protection against tariffs it’s insurance against any kind of disruption, be it a natural disaster or political crisis. As risk experts often say, supplier diversification strengthens your supply chain for the future, making it more resilient overall, not only to tariffs.

On the flip side, don’t go overboard and fragment your supplier base without reason; it’s a balance. Aim for a prudent level of diversification where you still have strategic relationships and can manage quality, but aren’t overexposed to one region. And when diversifying, remember to vet new suppliers thoroughly (which leads to our next strategy).

2. Strengthen Due Diligence and Ongoing Monitoring of Vendors

In turbulent times, knowledge is power. When onboarding new suppliers or managing existing ones under new stressors, robust due diligence and continuous monitoring are critical. Due diligence means thoroughly evaluating a third party before and during the relationship checking their financial stability, operational capacity, compliance record, security, etc. With tariffs causing some suppliers to struggle, it’s important to assess whether key vendors can weather the financial storm. This might involve reviewing financial statements or using third-party financial health ratings. As mentioned, analyses have shown tariff impacts could significantly degrade many companies’ financial health scores. If a vendor slips into “high-risk” territory, you may need mitigation plans (like having a backup supplier ready).

When shifting to new suppliers (perhaps in pursuit of diversification or cost savings), rigorous vetting is a must. Don’t let the urgency completely override your standard onboarding procedures. Perform audits for quality standards, verify certifications, and ensure they can meet any compliance needs. In a tariff-driven supplier change, you might compress some steps, but you shouldn’t skip the essentials. It’s wise to engage third-party assessment services or inspection firms if you’re moving into a region where you have less experience. For example, if you’ve never sourced from Country X before, consider hiring local experts to check factory conditions or working with a firm that provides on-the-ground quality inspections. These precautions help prevent the scenario of discovering too late that a new partner can’t uphold your requirements.

Ongoing monitoring is equally important. Tariffs and sanctions can be announced with little warning, so a supplier that was low-risk last quarter could become high-risk due to external events. Keep an eye on geopolitical developments related to your vendors’ locations. Subscribe to industry and trade news alerts many organizations, from the U.S. Chamber of Commerce to trade associations, provide updates to help businesses navigate tariffs. Some firms are even using AI-driven monitoring tools that continuously scan for tariff policy updates and distill what changed. Integrating such feeds into your risk monitoring can give you a head start. For instance, if rumours swirl about a new tariff on a product, you can proactively reach out to affected vendors to discuss contingency plans.

Don’t forget fourth-party risk (your supplier’s suppliers). Tariffs might hit raw materials that your tier-1 supplier sources from someone else. If that upstream supplier fails, your direct vendor is in trouble too. So as part of due diligence, ask key suppliers about their supply chain and how they’re handling tariff impacts. Many large companies are increasing communication and data sharing with their critical suppliers to jointly map out risk exposure.

In summary, double down on due diligence and monitoring. Tariff volatility means conditions change fast your vendor risk assessments should be refreshed more frequently, and any new third parties should be scrutinized even if business urgency is high. Strong TPRM programs often use formal frameworks (questionnaires, risk scoring, periodic reviews) to ensure tariffs and trade risk are now part of those frameworks. A useful tip is to integrate tariff risk checks into vendor assessments and broader TPRM frameworks, as one strategy guide suggests. This could mean adding questions about how a supplier would handle sudden cost increases, or checking if they have multi-country production capability.

3. Leverage Contracts and Risk Transfer Mechanisms

Contracts are your friend in managing uncertainty if they’re crafted well. A turbulent trade environment is a good prompt to review your contracts with suppliers and other third parties. The goal is to ensure that the allocation of tariff-related costs and responsibilities is clear, and fair, and doesn’t leave you holding the bag unexpectedly. Here are some contract considerations:

  • Tariff Clauses and Price Adjustment Mechanisms: In new contracts, explicitly address tariffs. You can include a tariff adjustment clause that spells out what happens if new tariffs are imposed (or current ones change). For example, the contract could state that any import duty above X% will trigger good-faith price renegotiation, or that the additional cost will be split in some proportion between buyer and seller. This at least gets both parties on the same page and avoids nasty surprises. Law firms have been advising that contracts should expressly allocate the risk of tariffs and even clarify whether tariff changes qualify as a force majeure event or not. If you’re the buyer, you might want flexibility to exit or adjust if tariffs render the deal uneconomical; if you’re the supplier, you want to ensure you’re not locked into an unprofitable price if your costs skyrocket. A well-drafted price adjustment mechanism can prevent contract disputes or terminations by allowing some relief rather than forcing one side to eat the entire cost.
  • Force Majeure and Hardship Clauses: Typically, force majeure covers events like natural disasters or wars unexpected events beyond control. Should a sudden 50% tariff be considered a force majeure event that excuses a party from performance or lets them delay delivery? Some companies are updating contracts to include trade barriers in force majeure definitions. Others use “hardship” clauses to mandate renegotiation if an extreme change in circumstances (like a massive tariff) occurs. These clauses need careful legal wording, but the essence is to create a safety valve in the contract for unforeseen tariff impacts.
  • Insurance and Financial Instruments: While you can’t buy “tariff insurance” per se (tariffs are considered a business risk, not an insurable event in the traditional sense), you might explore trade credit insurance or political risk insurance in certain scenarios. For instance, political risk insurance can sometimes cover losses due to government actions (which could include expropriation or maybe drastic regulatory changes). It might not directly pay for tariff costs, but if a supplier in another country is unable to fulfill contracts because of their government’s retaliation or sanctions, such policies might help. Surety bonds or performance bonds are another tool if you’re worried a vendor might default due to cost pressures, a bond could provide some compensation. However, these can be expensive and are typically used in construction or large procurement projects. Still, in an extreme tariff environment, risk transfer tools like this could be part of your strategy for critical deals.
  • Collaborative Contracting: In some long-term partnerships, customers and suppliers are taking a more collaborative approach agreeing to work together to minimize tariff pain. This might not be a single clause but an understanding that, for example, the supplier will actively seek alternative sourcing to mitigate costs, and the customer might assist (perhaps by investing in tooling in a different country or adjusting forecasts). This overlaps with the collaboration strategy (discussed later), but it’s worth noting that a contract can incorporate things like agreed cost-reduction projects or commitments to explore tariff engineering solutions jointly.
  • Review Existing Contracts for Hidden Risks: It’s not only new contracts; look at current ones. Some contracts might have fixed-price agreements with no room for tariff surcharges meaning your supplier has to absorb it, which could put them in distress (and then they might try to break the contract or even go out of business). If you identify such cases, it’s often better to proactively talk and perhaps amend the contract, rather than watch a key supplier fail. Other contracts, like those with logistics providers, might have clauses that pass on duties and fees directly to you. Make sure you understand who pays for what under each contract’s terms in these new scenarios. Working with your legal team to update contracts with tariff-focused provisions is a recommended step. This might also involve training your procurement and contracting teams to include tariff considerations in future negotiations.

By tightening up contracts, you create a legal and financial buffer against tariff shocks. It won’t eliminate the cost increases, but it can prevent confusion and conflict, and ensure that risk is shared reasonably. Clear contracts also help in planning if you know you’ll be shouldering 50% of any tariff increase, you can budget for that or set triggers for sourcing changes. In essence, contracts can turn an unpredictable risk into a more managed risk.

4. Increase Supply Chain Agility and Flexibility

In a landscape where change is the only constant, agility is a superpower. Building flexibility into your supply chain and vendor relationships can make a huge difference in responding to tariffs (or any disruption). Here are some ways to enhance agility:

  • Stockpiling and Inventory Strategies: While lean just-in-time models are efficient in stable times, they offer a little cushion against sudden tariffs. If you get a hint that tariffs are coming (or once a new tariff is announced with an effect date shortly), consider front-loading inventory of critical items. We saw many firms do this ahead of the April 2025 U.S. tariffs essentially buying a few months’ worth at the lower duty rate. This is a temporary tactic, but it can buy you time to adjust longer-term strategies. Just beware of carrying costs and storage limitations; balance the cost of extra inventory against the potential tariff costs and risk of stockouts. Inventory can be a shock absorber.
  • Flexible Logistics and Routing: Work with your logistics partners to see if there are ways to reroute shipments to minimize tariffs or delays. For instance, some tariffs depend on the country of origin if a product can be routed through or assembled in a third country that isn’t tariffed, it might lower the duty (ensuring compliance with rules of origin, of course). In some cases, routing through certain ports or using free trade zones for minor processing could change the duty profile. Also, if one route is congested due to surges of shipments (everyone trying to beat a deadline), having alternate lanes (even if slightly longer in transit) could keep your supply chain moving. This is where having good relationships with freight forwarders and customs brokers pays off they can advise on creative solutions. The trade term “tariff engineering” comes into play here: making small changes in product or supply chain to shift classification and reduce duties. A classic example might be importing a product unassembled (parts) instead of assembled if the tariff on parts is lower, then doing final assembly domestically or in a friendly country. Such engineering must be done carefully and legally, but companies are exploring these tactics to cut costs.
  • Product Design and Substitution: Tariffs can be very product-specific. If a particular material or component is tariffed, can you redesign your product to use an alternative that isn’t? The Thomson Reuters supply chain article suggested considering if products could be “redesigned or altered to utilize different materials” to avoid tariffs. For example, if imported steel is expensive, maybe use aluminum (if it’s cheaper or available from domestic sources), or a different polymer instead of a tariffed plastic. These changes aren’t always possible (or they might affect quality), but it’s worth tasking your R&D or engineering teams to evaluate options. Sometimes a minor tweak can reclassify a product into a lower-duty category this is another form of tariff engineering. An agile company is one where the product team and supply chain team work hand-in-hand to tweak designs for supply chain advantage.
  • Vendor Flexibility and Partnerships: Choose suppliers who are themselves agile. Some suppliers might be willing to renegotiate terms or adjust production locations to help mitigate tariffs. For instance, a global supplier with multiple plants might shift your orders to a plant in a country that isn’t facing tariffs. This kind of flexibility can be part of your supplier selection criteria. If a vendor has multiple geographic options or can scale up and down quickly, they’re a valuable partner. You might even favour suppliers who can hold inventory for you or offer consignment stock locally, to help buffer volatility. Building strong relationships and open communication with suppliers is key here (overlap with collaboration strategy). If you treat suppliers as true partners, they might give you a heads-up on issues and work with you on solutions. A flexible supply chain often comes from having a network of partners who will go the extra mile when things change.
  • Invest in Supply Chain Technology: To manage agility, visibility is crucial. Real-time supply chain visibility tools and predictive analytics can help you spot issues and react faster. If one route closes, a good dashboard can show alternate options. If one supplier is delayed, you see it and can call up another. Technology such as supply chain control towers, AI-based demand forecasting, and integrated business planning software can incorporate tariff scenarios and help orchestrate complex moves. As noted earlier, AI can also assist in running what-if scenarios for costs and logistics under different tariff conditions. By stress-testing your supply chain digitally, you can identify weak points and plan contingencies (a practice known as scenario planning). Companies that invested in these capabilities found themselves better prepared when the 2025 tariffs hit. They had playbooks ready because they had simulated similar events.

The overall philosophy is to expect the unexpected and stay nimble. In practical terms: keep some slack in the system, maintain options (options in suppliers, routes, and designs), and be ready to act quickly. Agility doesn’t eliminate the pain of tariffs, but it can mean the difference between a manageable hurdle and a business crisis.

5. Collaborate and Communicate with Your Third Parties

When external challenges mount, transparency and collaboration up and down the supply chain become even more important. No company is an island you rely on suppliers, and they rely on sub-suppliers. Tackling tariff challenges in a silo is suboptimal; instead, engaging your third parties as allies can yield creative solutions and mutual support.

  • Supplier Collaboration: Open a dialogue with your key suppliers about the tariff situation. Chances are they are as concerned as you are. By discussing frankly, you might identify win-win adjustments. For example, a supplier might agree to split additional costs temporarily or find ways to cut costs elsewhere (through efficiency or alternative materials) to offset the tariff. If you have long-term contracts, maybe you negotiate a temporary surcharge with a plan to revert if tariffs are lifted, rather than a permanent price hike. Collaborative efforts can lead to shared resources and innovations that improve resilience for both parties. In some cases, competitors in the same industry have even come together in coalitions to share critical supplies or lobby for exemptions unusual alliances form in unusual times. While maintaining ethical boundaries, consider where cooperation could be more beneficial than competition.
  • Communication and Early Warnings: Encourage your vendors to communicate early about any issues on their end. If a supplier anticipates a shortage or a big delay due to rerouting, you want to know ASAP. Establish channels for rapid information sharing. Some companies set up war-room-style communication hubs during the tariff rollouts, where procurement and suppliers were in daily contact to troubleshoot. This kind of intense communication can be dialled down later, but in the heat of the moment, it helps prevent small issues from snowballing. Additionally, share your forecasts and plans with suppliers more than usual, if possible. If you’re planning to ramp down orders of a tariff-hit product and ramp up another, telling your supplier helps them plan and stay viable (and not be caught by surprise with inventory).
  • Joint Risk Management: Consider involving key third parties in your risk assessment exercises. This could be as simple as having a few major suppliers participate in a discussion or survey about “What are our biggest vulnerabilities? How can we address them together?” They might point out things you didn’t realize. Maybe a certain raw material they source is becoming hard to get due to a trade restriction, which could hit your supply in a month if they tell you now, you can work jointly to find a substitute source. Such upstream visibility is gold for risk managers. Some sophisticated firms engage in multi-tier collaboration, directly with Tier 2 or Tier 3 suppliers (with the blessing of Tier 1) to solve bottlenecks. This was seen in the semiconductor shortages during the pandemic and similar approaches can apply to tariff-induced issues.
  • Leverage Industry Groups and Networks: Collaboration isn’t only with direct suppliers; it can also be through industry associations and forums. Many industry groups provide regular updates and forums for members to share concerns. They might collectively approach governments for clarifications or relief. Being active in these networks can amplify your voice and also keep you informed. For example, the National Association of Manufacturers or Retail Industry Leaders Association often gathers member input on tariff impacts to advocate policy adjustments. While policy outcomes aren’t guaranteed, there were instances in the past where certain tariffs got delayed or modified due to industry feedback (e.g., exclusions granted for specific critical components). So it’s worth engaging.

The main message here is: Don’t treat your third parties as just vendors in times like these; treat them as partners in problem-solving. An “us vs. them” mentality (e.g., just demanding cost cuts or hoarding all the inventory for yourself) can backfire by eroding trust and long-term viability. Instead, a collaborative approach can strengthen relationships and also spread the workload of managing the risk. As one source put it, “Unusual times call for unusual alliances”. Those alliances might end up being a competitive advantage when the dust settles because you and your partners will emerge more coordinated and resilient.

6. Upskill Your Team and Invest in TPRM Capabilities

Finally, a strategy that underpins all the others: invest in your people and processes. The current global trade climate is complex and fast-changing, which means organizations need skilled risk management professionals who understand both the big picture and the details. Upskilling your team in areas like third-party risk, supply chain management, and regulatory compliance can pay huge dividends.

  • TPRM Training and Certification: Consider formal training programs for staff involved in vendor management, procurement, or risk functions. A structured course or certification can provide them with frameworks and best practices to tackle challenges like those we’ve discussed. For example, the Third Party Risk Institute offers specialized courses and certifications in third-party risk management, including the Certified Third Party Risk Management Professional (C3PRMP) program. Qualifications like C3PRMP are industry-recognized and equip professionals with actionable knowledge on assessing and mitigating vendor risks (covering everything from financial and operational risk to compliance). By encouraging team members to pursue such a TPRM certification, you not only deepen your bench of expertise but also signal the importance of third-party risk to your organization. The goal isn’t to be “salesy” about any particular course, but it’s worth noting that these programs exist as resources. Many professionals report that a certification gave them new tools to identify risks early and manage them more effectively exactly the kind of skill set needed when tariffs throw a wrench into your vendor relationships.
  • Cross-Functional Skill Building: Managing tariff impacts is inherently cross-disciplinary – it touches finance (costs), operations (supply chain), legal (contracts/compliance), and more. Encourage cross-functional learning. Maybe your supply chain managers take a short course on trade compliance basics, or your risk analysts learn about supply chain mapping software. Likewise, procurement specialists might need training in scenario planning or using new analytics tools. Risk management training in a broad sense can help teams break out of silos and approach problems holistically. In the current climate, a team that understands both procurement strategy and risk analysis will outperform one that views cost, quality, and risk as separate concerns.
  • Simulations and Drills: One way to upskill on the job is to run scenario drills. For instance, gather the relevant team members and simulate a scenario: “What if tomorrow a 50% tariff is announced on our top product line’s key component? What do we do?” Walk through the steps, identify gaps in your response, and learn from it. This kind of exercise can highlight if your team needs more training or tools. It also builds muscle memory so that if a real situation arises (not unlikely in this volatile environment), your team reacts faster and more confidently. Some companies in late 2024 did war-game the possibility of new U.S. tariffs if the administration changed, which meant by early 2025 they had at least a rough game plan ready. It’s never too late to start such preparedness drills.
  • Enhance TPRM Processes and Tools: Upskilling isn’t only about individual knowledge, but also about organizational capability. Invest in improving your TPRM processes perhaps implement a better risk management software that can track all your third parties and associated risks in one place. Ensure you have dashboards that bring together supplier performance data, risk indicators, and external risk events (like tariff changes). Automation can help flag when a vendor might be impacted by a new policy (for example, linking vendor data with tariff codes). By equipping your team with modern tools, you enable them to manage a larger scope of risk efficiently. The combination of skilled people and good technology is powerful. It’s also motivational for teams to see their company investing in their domain it underscores that third-party risk is taken seriously at the highest levels.
  • Leadership and Culture: Lastly, cultivate a risk-aware culture where teams feel empowered to escalate concerns and propose solutions. If a junior analyst notices that a small supplier in your chain might fold because of tariffs, they should feel it’s valued to bring that up, not fearing it’s alarmist. Celebrate proactive risk management wins (like avoiding a crisis due to someone’s foresight). Leadership can set the tone by frequently asking in meetings, “How will X affect our vendors or supply chain?” This keeps everyone thinking in terms of third-party impact. The current climate is exactly when such a culture pays off as everyone will be scanning the horizon for threats and opportunities.
Conclusion: Turning Tariff Challenges into an Opportunity for Resilience

Early 2025 has proven that global trade risks are not abstract they can strike fast and cut deep into our third-party networks. Tariffs and sanctions have added new layers of complexity to supply chain and vendor relationships across North America and the world. We’ve seen costs rise, shipments rerouted, contracts tested, and risk dashboards light up with alerts. It’s a challenging moment, to be sure. Yet, as we’ve explored throughout this post, there is a path forward. By embracing robust third-party risk management practices from diversifying suppliers and shoring up contracts to investing in team knowledge organizations can navigate the turmoil and emerge stronger.

History shows that periods of disruption often spur innovation and improvement. The tariff turmoil is compelling businesses to rethink old assumptions, find creative solutions, and fortify their operations. Companies that proactively adapt (rather than passively hope things “return to normal”) may find themselves with a competitive edge. For example, those that built a more resilient and flexible supply chain will be better positioned not only for the current tariffs but for whatever the next surprise may be. Some are even finding that these challenges force beneficial changes such as closer collaboration with suppliers, which can lead to better quality and efficiency in the long run, or the discovery of more sustainable sourcing options that were previously overlooked.

Crucially, the current climate underlines the importance of having skilled professionals at the helm of risk management. The value of upskilling and certification in TPRM cannot be overstated; when your team deeply understands third-party risk principles, they’re quicker to identify threats and devise solutions. In a world where “every open economy is going to get squeezed” by trade issues, those with the knowledge and agility to respond will cushion the squeeze and protect their organizations’ interests. As you invest in supply chain tools and strategies, remember to invest in people and training as well it’s the combination of both that creates true resilience.

The tariffs and trade barriers of 2025 may or may not be permanent. Trade policies can change with politics, deals can be struck, and some tariffs might be temporary bargaining chips. But even if tariffs ease at some point, the lesson remains: robust third-party risk management is a strategic necessity in an interconnected global economy. By applying the strategies we discussed from due diligence to diversification, from contract savvy to continuous learning companies can weather this storm and be ready for the next, building a supply chain that not only survives but can thrive in adversity.

In the end, navigating tariffs is not just about avoiding downside risk; it’s about positioning your organization to seize opportunities that arise in a changing landscape. As some doors close, others may open new markets, new partnerships, and even new customer expectations (like greater demand for locally made products). With a strong grip on third-party risk and a commitment to adaptability, you can turn these challenging times into a catalyst for positive transformation. Tariffs have increased the stakes, but with sound TPRM practices, you hold the tools to manage the risk and drive your business forward. Here’s to steer confidently through the tariff turbulence and coming out more resilient on the other side.

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