Turn Uncertainty into Opportunity with Proactive Tariff, Tax and Supply Chain Modeling

By Chuck Talbert and David Zaiken

If you’re a middle-market manufacturer, you know the environment isn’t getting any simpler. With the One Big Beautiful Bill Act (OBBBA) now law and tariffs shifting by the month, standing still isn’t an option.

Too many companies remain reactive, waiting to see how things shake out. Waiting only leads to costly surprises and missed opportunities. The firms that win are the ones running scenarios now – looking at tariffs, taxes and supply chains together – and planning holistically for long-term, positive financial results.

Tariffs Are Shaping Supply Chains

The tariff landscape continues to shift. In August, President Trump rolled out higher individual country reciprocal tariffs. For a few weeks we thought we had a more certain view of increases in country tariffs and products such as metals and automobiles. However, a federal appeals court has said that the tariffs could not be implemented and would terminate in October, giving the Trump administration time to appeal. He did, and tariffs are now heading to the Supreme Court, which agreed to hear arguments in November and make a quick decision. Waiting for this to play out is not a solid strategy, so you should plan your next move now.

Start by modeling various “what if” scenarios, especially increased duties on goods from China, to identify possible risks and potential changes to the supply chain. Middle-market manufacturers may find they have an advantage over large companies that are already taking large financial statement expenses because they can’t pivot quickly. Smaller manufacturers may be flexible enough to diversify suppliers and adjust sourcing with the right planning.

For example, some manufacturers are developing relationships with multiple suppliers, both domestic and international, to pivot as the landscape changes. Because the tariffs on multiple smaller parts may cost less than buying an entire piece of equipment, some have figured out ways to import parts separately and assemble them here. Still others are negotiating: Who is the importer? Am I the importer or is my supplier the importer paying the tariff?  Or do we split the tariff?

Also, ensure the proper tariff classification is being used. Major errors in those misclassifications can result in overpayment or compliance issues.

In addition, companies are:

• Building relationships with multiple domestic and international suppliers
• Importing components separately and assembling in the U.S. to lower costs
• Renegotiating supply contracts; deciding who the importer is, who pays the tariff and how costs are shared
• Correcting tariff classifications to avoid costly mistakes
• Considering raising customer prices

Companies that embrace integrated planning will protect their margins. Those who don’t risk being caught flat-footed.

The following chart shows strategies you should be exploring as you optimize your supply chain.

Impacts of the New Tax Law

While tariffs are adding costs, the new tax law is creating opportunities to lower them. The OBBBA offers a suite of incentives that manufacturers should be modeling immediately.

Key provisions include:

• R&D Expenses. Immediate expensing of research and development costs instead of capitalizing and amortizing them over years. Keep in mind, immediate expensing may reduce your R&D credit, so model both options.
• 100% Bonus Depreciation. Immediate depreciation on qualified property and equipment placed in service after Jan. 19, 2025. For the first time, this includes qualified production property such as plants and manufacturing buildings. This provision can be a big help when you’re upgrading equipment or facilities, but consider the timing. Sometimes spreading depreciation over future years could be a better choice.
• Section 179 Expensing. Deduction limit raised to $2.5 million, with a $4 million phase-out threshold. Applies to property placed in service after Dec. 31, 2024.
• Pass-Through Deduction. The 20% deduction for pass-through income is now permanent, leveling the playing field with corporate rates.
• Expanded Interest Deduction. The law reinstates the EBITDA-based limitation, reversing the EBIT-based limitation that has been in effect since 2022, and restoring valuable deductions for manufacturers with significant debt.
• Opportunity Zones. New clarity, especially in rural areas, creates potential tax savings for new facilities or expansions.

Each of these incentives can dramatically affect cash flow and investment decisions, but only if you’ve run the numbers.

Modeling Matters Now

Decisions on tariffs, tax reform and supply chain shifts cannot be made in isolation. It’s not as simple as grabbing the largest deduction or sticking with your current supplier. It’s about seeing the entire picture from your investments in innovation, technology and expansion to how they all interact.

Modeling helps you:

• Compare the impact of different tariff rates on supply costs
• Identify the best tax strategies around depreciation and R&D expenses
• Decide where and how to invest in new facilities and technology
• Evaluate suppliers and sourcing strategies for flexibility and cost-effectiveness

The manufacturers that act now are turning uncertainty into opportunity. Talk with your tax advisors, run multiple scenarios and put numbers behind your decisions.

In-depth modeling may require an investment, but the potential savings and clarity typically outweigh the cost many times over. Every situation is unique. What matters is taking action.

Failure to plan is planning to fail. In today’s environment, that’s a risk no manufacturer can afford.