Good morning. Tariff uncertainty may raise the risk profile of certain companies. And many CFOs are planning to pass on tariff costs to consumers.
Since returning to office, President Donald Trump has imposed tariffs on Canada, Mexico, China, aluminum, and steel, while warning of potential duties on the European Union, chips, autos, and pharmaceuticals, Fortune reported, and reciprocal tariffs are due in a few weeks. But the on-again, off-again process has increased uncertainty.
The White House has defended Trump’s economic plans by pointing to the stock market and GDP gains during his first term. “We’re going to raise hundreds of billions in tariffs,” Trump said on March 12 while boarding Air Force One.
According to economists at Boston Consulting Group, there isn’t yet evidence that the fundamentals of the U.S. economy have “abruptly deteriorated” since Trump began his second term. “What has changed is the introduction of deliberate uncertainty about policy changes as a political strategy,” the economists state in a new Harvard Business Review report titled “Navigating the Economy Amid Deliberate Policy Uncertainty.”
BCG global chief economist Philipp Carlsson-Szlezak, along with BCG Henderson Institute’s chair Martin Reeves, and Paul Swartz, executive director and senior economist said that they’re seeing a turn to “strategic optionality” as a response to deliberate uncertainty. The idea is that while managing through an era of deliberate uncertainty, companies should expeditiously create more options that can improve their ability to operate within a variety of policy outcomes.
“At a minimum, this approach requires investing in preparedness—for example, devising alternative sourcing plans, stockpiling greater inventory, and creating financial buffers,” according to the report. Strategic optionality can also include rethinking product mix, design, and marketing.
A more radical approach would be for firms to reimagine the product and production process to make it more modular, localized, and flexible. “For some, this will not be possible, but those that can creatively invest in optionality will find themselves with this advantage,” the authors write. Navigating uncertainty at reasonable cost and finding opportunity could become “a new source of competitive advantage,” the authors write.
However, they noted that economists have a saying “Optionality has value,” which often, if not always comes with a cost. “As the value of strategic optionality rises, firms should be willing to pay that cost,” according to the authors. “The firm that can build a strategic optimality most effectively is more likely to find a way to thrive.”
I’d say finding a way to pay for that cost will seemingly fall under the CFO’s purview. And, regarding uncertainty, the article also points out that “rarely have there been so many moving pieces with such little visibility.”
As stock market volatility continues, consumer confidence lags, the odds of a recession are being weighed, and tariffs remain a concern for executives, CFOs will be the stewards of aligning short-term actions with long-term vision. And at the same time, gauging opportunities for strategic growth.
Sheryl Estrada
sheryl.estrada@fortune.com
This story was originally featured on Fortune.com
Economists address how to manage through an era of deliberate uncertainty in a new report.
