EuroFinance

A seismic shift in US trade policy sent shockwaves through global markets. On March 3rd, President Donald Trump declared that the United States would impose a 25% tariff on goods imported from Canada and Mexico, setting the stage for a new era of economic confrontation. “No room left for Mexico or for Canada,” Trump asserted at the White House. “The tariffs, you know, they’re all set. They go into effect tomorrow.” 

The response was immediate. By the next day, China and Canada retaliated, slapping 10%-15% tariffs on American agricultural and food products, intensifying fears of a global trade war. 

However, just three days after the tariffs were imposed, on March 7th, a White House official revealed that President Trump had temporarily lifted tariffs on a wide range of goods from Canada and Mexico. This move partially reversed the 25% duties introduced just days earlier. The exemption will apply to goods that comply with the USMCA (United States-Mexico-Canada Agreement). The suspension will last until April 2, the same day Trump is expected to implement “reciprocal tariffs” on foreign nations that impose import taxes on U.S. goods.

For corporate treasurers and financial strategists, these moves could have far-reaching implications, reshaping everything from supply chains to foreign exchange markets.

The tariff fallout: business strategies in a shifting landscape

With renewed discussions around tariffs, US businesses are left wondering how to navigate rising costs and disrupted supply chains. Mary E. Lovely, a senior fellow at Peterson Institute for International Economics, draws lessons from the last major trade war, particularly with China, and highlights key differences this time around.

“We’re likely to see a shift in supply chains similar to what happened in the past, but with added uncertainty,” Lovely told EuroFinance. “Last time, companies could pivot away from China toward Vietnam or Mexico. Now, even those alternatives are under scrutiny, with the possibility of tariffs on Mexico and Vietnam looming.”

If the US proceeds with a more aggressive tariff strategy, businesses will have to rethink their sourcing strategies. Some may choose to absorb higher costs, while others could move operations out of the US to avoid retaliatory tariffs. Either way, the result will be higher prices passed down to consumers, Lovely added.

A fortress economy? The US market in isolation

Trump’s economic stance seems to be pushing toward a “Fortress North America,” where protectionist policies reshape global trade. Lovely noted that while these policies may initially support domestic production, they also risk making the US an expensive export platform. “With retaliatory tariffs and rising input costs, some businesses may decide it’s no longer viable to manufacture in the US for foreign markets,” she said.

This potential shift in operations would not be limited to the US; countries like China have already been adapting. Over the past 15 years, China has diversified its import sources and shifted export focus away from advanced economies toward middle-income markets. “The US is no longer as central to China’s export strategy as it once was,” Lovely remarked. 

The strengthening dollar: a double-edged sword

A stronger US dollar has been another major concern, particularly for multinational corporations like Apple and Microsoft, which have already reported revenue declines due to currency fluctuations.

“A stronger dollar makes American-made goods more expensive abroad and decreases demand for exports,” Lovely explained. “It also puts pressure on emerging markets, especially those that import oil, as oil transactions are priced in dollars.”

For corporations with extensive overseas revenue, cash management strategies will become crucial. Lovely anticipates that many companies will explore delaying repatriation of earnings, stashing funds in stable foreign markets, or shifting operations domestically to mitigate currency risk.

“Tariffs typically push the dollar up, making US exports less competitive. However, if investors begin to see the US as a less stable economic environment, capital outflows could weaken the dollar,” she explained. “We’re looking at a scenario where exchange rate fluctuations become even harder to predict.”

With the US dollar strengthening, major tech companies like Amazon have cited foreign exchange challenges in both their fourth-quarter earnings and future projections.

During the quarter, Amazon faced an estimated $900 million negative impact due to year-over-year fluctuations in foreign exchange rates.

For the first quarter of 2025, the company expects net sales to range between $151 billion and $155.5 billion, reflecting a 5% to 9% increase compared to the same period in 2024. However, Amazon also anticipates a significant foreign exchange headwind of approximately $2.1 billion, equivalent to 150 basis points, according to its press release.

For treasury teams, this uncertainty underscores the need for robust hedging strategies. However, Lovely admits that even expert analysts are struggling to model the potential capital flows and policy outcomes that could shape the next few years. “The Trump administration has sent mixed messages on the value of the dollar. Depending on how trade and fiscal policies evolve, we could see highly unpredictable movements in exchange rates.”

What comes next? 

As US businesses and investors await policy clarity, one thing is certain: uncertainty itself has become the defining feature of the economic landscape. “No one wants to see a stress test of the US economy, but we may get one soon,” Lovely noted. “Will tariffs be implemented immediately? Will there be carve outs for key industries like auto and energy? Or will this be another round of threats without follow-through?”

Until more concrete policy actions emerge, companies will need to remain agile, monitoring global developments and adjusting their strategies accordingly. “We’re all reading the signs,” Lovely concludes. “And right now, everyone is waiting to see what happens next.”

With tariffs, currency shifts, and global trade realignments at play, corporate treasurers face a challenging road ahead. As policies evolve, businesses will need to stay informed, proactive, and prepared for a rapidly changing economic environment.