Four Key Steps for CFOs to Address Tariff Risks

The following is a guest article by Vivek Saxena, leader of Genpact's finance and accounting business line. The views expressed are solely those of the author.

The tariff discussions of the past few weeks have shown that no one can accurately predict the future, not even tomorrow. With the tariff status of imported goods—especially those from China, Canada, and Mexico—potentially changing further, being delayed, or triggering retaliatory measures, business leaders are busy protecting their operations from the rising costs caused by tariffs.

However, any major decision made in the current environment could have long-term implications, forcing finance leaders to navigate a rapidly changing landscape carefully based on rules that shift daily. Tariff uncertainty affects multiple areas of finance and accounting, including cost of goods sold, inventory management, reporting and compliance, tax planning, integrated business planning, forecasting, cost optimization, and risk management.

Moreover, the Economic Policy Uncertainty Index recently found that consumer uncertainty at the intersection of the economy and politics has risen to its highest level since the pandemic—a worrying trend that is expected to significantly impact consumer purchasing habits. Unfortunately, the combination of fragmented consumer spending and corporate-level uncertainty poses a threat to the economy.

However, all is not lost. Amid the uncertainty of annual financial planning, CFOs can take preventive and proactive measures to ensure they can quickly adapt to changes in demand and regulatory status. Here are the most important areas.

Exploring Risk Management Scenarios

The CFO's role in tariff risk management extends beyond financial oversight, requiring a multi-layered approach that collaborates with various functions within the organization, including supply chain, compliance, operations, and government relations. By implementing comprehensive risk identification and mitigation strategies—covering both financial risk and operational resilience—and continuously monitoring risks, CFOs can protect the organization from direct and indirect tariff-related risks.

Risk mitigation strategies fall into two categories: financial and operational. On the financial side, CFOs should consider:

• Diversifying sourcing to suppliers in non-tariff regions
• Tariff engineering to legally reduce tariff rates
• Currency and commodity hedging to offset price fluctuations

This includes examining the impact of inflationary pressures and exchange rate fluctuations on inventory valuation, as well as working with auditors to revisit disclosure requirements to ensure transparency of tariff-related risks in financial statements.

Equally important are operational risk management scenarios, such as:

• Geographic expansion to offset losses in high-tariff regions
• Balancing inventory levels to avoid tariff-driven supply shocks
• Tracking regulatory compliance and staying informed of policy changes

Additionally, as supplier networks shift, third-party risk and fraud are expected to increase, necessitating stronger due diligence during supplier onboarding. Companies must strike a careful balance between mitigating tariff cost pressures and maintaining compliance with evolving regulatory and tax requirements.

For each approach, CFOs should develop "what-if" scenarios to simulate the impact of different tariffs on the business, using dynamic risk assessments to evaluate the resilience of existing risk and control frameworks. These scenarios include key risk indicators such as cost impact, working capital efficiency, and margin stability to monitor risks and trigger appropriate responses. This means adopting AI-driven analytics and continuous risk monitoring solutions is no longer optional but necessary to maintain agility and forward-looking capability. By tracking these risks, CFOs can provide regular updates and transparent communication to other executives and the board.

Streamlining Business Planning Approaches

Integrated business planning has become a key method for providing a robust decision-making baseline, aligning all teams toward the same enterprise goals while focusing on their respective key performance indicators. Regarding tariffs, finance teams should work closely with supply chain teams to ensure cost and pricing strategies are tightly aligned.

Here are some examples of teams collaborating to mitigate tariff impacts:

• Evaluating alternative suppliers in non-tariff or low-tariff regions
• Negotiating better terms with existing suppliers
• Exploring additional cost reduction and efficiency improvement avenues to offset higher input costs caused by tariffs
• Developing flexible pricing strategies to absorb tariff costs or pass them on to customers as appropriate
• Responding to customer demand for early orders to avoid tariffs; similarly, early purchasing and warehousing to meet near-term demand
• Evaluating tariff recovery strategies (e.g., importing goods from Mexico and shipping them to other countries like the UK to recover paid tariffs)

By maintaining close relationships with other teams that impact financial performance, CFOs can avoid isolated decision-making and departmental silos.

Strengthening Budget Control

One of the most effective levers CFOs can use is closely monitoring and managing spending to ensure it aligns with established budgets. Investing in technology tools that support granular tracking across cost centers and regions is one way finance leaders can become more deeply involved in the company's day-to-day finances.

Take agentic AI, for example—an emerging and valuable resource for CFOs. Traditional AI primarily operates based on specific algorithms and fixed rules, while agentic AI can make autonomous decisions and pursue goals, requesting human guidance when needed. This advanced technology helps finance leaders proactively identify crises and potential issues and trigger recommended responses. Agentic AI can automatically trigger alerts based on trajectory views and changing macroeconomic conditions, and provide recommended next steps, enabling end users to act quickly.

Continuous Accounting Practices

Finance leaders should explore continuous accounting practices to eliminate the time gap between business transactions and accounting dates. This enables companies to immediately record and understand the impact of each transaction, thereby enhancing overall resilience and instilling confidence and agility in decision-making. In addition to improving the accuracy and efficiency of accounting practices, this approach provides more real-time visibility, helping to ensure compliance with evolving regulatory and financial performance requirements.

Finance leaders need to consider multiple areas involving accounting practices. For example, tariffs will affect transfer pricing, which depends on profit margins on intercompany sales of goods and profit elimination. However, any change in transfer pricing policy may carry notification risk with relevant tax authorities. CFOs must maintain detailed documentation of all tax positions and uncertainties related to tariff changes to mitigate tax disclosure and transfer pricing risks.

The ongoing discussions surrounding U.S. tariffs on foreign companies will have broad and lasting effects on the U.S. economy. Although experts try to stay ahead of future developments, the most important takeaway may be this: the future is uncertain and subject to change at any time.

Therefore, CFOs need to invest in business practices and technologies that improve visibility into other departments, especially supply chain, and closely monitor evolving regulations. When the future is uncertain, the ability to adapt to new policies and events is crucial, and CFOs who fail to understand this will be at a disadvantage in the months, years, and decades ahead.