Tariff Strategy: Focus on the Relationships that Matter Most

One day they’re on, the next day they’re off … and then maybe back on again. 

The imposition of tariffs on America’s trading partners, and in effect on our own businesses and consumers, is a bad enough idea in itself. The chaotic way in which they’re being implemented has made them truly destructive: to the global economy, to our retirement savings, and to America’s standing in the world.

Past readers will know that I advise clients to distinguish between moments and momentum. As unnerving as they may be, the current administration’s flip-flopping on tariffs is a series of individual moments. But make no mistake, the retreat from globalization is more than a passing storm. Some of that has to do with the reemergence of nationalism. But new technologies, fragmented supply chains, and concerns about climate impact are all pushing goods to be made closer to the markets in which they’re consumed. That’s momentum. 

So what can business leaders do? Based on conversations I’ve had with execs in recent days, many are hunkering down for worse to come, spooked by ominous signs like a collapse in consumer confidence to the second-lowest level since 1952. I’ve heard from more than one CEO who’s scrambling to find the cash to pay the tariffs when their goods show up at the dock in Long Beach. And everyone’s looking to cut costs. 

A few leaders are actually thinking beyond that. 

A Future-Focused Approach

This past week, I had separate conversations with senior execs from two of America’s largest retailers. The difference in approach was illuminating. Both of them are incredibly effective leaders, but they have wildly different mindsets when it comes to strategy. 

One of them is a future-focused executive who’s laid out a playbook for where his company needs to be in seven years and how he’s going to get there. The other is a smart but present-focused executive who insists that retail simply moves too fast to contemplate any strategy beyond a three-year timeline. In response to the tariffs, the present-focused leader has put all hands on deck to figure out a response. The future-focused leader’s response was to tell his team to stay focused on the long-term strategy and not get distracted by the headlines. He then turned to a small task force to help him figure out a plan for whatever comes next out of Washington. 

That task force had come together last summer to lay out different scenarios for what might happen after the election. Candidate Trump was quite clear about what he was planning to do if elected. All you needed to do was believe him and figure out what you might do if he got elected.

Of course, we’re past that now. At this point, the best thing to do is make an action plan for moving forward. That plan depends on the investments you’ve already been making (or not making) in three critical stakeholder relationships. 

Customer Relationships

Companies with strong loyalty enjoy more than just admiration—they enjoy pricing power. That’s why businesses with strong brands, differentiated products and high customer satisfaction have more options in the current climate. It’s time to lean into those relationships.

The best examples are luxury brands with high customer loyalty. First, those products have a cost of goods that’s a smaller percentage of their product price compared to lower-priced options. Second, their consumers may be more willing to tolerate a price hike. If your company makes handbags in China for $5 and sells them in the U.S. for $20, the tariffs are going to be a big problem. But if you’re Louis Vuitton, it’s much less of a blow. Louis Vuitton’s intense brand loyalty also allows it to pass some of the cost on to its consumers. After all, what’s another $300 if you’re already paying $3,000 for the purse of your dreams?

This isn’t just true for luxury goods. Many brands have built a loyal following over time. Bounty paper towels and Tide detergent have strong customer loyalty despite lower-cost store brand alternatives.

Deep customer relationships also open up the possibility for new sources of revenue that are unaffected by tariffs. Now’s the time to see if customers who love you are open to value-added services that get bundled along with your products.

If you have strong customer relationships, it’s time to tighten margins, pass along some of the costs, and find new ways to differentiate.

Supplier Relationships 

Companies that treat their suppliers like partners are in a better position than those that treat them like vendors. Businesses with redundant supply chains and “most favored nation” agreements have more options in the current climate. It’s time to lean into those relationships.

Not long ago, I met with an apparel executive who had just come home from a meeting with Walmart. He was in a sour mood. Walmart’s buying team can be notoriously cutthroat, with a razor focus on squeezing suppliers on price. My buddy felt brutalized. After hearing about Walmart, I asked him how his trip to Costco had gone the week before. He smiled and leaned back. “Costco is like family,” he said. “They ask about my kids. They ask about how my business is doing, and we brainstorm new ways to excite their shoppers. Their attitude is always ‘How can we help you so we can thrive together?’ And I try to give them the best deal I can.” That’s a partner relationship.

Companies that treat their suppliers as valued partners instead of costs to be minimized will have a clear advantage as the tariff impact hits home. Just like loyal customers willing to pay more, suppliers who have been treated well in good times are more likely to eat some costs, offer more favorable payment terms, and share burdens during bad times. If you have strong supplier relationships, it’s time to call in a few favors and see if you can brainstorm a win-win solution.

Government Relationships

Then there are the kinds of relationships that shouldn’t have to matter in a democracy. Companies that have excellent government relations operations are already finding an unfair advantage in the current environment. It’s a whole industry unto itself.

I worked in India for several years in the 1990s. Back then, the running joke was that the British Imperial Raj had been replaced by the Licence Raj. To get access to markets, businesses first had to obtain permission from politicians and bureaucrats, which in practice fueled a huge industry in patronage and corruption.

We’re already seeing the first signs of a similar effect in the U.S, as politicians beat a path to the White House to plead for tariff exemptions on products dear to their constituencies. This way of getting things done is bad for our country, but it’s the game that businesses are being forced to play right now. Strong relations with the government and political representatives are visibly paying off for leaders who invested the time and effort into cozying up.  

Elon Musk’s SpaceX is the most extreme example. By becoming the president’s right-hand man, Musk has put his rocket company in line for billions of dollars in new federal contracts—a handsome return on the $300 million or so he spent on the election.

Companies in some sectors have built robust government operations—agriculture and pharmaceutical companies do it particularly well. If you have strong government relationships, it’s time to make some calls and explain why your business is in the national interest—or at least the current administration’s.

Hitting the Trifecta

To be sure, these sorts of customer, supplier, and government relationships don’t get built overnight. They also don’t pay off for a long time. In times of trouble, it’s too easy to just cut those new brand-building expenses. Or lean into your suppliers to squeeze out some better margins. The argument against doing that is often lost on present-focused individuals.

A few companies have stayed focused on the future and made long-term investments in all three sets of relationships. No one has done that better than Apple.

For years, Apple has worked hard to create a unique relationship with its customers. People love Apple. Apple’s products are clearly differentiated. The company’s commitment to cutting-edge design, privacy, and customer care has made iPhones and MacBooks an indispensable part of millions of people’s lives. Would a $3,500 U.S.-made iPhone make a dent in sales? Of course, but nowhere near as big as a similar price hike for a less beloved smartphone.

Apple has put as much work into strong supplier relationships as it has into customer loyalty. Tim Cook is arguably the most successful supply chain manager in history. He’s also a savvy relationship builder. Under his leadership, Apple has joined at the hip with its largest supplier, Foxconn. In a future-focused move to diversify production away from China, Foxconn started making iPhones in India in 2019 and now plans to double production to 25 million units this year. Apple’s close partnership with Foxconn and its other Indian supplier, Tata Electronics, enabled it to airlift $2 billion worth of iPhones to the U.S. hours before the tariffs took effect. 

When it came to government relationships, Tim Cook bent the knee. Apple contributed $1 million to Trump’s inauguration. He pulled a political masterstroke by announcing that Apple would invest $500 billion in U.S. production, despite analyst doubts over how much of that $500 billion is really new. Those efforts earned Apple an all-caps “THANK YOU” from the president on Truth Social. The payoff then came when the administration decided to exempt smartphones and computers from its eye-watering 145% tariffs on China. 

Was this good for American democracy? Certainly not. But it sure helped Apple. 

Relationships Are Core to Long-Term Success

The time and resources spent building these relationships are often viewed by leaders as a “soft” investment, given low priority and vulnerable to being cut as soon as times get tough. But the tariff turmoil is already highlighting the error of that mindset.

Good relationships with customers, suppliers, and government are suddenly looking like what they are—very hard assets that will help companies weather a prolonged period of volatility and slower growth. The good news is that it’s not too late to start. Rather than culling relationship-building efforts in a knee-jerk reaction to a slowdown, consider how to maintain or increase them. 

The future is impossible to predict, but strong relationships are a powerful asset to have in any version of the future. When times get tough, we get by with a little help from our friends.