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How Can Effective Cost Management Protect Your Value Proposition Amid Tariff Increases?

  • 1.  How Can Effective Cost Management Protect Your Value Proposition Amid Tariff Increases?

    Posted 03-12-2025 01:15 AM

    Introduction

    The recent announcement of 25% tariffs on imports from Canada and Mexico to the United States, coupled with potential retaliatory measures, poses a significant risk to companies reliant on these supply chains. The resulting economic volatility can erode both profitability and competitiveness.

    This article explores how a robust cost management strategy can mitigate these impacts, protect the value proposition, and optimize the business model's cost base.

    The Economic Impact of Tariff Increases

    Studies conducted by the Peterson Institute for International Economics (PIIE) using the G-Cubed model demonstrate that tariffs not only increase costs in the country imposing them but also generate negative spillover effects on the economies of its trading partners.

    For example, according to PIIE analysis, imposing 25% tariffs would cause:

    • The US GDP shrinks by 0.5% at its worst point.

    • Canada's GDP to decrease by 2.3% and Mexico's GDP by 3.4% at their respective peaks of negative impact.

    Similarly, inflation would experience sharp increases, especially in Canada and Mexico, where spikes of 3% to 4% are expected in 2025. This would directly impact living costs and trade competitiveness.

    Strategies to Mitigate the Impact through Cost Management

    Given this context, companies can implement strategic cost management measures to protect profit margins and strengthen their value proposition. Below are three key strategies:

    1. Supply Chain Reengineering

    Diversifying suppliers to reduce dependency on markets subject to high tariff increases can be crucial. The automotive industry, for instance, has started sourcing from countries with favorable trade agreements, such as Vietnam or Brazil.

    Real Case: Companies like Ford and General Motors have actively relocated parts of their supply chains to Asia and South America to mitigate the impact of tariffs in North America.

    2. Product Design Optimization

    Another essential strategy is reducing material costs without compromising quality. Companies can explore alternatives in materials, packaging, or critical components to maintain their value proposition while controlling costs.

    Example: The electronics industry has successfully reduced the use of precious metals in printed circuit boards, achieving significant savings without deteriorating product performance.

    3. Automation and Digitalization of Processes

    Implementing advanced technologies in operational processes can improve resource efficiency and enhance productivity. Robotics, IoT (Internet of Things), and advanced analytics can help reduce indirect costs and increase productivity.

    Case Study: In retail, companies like Walmart have automated logistics systems, which reduce delivery times and minimize inventory costs.

    Conclusion

    Tariff increases can significantly threaten business profitability, especially in industries with tight margins. Adopting a proactive cost management strategy is crucial to protecting the value proposition and maintaining competitiveness in a volatile economic environment.

    The key lies in continuous innovation in the supply chain, product design, and the adoption of advanced technologies to sustain operational efficiency.



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    Pedro San Martín is Principal at Asher PwC Interamericas.
    He can be contacted at psanmartin@...
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