Tariffs in the global economy and the role of GRC

Tariffs are among the most hotly debated instruments of trade policy. In particular, the imposition of additional tariffs by the U.S. government under Donald Trump has been making headlines in recent years, and continues to do so. The impact of these protectionist measures was—and still is—felt on multiple fronts, both by the U.S. economy and by trading partners affected by these tariffs. What concrete effects have Trump’s tariffs had on the U.S. and on other countries? What historical examples of tariffs exist, and how successful were they? And to what extent are today’s companies being called upon to adapt their Governance, Risk, and Compliance (GRC) structures to cushion against such risks? This article takes a detailed look at these questions.

Trump’s Tariffs and Their Economic Impact

Under the Trump administration, the phrase “America First” became a central slogan. In the context of trade policy, it meant protecting domestic industries and reducing the trade deficit. Accordingly, President Trump announced early on his intention to impose punitive tariffs on a range of imported goods.

Particularly high-profile were—and remain—the tariffs on steel and aluminum from various countries. China repeatedly came under the U.S. spotlight because, according to Trump, there were massive trade imbalances. These tariffs quickly led to countermeasures and retaliatory tariffs. Countries like China and EU member states struck back by introducing their own tariffs on U.S. products, such as agricultural goods and certain consumer products.

The consequences within the U.S. emerged on several levels. On the one hand, certain U.S. industries benefited from a temporary competitive advantage. Steel producers, for instance, suddenly faced less competition, leading to a greater domestic market share. On the other hand, many companies that process steel (for example in the automotive and machinery sectors) saw production costs increase, ultimately resulting in higher prices for end consumers. In addition, U.S. exporters in sectors like agriculture suffered significant losses, as retaliatory tariffs effectively “shut out” key export markets. U.S. farmers in particular complained about lost revenue because products such as soybeans and other agricultural goods became subject to higher duties in countries like China.

For trading partners—from China to the EU to Canada and Mexico—these tariffs primarily meant higher prices in the U.S. market. This shrinks their market share and puts export-sector jobs at risk. At the same time, many foreign companies are forced to focus on other markets or seek workarounds. Overall, these processes are driving a realignment of global supply chains. Multinational companies, in particular, are reassessing their sourcing and production structures to avoid being overly affected by U.S. tariffs and possible retaliatory measures.

Historical Examples of Tariffs and Their Success

While Donald Trump became particularly well-known for his aggressive tariff policy, relying on punitive tariffs is not new. A frequently cited example from economic history is the Smoot-Hawley Tariff of 1930. During the Great Depression, the U.S. government under President Herbert Hoover raised tariffs on numerous imported goods in hopes of protecting domestic agriculture and industry.

However, this strategy proved counterproductive. Several trading partners responded with countermeasures, sparking a veritable “tariff war.” The resulting exchange of tariffs reduced global trade overall and ultimately exacerbated the economic crisis of the 1930s. While the global economy today is not directly comparable to that era, it illustrates that protectionist policies may have short-term effects but often lead to a downward spiral in the long run, given that countermeasures and trade barriers also affect one’s own economy.

Another example is the “Chicken War” of the 1960s between the U.S. and the European Community. Both sides imposed tariffs on poultry and other products, resulting in a diplomatic freeze and higher prices. This conflict exhibited many of the same patterns later seen under Trump: countermeasures, trade diversion, and costly legal disputes before international bodies.

The Role of GRC in the Context of Tariffs

Companies operating in multiple countries must protect themselves from economic and political risks. When governments impose tariffs on short notice or renegotiate international trade agreements, the situation can change drastically in a very short time.

Tariffs or other protectionist measures are not just temporary disruptions; they can have far-reaching consequences for supply chains, production costs, and markets. A carefully designed Governance, Risk & Compliance (GRC) system enables companies to respond to these challenges in a targeted way. The three core areas of Governance, Risk, and Compliance operate like gears that must mesh seamlessly in order to manage crises or political upheavals successfully. Below, you’ll learn what a strong GRC framework looks like and what specific steps each area can take.

Governance: Clear Structures for Rapid Decisions

Governance refers to the leadership and organizational structures responsible for strategic decisions. A robust governance framework features transparency and clear responsibilities so that management can react quickly to trade barriers or changes in tariffs.

Central Steering Committee: In the face of looming tariffs or other political risks, it can be helpful to establish a dedicated “trade committee” or crisis team. This body evaluates information related to tariffs, coordinates departments such as purchasing, logistics, and finance, and makes timely decisions.
Clear Escalation Paths: If supply chains are threatened, problems must be communicated swiftly to top management. A well-designed governance model specifies to whom employees should report in various situations, ensuring that necessary strategic changes or investment decisions can be made quickly.
Strategic Alignment: Governance also involves adjusting business strategy to changing conditions. If import costs rise, for instance, the company may decide to relocate production steps domestically or specifically target investments in new markets. Strong governance ensures that such measures are coordinated and not implemented in isolation.

Example: If a U.S. company learns that tariffs on steel imports from Canada are in the pipeline, an effective governance body would immediately convene all relevant stakeholders. This group would examine whether to diversify existing steel suppliers, renegotiate with Canadian partners, or temporarily increase inventory.

Risk Management: Identifying and Mitigating Threats

Without solid risk management, companies could be caught off guard by tariffs literally overnight. A professional process of risk analysis and control ensures that such developments are identified early and that adequate countermeasures can be prepared.

Continuous Monitoring: Effective risk management continuously monitors relevant markets, political developments, and legal frameworks. This allows the company to anticipate the likelihood of new tariff regulations early on and develop contingency plans.
Scenario Analysis and Stress Tests: Many companies use scenario planning to be better prepared. They run through various assumptions—for example, what would happen if a 25% tariff on steel were introduced? The results of these analyses help to prioritize response options.
Supplier Diversification: The more flexible a company’s sourcing strategy, the less severe the risk if a particular country is subject to tariffs. Good risk managers typically maintain multiple suppliers in different regions and negotiate framework agreements to cushion short-term price increases.
Insurance Solutions: In some industries, political risks (Political Risk Insurance) can be partly insured. Though not always possible, it demonstrates that risk management extends beyond procurement and logistics, covering financial and legal aspects as well.

Example: A global automotive supplier sources aluminum from Mexico and China. Its risk management identifies the possibility that the U.S. might impose tariffs on aluminum products. By strategically expanding European and Southeast Asian suppliers, the company reduces its dependence on those markets. Should tariffs actually be introduced, it can quickly switch to alternative suppliers.

Compliance: Lawful Conduct in All Tariff and Trade Matters

Compliance means ensuring that a company adheres to all relevant laws, regulations, and internal guidelines. Especially in the wake of punitive or retaliatory tariffs, new laws and regulations often emerge. A robust compliance management system is vital to avoid unnecessary legal pitfalls.

Customs and Export Regulations: Once tariffs are in effect, the associated tariff rates and product classifications often change. An effective compliance system monitors these changes in real time and updates internal processes (e.g., product coding, documentation) accordingly.
Proactive Training: Employees in purchasing, logistics, and sales need to be trained to implement new regulations correctly. Compliance training imparts the necessary knowledge of documentation requirements, customs procedures, and deadlines.
Transparent Documentation: A seamless record of imported goods is essential. Modern compliance tools ensure that all customs documents, product certificates, and delivery records are readily available. In case of inspections or legal disputes, the company can provide evidence of all transactions.
Ethics and Integrity: Compliance encompasses not only adherence to laws but also ethical and sustainable dealings with business partners. In an environment where tariffs create political tensions, a clear commitment to fair business practices can strengthen the trust of partners and customers.

Example: After China introduces new retaliatory tariffs, a U.S. company must adapt its export documentation to the revised regulations. The compliance team informs everyone involved about the new HS codes (Harmonized System Codes) and ensures that no incorrect information is submitted during customs clearance. This helps prevent legal conflicts and reduces financial risks from potential fines or delivery delays.

How the Three GRC Pillars Work Together for a Robust Business Strategy

The real power of a GRC system only emerges when Governance, Risk Management, and Compliance work hand in hand. Risk management, which identifies new tariff risks, will only be effective if good governance structures enable swift responses and if robust compliance management ensures a solid legal foundation.

This synergy is crucial when international conflicts arise and governments impose tariffs on short notice. Only a company that knows its decision-making pathways and obligations (Governance), has tested possible scenarios (Risk Analysis), and rigorously complies with all regulations (Compliance) can act confidently in such situations.

Concrete Example of an Integrated GRC Response:

Risk Management analyzes initial indications of planned tariff increases and recommends building up inventory and reducing dependence on the affected import country by seeking alternative suppliers.
Governance convenes a crisis team to evaluate these recommendations and decide—within a very short period—whether and how the company should invest. Relevant departments (purchasing, production, logistics) are then informed.
Compliance reviews the required formalities for switching suppliers and ensures that all documentation and declaration obligations are met in order to comply with legal requirements.

Such an approach significantly reduces the likelihood of unpleasant surprises, high additional costs, or even supply failures.

Conclusion: Tariffs, Protectionism, and Corporate Strategies

Trump’s tariffs have shown how quickly protectionist measures can upend global supply chains. While individual sectors in the importing country can benefit in the short term, most companies face greater uncertainty and many consumers end up paying higher prices. Historical examples such as the Smoot-Hawley Tariff or the “Chicken War” show that import tariffs usually trigger countermeasures and put global trade under pressure.

In a networked world, we can expect tariffs to continue to be used as a means of exerting pressure. Companies would therefore do well to align their Governance, Risk, and Compliance processes in such a way that they can respond swiftly and flexibly. A mature GRC framework enables early risk detection, supports lawful conduct, and ensures transparent corporate leadership. In doing so, companies lay the foundation to remain successful even in turbulent trade environments.