Five Checks For … Stress-Testing Supply Chains for Tariff Shock

Please find our latest “Five Compliance Best Practices” article, which provides quick-hit compliance best practices multinational companies can implement to enhance their compliance programs and internal controls. Additional “Five Things” articles, as well as our What Every Multinational Should Know and Tariff-ied! articles, can be found in the drop-down menu on our Tariff & International Trade Resources page. Click Here To Register for our email list to receive future practical international regulatory compliance tips.

Many companies understand that tariffs may increase costs, but fewer have tested how their supply chains would perform if tariff changes were sudden, broad, or concentrated on key inputs. A supply chain stress test can help companies identify vulnerabilities before a policy shift disrupts pricing, sourcing, or customer commitments. This is increasingly important where import dependence, limited supplier diversity, or tight production timelines leave little room for error.

Companies that depend on cross-border sourcing accordingly should consider whether they have evaluated their supply chains under realistic tariff-shock scenarios. Here are five best practices companies should consider when conducting this type of stress-testing:

• Identify Critical Products, Inputs, and Trade Lanes. Companies should begin by identifying which imported goods, components, and sourcing routes are most important to operations and most vulnerable to tariff increases. The purpose is to focus the stress test on the areas where disruption would likely create the greatest business impact.
• Model Plausible Tariff Scenarios. A useful stress test should evaluate multiple possibilities and scenarios. Companies should consider how the business would respond to scenarios such as broad tariff increases on goods from a major sourcing country, targeted tariffs on strategic sectors, changes in USMCA treatment, or retaliatory foreign measures affecting exports.
• Assess Financial, Operational, and Contractual Impact. Stress testing should include more than customs duty calculations. Companies should evaluate how tariff shock would affect margins, inventory strategy, supplier performance, customer pricing, contractual obligations, and production continuity. This broader analysis often reveals vulnerabilities that duty modeling alone would miss.
• Test Whether Alternative Suppliers or Routes Are Actually Viable. Backup sourcing options should be validated rather than assumed. Companies should determine whether alternate suppliers are qualified, whether production can shift in practice, whether transportation capacity exists, and whether contractual or regulatory barriers would delay implementation.
• Use the Results to Drive Action. A stress test is valuable only if it leads to concrete improvements. Companies should use the findings to refine sourcing strategy, renegotiate contracts, build contingency inventory where appropriate, improve data visibility, and assign responsibility for future response measures.

Companies that stress-test their supply chains before trade conditions deteriorate are more likely to respond effectively when tariff shock occurs. In a volatile trade environment, scenario testing can be one of the clearest ways to identify weak points before they become business disruptions.

Would you like more practical compliance tips like these? The Foley International Trade & National Security Team is monitoring all international trade developments, including new tariff pronouncements, which we post as they occur on our Tariff & International Trade Resources blog. Click Here To Register for our email list to receive future emails and practical international regulatory compliance tips.

Our white paper on Managing Import and Tariff Risks During a Trade War outlines a 12-step plan to provide practical steps to help importers navigate the tariff and international trade risks in the current tariff and trade environment, while the companion white paper on Managing Supply Chain Integrity Risks provides practical advice to deal with heightened supply chain risks pertaining to goods imported into the United States, including the increasing use of detentions by Customs.