Trump’s Tariffs and the Domino Effect: What Every International Manager Must Know – 3 Steps to Plan Your Actions

Good morning. It’s Wednesday, Feb. 5, and today we’re covering tariffs. The new U.S. administration has placed tariffs back in the spotlight.

Foreign companies must prepare for rising costs, changing customer behavior, and aggressive competition. The real question isn’t if tariffs will affect your business—it’s how quickly you anticipate and adapt before your competitors.

We’ll discuss three strategic steps to help adapt:

1. Identify how tariffs impact your business

2. Use Game Theory to anticipate competitive shifts, and

3. Implement pricing and retention strategies to protect margins and customer relationships.

Let’s dive in.

Step 1:

Identify exactly how tariffs impact your business by focusing on what matters most—your costs, your customers, and your competitive position.

Tariffs create winners and losers:

• The government and local producers win because tariffs protect domestic industries.

• Consumers and foreign businesses lose because they face higher prices and reduced demand.

Don’t waste time analyzing what tariffs mean for the government or local producers—focus on how they directly affect your customers and your bottom line.

The key is to assess cost increases, customer behavior changes, and competitor moves—because those are the factors that will reshape your sales strategy.

Breaking Down the Impact:

1️ Costs: Are tariffs increasing your product costs, shipping fees, or operational expenses?

• Tariffs act as an import tax, raising costs on materials, components, and shipping. Even if you don’t import directly, your suppliers might.

• The result: Lower margins unless you adjust pricing or costs elsewhere.

2️ Customers: Will your customers buy less, delay purchases, or switch to domestic competitors?

• B2B buyers react quickly to price hikes, delaying orders or sourcing cheaper alternatives. In price-sensitive markets, tariffs can push customers to competitors.

• If you don’t anticipate customer behavior shifts, you’ll be caught off guard.

3️ Competitive Position: Are local competitors using this as an opportunity to undercut your pricing?

• Domestic competitors gain a pricing edge when tariffs raise your costs.

• If they lower prices or ramp up marketing while you’re adjusting, they’ll grab market share fast.

Takeaway: Shift from Analysis to Action

Tariffs aren’t just a policy change—they’re a competitive reality. You need to assess the damage early and adjust before competitors take advantage.

Actionable Framework: Run a Tariff Impact Audit

1. List all affected products/services and quantify the cost increase per unit.

2. Identify which customers will be most affected and how they might respond.

3. Track competitor pricing and marketing strategies to anticipate shifts.

Once you assess your risks, the next step is to anticipate how your competitors and customers will react—and position yourself accordingly.

Step 2: 

Use Game Theory to predict how competitors and customers will react—because they won’t stand still, and neither can you.

When tariffs hit, competitors and customers don’t wait—they adapt. If you assume they’ll stay passive, you’re already losing ground.

Game Theory helps you anticipate their next moves and adjust ahead of time.

Understanding Market Reactions:

1️ Competitor Response: Will they cut prices, shift sourcing, or seek subsidies?

• Local competitors not affected by tariffs may slash prices, increase marketing, or push ‘Buy Local’ campaigns.

• Foreign competitors may move production to non-tariff countries or negotiate exemptions.

• Some may absorb costs short-term to hold market share while you scramble to adjust.

2️ Customer Response: Will they negotiate harder, delay purchases, or switch suppliers?

• B2B customers will demand better pricing, delay large orders, or seek alternative suppliers.

• B2C customers may opt for cheaper substitutes, wait for discounts, or expect added value.

Takeaway: Anticipate Moves Before They Happen

Waiting to react is a losing strategy. If you’re not proactively adjusting pricing, contracts, or marketing, your competitors are already ahead.

Actionable Framework: Create a Competitor & Customer Response Map

1. Track top competitors’ pricing & sourcing decisions.

2. Identify which customers are most price-sensitive and likely to switch.

3. Develop retention strategies (discounts, loyalty incentives, contract renegotiations).

While competitors adjust pricing and sourcing, customers are making their own shifts. Understanding both reactions is key to building a resilient strategy.

Now that you know how your competitors and customers will react, Step 3 will focus on adjusting your pricing and retention strategy to maintain profitability.

Step 3:

Implement pricing and retention strategies that protect margins and keep customers, both in the short term and long term.

Once tariffs impact pricing, your strategy must focus on balancing customer retention, protecting margins, and maintaining competitiveness. If you fail to adapt pricing intelligently, you either lose customers (by raising prices too aggressively) or hurt your profitability (by absorbing costs indefinitely).

Strategic Pricing Adjustments

1️ Short-Term Moves (0-6 Months): Prevent Immediate Revenue Loss

• B2B: Secure long-term contracts before cost increases hit. Offer bulk discounts to keep large accounts locked in.

• B2C: Implement loyalty-based pricing and short-term price holds to retain customers.

• Both: Justify price increases by emphasizing product differentiation, reliability, and service.

2️ Long-Term Adjustments (6+ Months): Maintain Stability & Growth

• B2B: Develop consulting or support services beyond just the product to increase perceived value.

• B2C: Build loyalty programs, memberships, or post-sale benefits that justify premium pricing.

• Both: Shift focus from cost competition to brand differentiation.

Takeaway: Smart Pricing Isn’t Just Survival—It’s a Competitive Advantage

Companies that proactively adjust pricing & retention strategies won’t just survive tariff shifts—they’ll use them as an opportunity to strengthen customer relationships and solidify market positioning.

Actionable Framework: Design a Short-Term & Long-Term Pricing Playbook

1. Review pricing models and identify cost absorption vs. price adjustments.

2. Offer contract incentives for long-term customer commitments.

3. Introduce loyalty rewards or bundled offerings to increase retention.

Top Links of the Week

“What are Tariffs” (Council on Foreign Relations) - This article explains how tariffs work (link here).

The Right Game: Use Game Theory to Shape Strategy" (HBR) - This article discusses how businesses can apply game theory principles to shape their competitive strategies (link here).

“Game Theory in online marketplaces” (Cornell University) - This article introduces how Amazon and eBay use Game theory in pricing (link here).

"5 Lessons from Automakers on Navigating Supply Chain Disruptions" (HBR) - This article provides insights into how automotive companies manage supply chain challenges (link here).

“How China tariffs could backfire on U.S." (Harvard Gazette) - This article discusses the potential consequences of imposing tariffs on China, including impacts on the U.S. economy (link here).

"Trump's automotive tariffs would impact nearly all OEMs" (S&P Global Mobility) - This analysis examines how proposed tariffs would affect automotive manufacturers and their supply chains (link here).

Conclusion

Tariffs aren’t just cost increases—they’re a market shift that will reshape competitive positioning, pricing, and customer relationships. The companies that succeed aren’t necessarily the cheapest, but the ones that react first, anticipate shifts, and adjust faster than their competitors.

The question is: Are you going to adapt before the market forces you to?