Navigating Tariff Developments: Key Considerations for CFIs

In 1956, American entrepreneur Malcom McLean transformed global trade by introducing the first standardized shipping container. This innovation allowed goods to be efficiently transferred between ships, trucks, and trains, significantly reducing transportation costs and time. Companies that swiftly adopted this new system gained a competitive edge, while those slow to adapt faced operational challenges. Economic shifts — whether driven by innovation, regulation, or policy — often require businesses and financial institutions to reassess strategies and adapt in real time. As new tariffs reshape trade dynamics, CFIs have an opportunity to help businesses navigate cost pressures, supply chain adjustments, and evolving financial needs.On March 4, 2025, the administration implemented new tariffs on imports from Canada, Mexico, and China, imposing a 25% duty on imports from Canada and Mexico and a 20% duty on Chinese goods. However, just days later, certain exemptions were announced, temporarily pausing tariffs on some Canadian and Mexican goods. These exemptions include a one-month tariff reprieve for US automakers on auto imports from Canada and Mexico, as well as a reduction of tariffs on Canadian potash from 25% to 10%. While these adjustments offer short-term relief for select industries, many sectors remain affected, including manufacturers, retailers, and agricultural exporters. As these policies continue to evolve, community financial institutions (CFIs) must remain proactive — assessing risk, supporting affected businesses, and refining lending and deposit strategies to help clients navigate potential financial disruptions.Tariffs and Their Effect on Business BorrowersWhile exemptions have temporarily eased some tariff pressures for the automotive sector, other industries — such as manufacturing, retail, and agriculture — continue to face higher costs on imported goods. Many of these businesses may struggle with shrinking margins and tighter cash flows, which could increase credit risk for lenders. CFIs should evaluate their loan portfolios for exposure to industries most affected by these price shifts.Beyond cost increases, supply chain disruptions are another key concern. Businesses relying on foreign suppliers may see delays, inventory shortages, or unexpected cost surges. These interruptions can impact working capital cycles, making it more difficult for businesses to maintain operations and repay loans on schedule. CFIs should engage early with borrowers in supply chain-intensive industries to explore financial stability strategies, such as short-term credit solutions or extended repayment flexibility.Exporters, particularly in agriculture, remain vulnerable to shifting trade policies. While some relief has been granted — such as a reduction in tariffs on Canadian potash, a key agricultural input — many US farmers and exporters still face uncertainty regarding retaliatory tariffs and shifting global demand. Institutions serving these markets should consider proactively reviewing borrower risk exposure, monitoring potential revenue impacts, and exploring alternative financing options that may help businesses manage these trade headwinds.Inflation, Interest Rates, and Liquidity ConsiderationsTariffs often lead to higher prices on consumer goods, contributing to inflationary pressures. If inflation rises significantly, the Federal Reserve may respond by adjusting interest rates, impacting the cost of borrowing across the board. CFIs should be prepared for potential rate changes and consider reviewing loan pricing models, deposit rate strategies, and borrower stress tests to account for various interest rate scenarios.Another factor to watch is liquidity pressure on deposit bases. Uncertainty in trade policy can prompt depositors to move funds into higher-yielding investments or more liquid accounts, impacting a financial institution’s funding mix. To retain core deposits, CFIs may need to adjust product offerings, explore tiered-rate strategies, and emphasize digital banking enhancements that improve customer engagement.Helping Businesses Navigate Trade DisruptionsIn response to new tariffs, businesses may seek alternative financing to manage cost pressures. CFIs can play a vital role in helping clients bridge financial gaps, whether through working capital loans, restructuring existing debt, or offering treasury management solutions to improve cash flow.Advisory services will also be critical. CFIs should look for opportunities to support business clients with risk mitigation strategies, including expense management insights, foreign exchange hedging, and supply chain finance solutions. By positioning themselves as trusted advisors, CFIs can strengthen relationships with businesses navigating these economic changes.M&A and Industry Consolidation ConsiderationsFor some businesses, tariff-driven cost pressures may accelerate consolidation efforts as firms seek financial stability through mergers or acquisitions.  CFIs should monitor trends in M&A activity, particularly in trade-sensitive industries, and be prepared to support financing for strategic transactions.In the banking sector, regional bank M&A trends may also be influenced by trade policy shifts, as institutions adjust their growth strategies in response to evolving economic conditions. CFIs should assess whether their own positioning aligns with emerging opportunities or challenges in the broader financial landscape.While some borrowers will face financial pressures, institutions that proactively assess risk, engage with affected businesses, and adjust their strategies accordingly will be better positioned to support clients through these economic shifts. By focusing on credit exposure, interest rate management, liquidity strategies, and advisory services, CFIs can reinforce their role as key financial partners in an evolving trade environment. With policy adjustments still unfolding, staying informed and flexible will be essential for financial institutions and their business clients alike. Ultimately, the best way CFIs can support their communities is by remaining a steady, trusted resource — helping businesses navigate uncertainty with confidence.