This issue's key takeaways:

• Tariffs could cause a 111% increase in private companies classified as high or very-high risk.
• High and very-high risk public companies could jump by 57%.
• The Financial Health Ratings of public and private companies could decline by as much 7.4 and 15.7 points, respectively
  

Snapshot: The Escalating Impact of Tariffs on Stressed-Out Supply Chains

By James H. Gellert, Executive Chair, RapidRatings

Despite a news cycle that churns relentlessly, tariffs continue to dominate the headlines and rattle the bottom-line economic reality of companies around the world.

And the news isn’t good.

Where we stand today includes a dramatic 145% tariff increase on Chinese imports, a 90-day pause on additional tariffs taking effect, and a universal 10% tariff that’s impacting global supply-chains as we speak.

To gauge the potential impact on supply chains, RapidRatings conducted stress tests that simulated companies raising prices to cover half the cost of tariffs. Here’s what the data showed.

Are we scared yet?

A consistent theme thus far in 2025 has been rising levels of financial health risk in suppliers and supply chains, globally. But this isn’t shocking. Before tariffs, risk levels increased dramatically in 2024, and supply chain and procurement professionals expected that trend to continue into this year.

This year’s real economic environment is more erratic ―and scary― than the pessimistic outlooks at the end of the year. Unpredictable policy strategy and deployment from the Trump Administration is driving costs up and making corporate financial planning next to impossible and risk assessment extremely difficult.

This confluence of dramatic tariffs and yes, no, maybe implementation unfolding daily amidst an already unsteady economic environment, could overwhelm the financial health guardrails that keep supply chains operational.

Stressed out

We see this clearly in the stress tests.

Isolating just the 10% tariff and the 145% tariff on Chinese imports creates a massive jump in the number of suppliers that would be classified as high or very high-risk: a 46% increase for public companies and an eye-popping 92% spike for private companies.

Factoring in the reciprocal tariffs that are set to hit once the 90-day pause ends, the increase in high and very high-risk companies reaches 57% for public and 111% for private companies.

I did a double-take when I saw 111%.

That’s a huge number, but even more sobering is the real-world consequences of that number. If nearly 50% of all private suppliers ―and 39% of public ones― are considered high or very-high risk, extreme disruption to global supply chains becomes a matter of when, not if.

Here’s what that can look like:

When a company becomes high-risk it is constrained financially, making it difficult to pay its own suppliers for materials and meet other financial obligations like interest and principal payments to bond holders and banks. This results in late or missed deliveries, and unexpected spikes in cost to the client. That in turn disrupts the client’s production cycle and causes supply bottlenecks or stock outages. This may force prices up, create revenue disruptions, reputational risk and working capital inefficiencies.

While those dominoes fall, reduced liquidity forces suppliers to cut operational corners, setting off a chain reaction that lowers overall quality, security, and adherence to compliance standards.

The toll is intense, unyielding strain on procurement teams and the client’s supply chain. Costs are escalating, managing the logistical fall out is complicated, and sourcing alternative suppliers is onerous and time intensive.

Ultimately, every supplier disruption hits their bottom line, inflicting varying degrees of pain. So, when you can't see which supplier is in trouble you're not just playing high-stakes poker you're actually playing Russian Roulette.

The shadow of tariffs looms over many sectors

A quick glance at the sectors most impacted by the stress-test results reveals a canyon of financial health instability that’s not only deep but wide.

Consumer Products. Retail. Food Beverage, and Tobacco. Energy. Automotive and Related Equipment. Metals and Fabrication. And more.

The scope of industry sectors already suffering from the current tariffs is diverse; if and when the reciprocal tariffs take effect at the conclusion of the 90-day pause, the added financial risk will be acute and severe.

Taken together, the tariffs would trigger a steep decline to the Financial Health Ratings of companies across this economic expanse. For public companies the average FHR© decline would be 7.4 points; for private companies the average drop would be even more precipitous: 15.7 points.

The significance of a growing cohort of high-risk suppliers is that it pushes companies already working with financially shaky suppliers into increasingly complicated risk positions, as changing supplier risk levels destabilizes entire supply chains.

Supply chain and procurement organizations won’t know where to play whack-a-mole with the risk categories where alarms can go off from suppliers’ weakening financial health: quality, delivery, cybersecurity, compliance, sustainability initiatives, product innovation, research and development, overall reliability and of course, financial stability – with bankruptcy or liquidation at the extreme.

A burden suppliers can’t bear

Before it sounds like I’m putting undue blame on suppliers in risky financial health condition, it’s clearly a difficult situation for any supplier. That’s especially true for private and middle-market companies who lack the access to capital needed to absorb increases in parts and labor costs, interest rates, and inflation.

Understanding the tenuous position suppliers find themselves in is exactly why companies need a sense of urgency when it comes to gathering accurate financial health data.

The clock is ticking

That ominous sound is the clock ticking down the days until the 90-day pause ends. Whether the pause gets extended or cut short, companies have to prepare for the unexpected by doing everything they can to better understand their supplier’s risk levels.

That should include thoroughly scrutinizing every critical and strategic supplier’s financial health assessments, to identify and address potential vulnerabilities.

Seek out and implement modern analytic tools capable of providing quantitative financial data that’s accurate and up-to-date.

Lastly, work with key suppliers to create risk mitigation strategies that are mutually beneficial. A collaborative approach often yields more financial transparency and can limit the damage from surprise.

Stat of the Month: April

According to the World Trade Organization, North American trade in 2025 will suffer a 12.6% decline in exports, and 9.6% decline in imports, as a result of increased tariffs. These projections are based on tariffs in-effect as of April 2025, and do not include reciprocal tariffs currently subject to a 90-day pause.

Source: The World Trade Organization’s April 2025  “Global Trade Outlook and Statistics” report

The Time Machine: The Reciprocal Trade Agreement Act of 1934 (aka The President Can Now Change Tariffs Without Congress)

The Trump tariffs may have you wondering: can the president increase tariffs without Congressional approval?

We already know the answer (he sure can and he sure did!) but the reason why can be traced back to 1934.

What a year.

“It Happened One Night” starring Clark Gable won Best Picture that year at the Academy Awards. Famously, one scene featured a bare-chested Gable, which legend has it caused undershirt sales to immediately plummet. I’m not sure it’s true but it’s a great story. I can verify that in 1934 Nabisco introduced its brand new Ritz cracker. I can also verify they are delicious.

And oh yeah, the US economy was in complete shambles, in part due to the Smoot-Hawley Tariff Act of 1930 which raised tariffs to the highest level in the country’s history and sparked a global trade war.

To address the dire circumstances of the Great Depression, Congress signed into law the Reciprocal Trade Agreement Act (RTAA), which granted President Franklin D. Roosevelt the authority to decrease or increase US tariffs by up to 50% of the levels of the Smoot-Hawley tariff in exchange for tariff concessions by other countries.

This empowered the president to fast-track new trade agreements and policies in the name of economic recovery, without being subject to Congressional time delays or political bargaining tactics.

So tonight, as you toss out your undershirts, enjoy some Ritz crackers, and scroll for Trump tariff updates, remember the year that made it all possible: 1934.

If you’re curious about how RapidRatings offers the most accurate and comprehensive financial data analytics in the industry, check out RapidRatings.com to learn more.