As the U.S. enters a new era of trade policy under the current Presidential administration, businesses across industries are grappling with the renewed complexity and uncertainty of international tariffs. Unlike the more structured and gradual implementation seen in 2018, the 2025 tariff rollout has been marked by abrupt changes, tight deadlines, and sweeping measures—leaving companies with little time to react.

In this in-depth conversation with ABL Advisor, industry experts Candace Holowicki and Angel Ramirez, with Hilco Performance Solutions, share firsthand insights into the challenges companies and lenders are facing. From volatile inventory valuation to supply chain disruptions and potential impacts on lending and asset valuation, Holowicki and Ramirez paint a detailed picture of the ripple effects these evolving trade policies are having on U.S. businesses.

ABL Advisor: Over the past few months, the new Presidential administration has announced a series of implemented and potential tariffs with numerous U.S. trade partners. What are you hearing from your clients in terms of planning for these tariffs and the potential impact on their businesses?

Candace Holowicki and Angel Ramirez: There is a lot of frustration and confusion around the 2025 tariffs compared to the 2018 tariffs, due to the short amount of time between the announced tariff and the effective date. Also, the multiple changes to the application of the tariffs and the tariff amounts, before and even after the effective date. In 2018, the process began with an announcement of proposed tariffs, a period for comments to be submitted to the USTR, and then a final published tariff announced well in advance of the effective date. This gave businesses a chance to prepare for the upcoming tariffs and make supply chain adjustments before the effective date. Changes to those tariffs followed the same structured process.

Furthermore, the implementation of blanket tariffs, likely for the sake of a quick deployment, is also creating significant uncertainty because it is very hard to predict what will ultimately remain in place.

ABL Advisor: Supply chains experienced numerous issues during the COVID-19 pandemic with some of these supply chain issues impacting inventory levels in specific industries for a number of years.  How will inventory values be potentially impacted if the currently implemented tariffs remain in place and additional tariffs are implemented?

Holowicki and Ramirez: Tariffs increase the total landed cost of imported goods and are typically rolled into inventory cost. If tariffs remain in place, are increased, or additional tariffs are added – like we are seeing with imports from China, companies may need to review their inventory valuation to determine if the higher cost is recoverable, or if they need to write down the inventory to the Net Realizable Value (NRV).

In addition, companies that use standard costing values for inventory, quoting and other internal operations will need to review and adjust their standard costs to include the tariff expense once tariff policies stabilize. Since the new 2025 tariffs only went into effect in April, and some have been changed or postponed, it is just too soon to predict inventory costs going forward.

ABL Advisor: Will the market face a significant re-alignment in inventory values – for example, if companies begin procuring and possibly stockpiling inventory in anticipation of tariffs?

Holowicki and Ramirez: Yes, the pull ahead of import orders is evident in the YTD import container volumes, which showed year-over-year import container increases in Jan, Feb and March. Container volumes from China specifically increased from 7.9% - 10.2% each month.

ABL Advisor: Will this create inventory obsolescence or spoilage risks?

Holowicki and Angel Ramirez: If consumer confidence continues to drop, there could be a risk that the inventory will not be depleted as quickly as projected, or if sourcing changes are made to reduce or avoid the highest of the tariffs, this could also lead to increased obsolescence. Companies that utilize Foreign Trade Zones or Customs Bonded Warehouses to reduce or defer tariff expenses could increase their risk of obsolescence or spoilage if they hold the goods there too long while waiting to take advantage of market fluctuations or international trade changes.

ABL Advisor: Which industries are most susceptible to the potentially negative impact of tariffs? For example, manufacturers in specific industries?

Holowicki and Ramirez: Manufacturers that rely heavily on imported components, steel, aluminum, semiconductors or chips, are most affected by tariffs. Within manufacturing, the automotive, heavy machinery and consumer electronics industries are the most at risk because they rely on complex global supply chains that took years to build. But the implementation of blanket tariffs, in theory, affects almost every industry unless specifically excluded by a trade agreement or exemption. It is very hard to predict which industry will be targeted next.

ABL Advisor: Will businesses in those industries likely be facing a reduction in inventory advance rates from banks and non-bank lenders?

Holowicki and Ramirez: This is a possibility. Tariffs can directly impact the value and liquidity of assets used as collateral, such as accounts receivable, inventory, and equipment. This can lead to lenders adjusting borrowing bases, reducing credit availability, and potentially increasing interest rates.

ABL Advisor: Tariffs can have a significant impact on gross margins and can cause EBITA compression. Are you and your clients concerned about the possible impact on valuations for Intellectual Property (IP) assets?

Holowicki and Ramirez: Some businesses can increase their sales prices to cover tariff costs, but this may reduce their sales volume. If they cannot pass the increased tariff costs on to their customers, the higher costs will erode gross margins. Either way, the decline in profitability can lead to a reduction in expected future cash flow, which is the basis for IP asset valuation. A significant cash flow decrease could trigger an impairment test and potentially a reduction in the IP asset’s book value.

ABL Advisor: Are there any key messages, talking points, or topics we did not cover that you wish to highlight?

Holowicki and Ramirez: Yes. Included in the tariff announcements is another topic that has not been as widely covered but could be a severe disruption to U.S. supply chains, the proposed fee of at least $1 million each time a Chinese operated, or Chinese built ship enters a U.S. port. Many current ocean vessels and most of the ships on order are made in China shipyards. Shipping lines have started repositioning vessels in their network, routing Chinese made vessels away from the U.S., in preparation for the final fee structure and effective date announcement. The shipping line would pass the levies on to the U.S. import shipments being discharged from the vessel, effectively increasing freight rates by $600 - $800 per container and subsequently importers will pass these costs on to consumers.

Once these levies are in place, shipping lines will reduce the number of port-calls a vessel makes in the U.S. to reduce costs. This could lead to a vessel discharging all the shipments destined to the U.S. East Coast ports on their route at a single port, rather than calling on multiple ports and incurring multiple levies. This would result in supply chain disruptions, port congestion, chassis shortages, rail backups and other supply chain imbalances. But the levies are not just an import issue, as they would also increase the costs of shipping U.S. Exports, which would harm American farmers and other export businesses by reducing their earnings or making their products too costly for foreign buyers.

The U.S. Trade Representative (USTR) is reviewing feedback and comments from public hearings and is expected to finalize its proposal on April 17th, followed by an implementation hearing in mid-May.