Tariff

A tariff is a tax a government charges on goods imported from another country. It is paid when the goods cross the border, which means it raises the cost of anything a company manufactures or sources overseas before that product ever reaches a customer.

For a business that makes or assembles its products abroad, a new or higher tariff is a direct hit to cost. The company then has to choose between absorbing the extra cost itself, which lowers its margin, or passing some or all of it on to customers through higher prices, which can hurt demand instead. Companies that manufacture heavily in one country are more exposed to a tariff change than a company with production spread across many countries or based domestically.

Tariffs are set by government policy, not by anything a company controls, and they can change with little warning. That makes tariff exposure a real risk to watch in a company's supply chain, separate from how well the business itself is run.