In late 2024, more than half of global executives cited concerns around changes in trade policy, with 255 S&P 500 companies mentioning tariffs on earnings calls since the US November election.1 Early in 2025, it is safe to say that concern has grown, with tariffs being one of the hottest topics in boardrooms (Exhibit 1). Distributors are already feeling the heat, given the potential impact of tariffs on supplier relationships, and their reliance on directly imported products for a significant portion of their assortment.
Key questions for companies with global supply chains include whether new tariffs will be implemented, which countries will be affected, what rates will be imposed, and when the changes will take effect. Distributors—particularly industrial distributors—have already cited a significant impact on their business from the increased tariffs on imports from China and the reinstated 25 percent tariffs on steel and aluminum.2 Leading distributors are now taking steps to mitigate this impact. Multiple public industrial distributors with import exposures ranging from 15 to 70 percent discussed their actions and “tariff playbooks” on recent earnings calls, including efforts to diversify sourcing to offset heavy reliance on imports from China.3
If tariffs materialize and remain in place for an extended period, distributors with extensive global sourcing and a high proportion of direct imports will be affected most. However, all distributors should consider bold moves to quell the potential impact of tariffs and deploy risk mitigation strategies and proactive moves toward growth and acceleration in new markets and regions.
Background: How will tariffs impact distributors?
Because product- or country-specific tariffs are often assessed as import taxes, distributors without intermediary importers can often pass on the tariff burden to customers by raising their prices, provided their customers are willing to accept the price increase. Where distributors use intermediaries or source domestically, there can be some inflationary pressure on distributors’ supply costs.
Initial analyst projections suggest a modest increase for distributors’ gross margins once tariffs are in effect, thanks to the industry practice of passing along the tariff burden to consumers “dollar for dollar.” In fact, over 60 percent of leading industrial distributors have historically increased the price to consumers by the amount of the tariff with no adverse effects.4 They intend to do the same again with the most recent round of tariffs.
However, distributors that simply pass through tariffs to their customers without any other strategic measures could miss margin preservation opportunities, or lose market share to competitors that do not face the same tariff pressures. Additionally, the risk of customers disintermediating to avoid cost pass-throughs is especially potent, given their heightened expectations for distributors, advances in revenue growth management (RGM) and procurement analytics techniques, and suppliers’ increasing use of digital platforms to reach end customers directly.5
Distributors can no longer just “wait and see” and then react. Instead, there are proactive preventive measures they should consider incorporating into their tariff playbooks, spanning four key elements: assessing tariff impacts, derisking the supply chain, retaining customers, and planning for the future (Exhibit 2).
1. Assessing tariff impacts: How can distributors assess their tariff exposure and anticipate the impact on their business?
Understand potential exposure to tariffs across direct imports, the extended supply chain (for example, suppliers’ tariff impacts), and the competitive landscape. Distributors have an opportunity to use technological solutions that were implemented during earlier tariffs to proactively identify potential exposure and position themselves strategically against competitors. One such solution is SKU-level tracking. In late 2024, one large industrial distributor analyzed ship-from regions for over 800,000 SKUs, allowing this tracking to quantify its tariff exposure in China, Mexico, and Canada preemptively.6 Intelligent tracking, including cost breakdown and index comparisons, can also prevent suppliers from passing on costs that are higher than the true tariff impact.
2. Derisking the supply chain: What actions can category managers take to pre-emptively ward off upcoming tariff impacts on their supply chain?
Use flexible contracts (such as index-tied pricing) with relevant raw material and finished goods suppliers to address fluctuations in part-level prices and demand caused by market volatility.
Assess where there is potential to place low-risk “smart bets”: Leading branded merchandise distributors have already begun frontloading inventory to avoid future price increases, but analysts warn that the sheer number of distributors with the same idea could drive up freight and warehousing prices.7 Building inventory could be an effective preemptive measure in the time remaining with stable costs, but only if companies have a high level of confidence about which SKUs will be impacted, inventory capacity, storage constraints, and supplier reliability.
Maintain strong supplier partnerships and pressure-test supplier costs to ensure continued fair prices: In many cases, distributors are not the direct importers of their goods, meaning the tariff burden could be passed on to them by their vendors. It will be increasingly important to forge preferred partnerships with these vendors and collaborate to mitigate the inflationary pressures of the tariffs. Distributors should conduct should-cost modeling to stay abreast of their own expected cost-plus pricing, and to use as leverage in proactive contract renegotiations with suppliers.
3. Retaining customers: How can distributors strengthen customer relationships and ensure they are meeting customer expectations in the turbulent tariff environment?
Assess customers’ elasticity and ability to absorb pricing changes before passing on tariff costs: The decision to pass on tariffs to the customer should be checked against the customer’s sensitivity to price increases. There is always the risk that customers will disintermediate and choose to purchase directly from suppliers, or switch to distributors that import from regions that aren’t impacted by the tariffs. Customers that are likely to be least sensitive to price pass-throughs are:
- longstanding customers that may be more likely to appreciate visibility and transparency into the cause of the price increases, as opposed to newer, less loyal customers that may be more likely to switch to other distributors
- customers buying a larger range of SKUs, that may be less concerned about price rises affecting a small fraction of their spend
Reframe the customer value proposition with services beyond product delivery: Customer expectations for value-added services such as inventory management and product expertise have increased. For distributors, becoming a core value chain partner will be crucial to retain customers despite tariff-related price hikes. Consider investing in value-added services beyond the traditional by gathering insights on customers’ prominent pain points and tailoring high-ROI support activities. For example, provide printing or packaging solutions to improve retailers’ margins or light assembly offerings for industrial players.8
Explore digital capabilities to provide customers with a smoother omnichannel experience: Suppliers are increasingly reaching end customers directly through digital channels, offering them convenience and simplicity in their omnichannel. This, coupled with a potential tariff cost pass-through, could easily nudge customers to disintermediate. To ensure customers receive an optimal omnichannel experience through distributors, an acceleration in digital adoption (for example, in order tracking and purchase forecasting) is key.9
4. Planning for the future: How can distributors expand and diversify their supply base to brace for future tariff impacts?
Diversify the supply chain: The threat of country-specific tariffs is forcing distributors to consider a supply-chain-diversification strategy. Large players are now branching out to India and Vietnam, and it will be crucial to proactively look for other national or international sourcing opportunities in regions unlikely to be impacted by tariffs in the future. Additionally, to maintain flexibility and agility in the volatile tariff landscape, consider a dual-source strategy with import and domestic or nearshored options to protect against new tariffs and improve supplier reliability.
Consider longer-term plays to build up your supplier base, with a focus on commodity products in the medium-term: Commodities like steel or milk are more transferable across suppliers, and proactive outreach to commodity suppliers that aren’t impacted by tariffs could be advantageous to accelerate conversion of new customers that may currently be facing tariff impacts on those products.
As we look ahead at the trade landscape in the United States, distributors cannot be complacent about the impacts of tariffs on their business. As straightforward as it may sound to simply pass on the tariff burden to consumers, there are several preemptive and protective measures distributors should be considering to derisk their supply chain for the future, both where they are importing directly and where their suppliers or intermediaries are impacted. In this unpredictable trade environment, it is also increasingly important for distributors to seize the opportunity to explore new markets and geographies and ensure agility for any future bouts of tariffs. Finally, building trust and partnerships with existing suppliers and customers will remain a key priority.
The authors wish to thank Alex Abdelnour, Andi Fischer, Brooke Daniels, and Sadhvika Viswanath for their contributions to this article.
1 Sheryl Estrada, “Earnings calls feature record number of tariff mentions, CFOs brace for impact,” Fortune, March 7, 2025.
2 “Fact Sheet: President Donald J. Trump Restores Section 232 Tariffs,” The White House, February 11, 2025.
3 Company earnings calls: GWW Q4 earnings call, 2025-01-31, Q4 2024; FAST Q4 earnings call, 2025-01-17; MSM Q4 earnings call, 2024-10-24, Q4 2024; AIT Q4 2024 earnings call, 2024-08-15; WCC Q4 2024 earnings call, 2025-02-11; FERG Q1 2025 earnings call, 2024-12-11; GPC Q4 2024 earnings call, 2025-02-19; POOL Q4 2024 earnings call, 2025-02-20; BLDR Q4 2024 earnings call, 2025-02-20; WSO Q4 2024 earnings call, 2025-02-18.
4 “Trump Tariffs: Today or Delay?” Baird Equity Industrial Distribution Research Report; company earnings calls.
5 “The coming shakeout in industrial distribution,” McKinsey, May 3, 2019.
6 Company earnings calls.
7 Jonny Auping, “Special report: Potential Trump tariffs could have far reaching impact on merch industry,” PPAI, November 14, 2024; Arianna Johnson, “How branded merch suppliers are preparing for potential tariffs,” PPAI, December 18, 2024.
8 “The coming shakeout in industrial distribution,” McKinsey, May 3, 2019; “Lessons from transformers: How some distributors reset and won,” McKinsey, February 21, 2023.
9 “The coming shakeout in industrial distribution,” McKinsey, May 3, 2019.