I’ve been hearing requests from some of you to draw a cartoon explicitly on the impact of tariffs — including one reader fresh from the Canton Fair (China’s largest trade show).
Businesses of all sizes and geographies have been trying to estimate the potential impact. Last week, 3M estimated potential annual impact of $850 million and J&J $400 million. But the analysis is nonstop, the impact is more than financial, and we’re all a little blindfolded.
McKinsey has an interesting framework for how to respond to tariffs, including the insight that companies consider “relative” competitive advantage. It’s not just about the “absolute” potential impact on a business, but how that business is situated relative to competitors and substitutes.
McKinsey frames the impact of tariffs in a simple two-by-two matrix (management consultants love the two-by-two matrix). On one axis, they sketch out whether relative competitive advantage is improving or declining. On the other axis, they frame whether customer demand is shrinking or growing.
That matrix helps determine whether companies should “rationalize and refocus,” “invest to reset cost structure,” “capture market share,” or “invest in growth.”
As McKinsey puts it:
“As leaders move beyond immediate tactical responses to consider more enduring shifts to their businesses, they should assess how the new tariffs will affect their competitive advantages and growth prospects.”
Of course, the challenge is that it’s hard to “move beyond immediate tactical responses” when the state of play keeps changing. It’s hard to know what the “enduring shifts” will be.
But there’s opportunity in every time of chaos. And the response is never one-size-fits-all.
Here are a few related cartoons I’ve drawn over the years:
