Surviving the Tariff Tango: Ideas for Businesses & Developers

Tariffs are back, and like that friend who always forgets their wallet, they’ve arrived uninvited—only this time, they’re bringing the pain. Increased import costs are a headache for businesses, and for real estate developers, it’s an opportunity to find creative financial solutions. But what should businesses and real estate developers be doing right now? And, more importantly, what about consumers?

Let’s break it down.

Tariffs: The Unexpected “Business Tax”

Here’s the deal: tariffs tax businesses, especially those that import goods. When prices on raw materials and products go up, businesses need to decide whether to absorb the costs or pass them along to consumers. Spoiler alert: Most businesses will opt for the latter. But here’s the real kicker—higher prices often mean less profit and more borrowing. And that’s where planning comes in.

As the U.S. Chamber of Commerce puts it, "tariffs are a tax on businesses and consumers" (U.S. Chamber of Commerce) because they raise the cost of goods, forcing businesses to either raise prices or absorb the costs. Similarly, the Congressional Budget Office (CBO) has indicated that tariffs can lower real GDP and increase consumer prices (CBO).

Borrowing Strategically: Leverage Tax Credits to Offset the Costs of Capital

Here’s the thing: while borrowing more might seem necessary to cover rising costs, it’s not just about borrowing—it’s about borrowing strategically. Tariffs and potential interest rate hikes may make capital more expensive, but there’s an opportunity here to offset those costs with tax credits.

1. Work Opportunity Tax Credit (WOTC): This payroll tax credit rewards businesses for hiring individuals from certain target groups, such as veterans or the long-term unemployed. By leveraging WOTC, businesses can reduce labor costs, which may rise as tariffs increase production costs.

2. R&D Tax Credit (Payroll Credit): Many businesses, especially those in manufacturing or product development, may be eligible for the R&D Tax Credit. This credit offsets payroll tax liabilities, helping businesses free up capital to offset increased borrowing costs due to tariffs.

3. Cost Segregation: For real estate developers and investors, cost segregation can accelerate depreciation and reduce taxable income, allowing businesses to keep more of their money now instead of paying higher taxes. This is a perfect strategy for developers needing to absorb rising costs while positioning their portfolios for long-term profitability.

By borrowing strategically and using these tax credits, businesses can optimize their financing needs while minimizing the overall cost of capital. This not only provides immediate relief but also allows for reinvestment into operations or projects that will keep the business competitive.

Will the Fed Help? Maybe, Maybe Not

A quick thought: Could the Fed cut interest rates to give businesses some breathing room? It’s possible, but don’t bet the farm on it. The real question is whether that will be enough to offset the financial burdens businesses face. While waiting for potential relief, businesses should focus on optimizing operations and leveraging available funding options (like ground lease capitalization or sale-leasebacks). And remember, tax credits like WOTC and cost segregation can make borrowing more affordable, even if interest rates don’t budge.

Recession Ahead? Navigating the Economic Uncertainty

There’s no denying it—the talk of a recession is looming over us like a dark cloud. While no one has a crystal ball, there’s a strong chance we could be heading toward a period of economic slowdown. But don’t panic! The key to surviving a potential recession is to stay ahead of the curve and think strategically.

For real estate developers, the affordable housing sector is likely to remain resilient even during economic downturns. People will always need places to live, and affordable housing projects tend to weather economic storms better than high-end luxury developments. Build-to-Rent (BTR) projects are also gaining traction, as millennials and other demographics are increasingly opting to rent rather than buy, especially in the face of rising interest rates and home prices.

For businesses in other sectors, it’s all about optimizing operations, cutting unnecessary costs, and taking advantage of government programs like tax credits to reduce the impact of a slowdown. Diversifying your offerings and focusing on sectors that are more recession-proof—like essential goods or services—can also help mitigate the risks of a downturn.

U.S. Tax Credits: A Shield for Tough Times

Amid economic uncertainty, tax credits are a powerful tool that can help businesses stay afloat. They’re designed to offset some of the costs that businesses face and can provide relief during periods of high tariffs, inflation, and potential recession.

For real estate developers, tax strategies like cost segregation and focusing on affordable housing and BTR projects can provide the financial flexibility needed to weather a downturn. For businesses, leveraging credits like the R&D Tax Credit or WOTC can keep cash flow steady even as external factors create pressure on the bottom line.

Conclusion: Don’t Wait for the Storm—Make Your Sunshine

In the end, the tariff situation is like a storm cloud looming on the horizon. You can either wait for it to pass or be proactive and find ways to mitigate its impact. For business owners and real estate developers, it’s about finding solutions that will help weather the storm—whether that’s through financing options, tax credits, or strategic partnerships. And when the storm clears, you’ll be right there, ready to thrive.

Tariffs are tough, but with the right approach, they can be a minor bump in the road—or an opportunity in disguise. As a recession looms, taking advantage of tax credits and strategic development opportunities like affordable housing and Build-to-Rent projects can make all the difference.

A Final Thought: Tariffs might just be a temporary pain, but tax credits, strategic financing, and creative solutions like ground lease capitalization are here to stay. The question is—are you ready to keep moving at the speed of business?