Tariffs Are a Pricing Design Problem, Not a Cost Exception

I want to tell you about a phone call I got in June 2025, the week steel and aluminum tariffs went to 50%.

A VP of Pricing at a building materials distributor — thousands of SKUs, hundreds of customer-specific price agreements, business spread across the southeastern United States — called because his team had spent the previous seventy-two hours doing the same thing: manually recalculating prices in Excel, one product family at a time.

He wasn’t calling to complain about tariffs. He’d been through tariff cycles before. He was calling because this time, the math didn’t work. His team couldn’t update prices fast enough. By the time they’d finished repricing one product family, the input costs for the next one had already shifted again. Customers were quoting against last week’s prices. The sales team was approving deals with margins that no longer existed.

His exact words: “We’re not losing money because of the tariff. We’re losing money because of the three weeks it takes us to respond to the tariff.”

That sentence has stuck with me, because it captures something I think most manufacturers and distributors still get wrong about what’s happening right now.

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The Tariff Cycle Is Different This Time

I’m not going to pretend to be a trade policy expert. What I know is pricing architecture — how companies design, govern, and execute pricing across products, customers, and markets. And from that vantage point, I can tell you that the current tariff environment has changed the rules in ways that most pricing operations aren’t built to handle.

Here’s what’s different.

The magnitude is larger. Steel and aluminum tariffs at 50% aren’t a rounding error. According to BCG, the doubling of Section 232 tariffs pushed total tariff costs on steel and aluminum to an estimated $50 billion. The Associated General Contractors of America reported that the producer price index for steel mill products jumped 17% in 2025, the steepest rise since 2022. When those kinds of cost shifts hit your bill of materials, you can’t absorb them over a quarter.

The scope is broader. It’s not just steel and aluminum anymore. The Commerce Department added over 400 product categories of steel and aluminum derivatives to the tariff list in 2025. Tariffs on softwood timber hit 10%. Upholstered wooden products and kitchen cabinets went to 25%, with increases scheduled through 2026. If you manufacture or distribute anything with metal, wood, or imported components, something in your cost structure has moved.

And the volatility is structural. This isn’t a one-time adjustment you price in and forget. Tariff rates have been changing between quotation and delivery. The Supreme Court struck down some of the broadest tariff actions in early 2026, creating a new wave of uncertainty about which measures stand and which get unwound. Companies that locked in pricing based on tariff assumptions from six months ago are now sitting on either windfall margins or underwater contracts, depending on which products they’re selling.

The companies I work with — manufacturers and distributors in building materials, food, industrial products — are all hitting the same wall. Their pricing operations were designed for a world where input costs changed quarterly. That world doesn’t exist anymore.

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The Real Problem Isn’t the Tariff. It’s the Pricing Cycle Time.

Let me be specific about what I mean, because “pricing cycle time” sounds abstract until you put numbers on it.

A manufacturer I know well — mid-market, roughly $800 million in revenue, several hundred customer accounts with negotiated pricing — went through this exercise recently. They mapped the actual elapsed time from the moment a tariff-driven cost increase hit their procurement system to the moment every affected customer-facing price reflected that change.

The answer was twenty-three business days.

Not because anyone was lazy. Not because the team didn’t understand the urgency. Twenty-three days because the process had fourteen distinct steps: procurement confirms the new landed cost, cost accounting validates, product management reviews, pricing team recalculates across affected SKUs, regional managers review customer-specific impacts, the sales team gets briefed, exception requests come in, those get reviewed, approval chains complete, new prices get loaded into the ERP, customer notifications go out, and then someone has to verify that the system is actually quoting correctly.

Each step is reasonable in isolation. Together, they’re slow. And slow costs millions.

Here’s an illustrative scenario that shows why. If your average gross margin is 22% and your material costs represent 55% of COGS, a 50% tariff on a key input that represents even 15% of your material spend creates a meaningful margin hit — potentially three to five points depending on your cost structure. At $800 million in revenue, every week of pricing delay represents hundreds of thousands of dollars in margin that you’ll never recover. Twenty-three days? You’re talking about seven figures gone before the first updated price reaches a customer.

And that’s the scenario where the tariff stays stable. When rates change again during your repricing cycle — which is exactly what happened in the first half of 2025 — you’re repricing against a moving target. I’ve seen companies finish a full repricing cycle only to discover that the cost basis had shifted again before they completed the rollout.

The VP I mentioned at the top of this article wasn’t exaggerating. His company’s real cost wasn’t the tariff. It was the gap between when costs changed and when prices caught up.

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What Designed Pricing Looks Like (vs. Reactive Pricing)

My team works with manufacturers and distributors to build pricing architectures that can handle exactly this kind of volatility. What I’ve learned from companies that handled this well — and those that didn’t — comes down to three things. None of them are about software.

First, they’ve separated tariff-driven cost changes from base pricing. This sounds obvious but most companies don’t actually do it. They treat a tariff increase the same way they treat any cost increase: recalculate the fully loaded cost, recalculate the target price, push the new price out. That works when costs move slowly. When tariffs shift multiple times a year, you need a pricing architecture where tariff surcharges are a distinct, auditable component — visible on the invoice, governed by specific rules, adjustable independently of base price.

This isn’t just an operational convenience. It’s a customer communication strategy. When you tell a customer “your price went up 8%,” you get pushback. When you show them a base price that hasn’t changed plus a tariff surcharge with a clear calculation methodology, you get a different conversation entirely. In our experience, clients who’ve moved to transparent tariff surcharge lines see meaningfully fewer disputes on price increases — because the customer can see what’s driving the change and verify it themselves.

Second, they’ve pre-built their escalation frameworks. The companies that respond in days instead of weeks aren’t making it up as they go. They’ve already defined: which cost inputs trigger automatic repricing, what threshold of cost change activates the escalation (we typically see 2–3% as the trigger), who has authority to approve what level of price adjustment, what the customer notification timeline looks like, and which contract types include adjustment clauses versus which require renegotiation.

When a tariff hits, they’re executing a playbook. They’re not designing one.

Third, they model the scenario before they execute it. Before changing a single customer price, they can answer: if we pass through 100% of this tariff increase, what happens to volume? What if we pass through 70% and absorb 30%? Which customer segments are price-sensitive enough that a full pass-through risks losing the account? Which product families have enough margin headroom to absorb the increase temporarily?

This is where the real strategic value lives. A flat cost-plus pass-through is the simplest approach. It’s also the one most likely to leave money on the table with customers who would accept a higher increase, while simultaneously losing customers who can’t absorb it. Differentiated pass-through — varying the surcharge by customer segment, product margin, competitive exposure — requires more pricing sophistication, but it’s the difference between weathering a tariff cycle and winning through one.

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Where Software Fits (and Where It Doesn’t)

I build pricing technology for a living, so I have an obvious bias here. I’ll try to be fair about it.

Software doesn’t solve the organizational design problems I described above. If you don’t have a clear decision-making structure for pricing changes, no platform is going to create one for you. If your commercial team can’t agree on surcharge methodology, automating the disagreement just gets you to the wrong answer faster.

But once you’ve done the process work — once you have the framework — the right technology turns a twenty-three-day cycle into something closer to forty-eight hours. Not because the technology is magic, but because it eliminates the steps that were never adding value in the first place.

What does that look like in practice? Cost updates flow automatically into the pricing engine. The system identifies every affected SKU, every customer price agreement, every open quote that references the changed input. It applies the surcharge rules you’ve already defined, generates the new prices, routes exceptions through the approval workflow, and produces the customer notifications.

The pricing team’s job shifts from calculation to judgment. Instead of spending three weeks building spreadsheets, they’re spending two days reviewing the output, adjusting the strategy for specific segments, and handling genuine exceptions that require human decision-making.

I’ve also seen what happens when companies skip the process step and jump straight to technology. It doesn’t work. They automate their current mess. The system faithfully executes bad surcharge logic at high speed, the commercial team loses trust in the output, and within six months the pricing analysts are back in Excel doing it manually “just to double-check.” We’ve unwound more than one of those implementations.

The sequence matters: design the framework, then automate the framework. Not the other way around.

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The Contract Problem Nobody Talks About

There’s a dimension of tariff pricing that I think gets dramatically underestimated: contract exposure.

Most mid-market manufacturers and distributors have a mix of pricing structures. Some customers are on spot pricing. Some are on annual contracts with fixed prices. Some are on long-term agreements with adjustment mechanisms. And some — often the largest, most important customers — are on negotiated pricing that sits in an awkward middle ground: not formally a fixed-price contract, but functionally treated as one because nobody wants to have the price increase conversation.

When tariffs shift 50% on a key input, every one of those contract types presents a different problem.

Spot pricing adjusts naturally but slowly. Annual contracts may or may not include tariff adjustment clauses — and the ones that don’t are suddenly underwater. Long-term agreements with adjustment mechanisms work, but only if the mechanisms were drafted broadly enough to cover this magnitude of cost change. And those informally fixed prices? Nobody knows what to do with those, because there’s no governing document to reference.

One of the most valuable exercises we run with clients is what we call a “contract exposure audit.” Take your top fifty customer accounts by revenue. For each one, answer three questions: Does the current pricing agreement include a cost adjustment clause? If yes, does that clause specifically cover tariff-driven cost changes? And if the answer to either question is no, what’s your estimated margin exposure if the current tariff environment persists for twelve months?

Every time we’ve run this exercise, the results surprise people. It’s common to find that a significant share of top accounts — sometimes a third, sometimes more — have no formal adjustment mechanism in place. When those accounts represent tens or hundreds of millions in revenue, you’re looking at pricing terms that assumed a cost environment that no longer exists.

That’s not a pricing problem. That’s a P&L problem. And it’s one that pricing software alone won’t solve. It requires commercial strategy, contract renegotiation, and customer relationship management. But you can’t manage what you haven’t measured, and most companies haven’t measured this.

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What I’d Tell My Clients Right Now

If I were sitting across from you, here’s what I’d say.

Stop treating tariffs as temporary. Even if specific tariff rates change — and they will — the pattern of trade policy volatility is structural. The era of stable, predictable import costs is over. Your pricing architecture needs to assume that input costs can shift materially, multiple times a year, for the foreseeable future.

Build the surcharge framework before the next tariff announcement. Don’t wait for the crisis. Define the methodology now: which inputs are tariff-sensitive, how the surcharge is calculated, who approves what, how customers are notified, and which contracts need renegotiation. The companies that had this in place before June 2025 repriced in days. The ones that didn’t are still catching up.

Run the contract exposure audit. I described the exercise above. It takes a week, maybe two. The output is a clear picture of where your margin is protected and where it’s not. That’s the basis for every pricing decision you make this year.

Separate speed from strategy. The first priority is cycle time — getting from cost change to price change in days, not weeks. The second priority is sophistication — differentiating your pass-through by customer, product, and competitive context. Don’t let the pursuit of the second delay the first. A fast, simple surcharge is better than a slow, sophisticated one.

And pressure-test your pricing architecture against the next scenario. Not the current tariff rates. The next change. Because it’s coming. If your system can only handle the cost structure you have today, it’s already behind.

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Three Questions for Your Monday Morning

If you run pricing, operations, or finance at a manufacturing or distribution company, these are worth taking to your next leadership meeting.

1. What is our actual elapsed time — in business days — from a tariff-driven cost change hitting our procurement system to the last affected customer price being updated and live in the quoting system?
2. How many of our top fifty customer accounts have pricing agreements that include a specific, enforceable tariff adjustment clause — and how many don’t?
3. If current tariff rates persist unchanged for the next twelve months, what is our estimated annual margin impact on the portion of our revenue that is currently priced without adjustment mechanisms?

If those answers aren’t immediately available, that’s the finding. The tariff itself is a government policy. Your pricing response to it is a design choice. And right now, most companies are discovering that their design wasn’t built for this.