Trade volatility—and the attempts to navigate them—has strained the day-to-day financial mechanics of importing. As companies diversified sourcing away from China, many lost the perks and favorable payment terms that come with long-standing relationships. Instead, they’ve had to cover upfront costs to get goods delivered, which required additional financing. Complicating things further, the U.S. government is cracking down on trade impropriety, making it that much more important for these companies to ensure their practices and paperwork are buttoned up.
Paul Schuldiner, executive vice president & chief lending officer of private commercial finance firm Rosenthal Capital Group, shares the outlook for dealmaking in 2026, how sourcing changes have strained working capital, and the resources importers need to keep close to stay out of hot water.
HGI: How did tariffs impact acquisition activity in 2025 and what do you expect to see this year?
Paul Schuldiner: Our traditional clients in the consumer goods space were looking for acquisitions, especially given the challenges associated with organic growth. Emerging brands that had a direct-to-consumer component to their business, however, seemed to be on a greater growth trajectory and didn’t necessarily require acquisitions to expand their business in meaningful ways… The tariffs definitely had an impact on acquisitions as well.
Looking ahead, the environment around acquisitions has definitely improved and should gain further traction in 2026 given that interest rates are lower…and we now have a tax bill that has encouraged both acquisitions and capital expenditures.
Tariffs have not reduced the opportunity. It’s just that a lot more due diligence needs to be done and expanded upon, which slows down the acquisition process. There’s still a level of uncertainty, because the tariffs have been like a yo-yo over the last year. For the investment banker and the potential acquirer, when they look at a company and they’re doing quality earnings, it takes more diligence to determine the impact on gross margin. They have to sensitize it. They have to look deeper into how much of that margin can be absorbed by the acquiree’s ultimate customer base or supply chain. So, there’s a lot more work that needs to go into it. But again, if the fundamentals are there in the potential business to be acquired, there’s so much capital out there that people are looking to do bolt-on acquisitions and so forth, that they’ll figure out a way to make it work within the construct of the valuation of the company.
HGI: Diversification has been on everyone’s radar as they strategize mitigation strategies during the trade war. But even if the Supreme Court ruling results in tariffs going away permanently, do you think sourcing will snap back?
P.S.: With respect to the consumer goods world, the tariffs forced many companies to come up with a product sourcing diversification strategy that lessened reliance on China. In the long-term, this is probably for the best to help companies reduce “all the eggs in one basket” issues with sourcing predominantly from one country.
Still, there are certain products that are very difficult to find sourcing alternatives beyond China. If the tariffs magically disappeared tomorrow, I still believe many companies would re-allocate product production back to China to a material degree.
For instance, one of the things that China is really, really good at with respect to consumer goods is footwear. They have the capacity to do shorter production runs and more sophisticated manufacturing than other countries, so it’s the balancing of the need for tariff relief versus [the difficulty of] leaving China behind.
It’s hard to not have China impact your supply chain. Think about it like this, the factories in the countries they’re going to like Vietnam or Indonesia are probably owned by China anyway, or the raw material needs to be sourced in China. So, if you’re in footwear, as an example, I think if you could go back to China tomorrow, you probably would.
For product categories that can’t move, these companies try to get relief either from their retailers to absorb some of the tariff cost and/or the factory to absorb a portion of it. But ultimately, neither the retailer they sell to or the supplier they buy from is going to absorb it all. It’s just the question of the strength of the relationship of the importer and designer with both its retail customer base and its supply chain.
HGI: To what degree have retailers been accepting price increases?
P.S.: It depends on the product category and whether the price can be moved, and who you’re selling to. At the end of the day, it really depends on how bad that retailer needs your product. If your product is selling and moving and it’s important to that retailer, you have a little more leverage. If you’re not that important to them, you’re not going to have leverage. That’s what it comes down to.
“Sometimes, when you move to another country and you don’t have that relationship and payment history with those suppliers, the ability to get 90-to-120-day terms is not necessarily feasible.”
—Paul Schuldiner, Rosenthal Capital Group
HGI: Let’s talk about the impact on operating costs and working capital as it relates to moving supply chains and then potentially moving them back. What does that do to the financial side of things?
P.S.: Towards the end of last year, we certainly did see an uptick in requests for additional financing on in-transit and inventory on hand as we observed overseas suppliers tightening their payment terms.
A lot of companies enjoyed healthy payment terms with their factories in China. That was an advantage. The Chinese factories grew to a scale over time where they were able to provide up to 90-to-120-day payment terms. Sometimes, when you move to another country and you don’t have that relationship and payment history with those suppliers, the ability to get 90-to-120-day terms is not necessarily feasible. Yet, the retail customers that our clients sell to want 60, 90, 120-day terms. Your working capital change is significant. Sometimes you have upfront costs to front raw materials to start production. You have to pay when goods are in transit. You have to pay shortly after the goods arrive. So, it’s a tremendous imbalance and you’re lending deeper into the inventory and your cash conversion cycle is much longer.
HGI: On the topic of inventory, how would you characterize where apparel retailers are right now?
P.S.: Generally speaking, I think they’re in an okay position. Last year, earlier on, there was a rush to take inventory in earlier to try to mitigate the increased tariffs. Generally speaking, retail did perform better than I would have expected earlier last year. I was very concerned about retail performance during the holiday season, because of the increased cost. Most of our clients came out of their relationship with retailers with a satisfactory holiday season. Yes, there are still some clients that did get deferrals and cancelations; that will always happen. But they did better than I would have expected.
HGI: As they’re looking at managing costs, companies have been changing their Incoterms as well. But that comes with some risks, right?
P.S.: We definitely did see an increase in LDP and DDP payment terms in addition to companies utilizing bonded, duty-free warehouses, particularly in the beginning of the tariff drama. There was also an impact on retailers buying on an FOB Asia basis, which certainly impacted our clients. I do think that the increase in LDP and DDP will continue to proliferate, but …the government is going to continue to crack down on this. If you just moved to LDP and DDP, the government is going to be looking at you closely. The government’s looking for revenue, so they’re going to definitely scrutinize the nature of these transactions more closely.
Your strength relies upon not only how good your sourcing team is, but also how strong your relationship is with your custom broker/freight forwarder. You should be using them consultatively to structure these transactions. You should be pulling in your trade attorney. Use all the resources that are out there.
HGI: In regards to the financial pressure companies are facing right now. What does that mean for sustainability? Are they pushing forward or sort of kicking the can down the road?
P.S.: : Sustainability is still an important part of the consumer goods world; however, it needs to be balanced with preserving gross margin as part of a broader sourcing strategy. Right now, I think companies are kicking the can. They’re more concerned about traceability, visibility, looking at making goods in factories that are substandard with human rights issues and things like that. That, I would say, is probably more relevant for our client base than ESG regulations, since most of our clients don’t sell into the EU. They’re looking at traceability, visibility, at where your raw materials are coming from, all the way through to the finished garment.
HGI: How would you characterize your clients’ ability to trace the entire chain and to comply with trade and sustainability laws that require it?
P.S.: Some are better than others, like anything else. I mean, we’ve got some that are very strong, but each is having to improve upon that as they move out of reliance on China and to other countries in particular.
[The trade exemptions] are something that has come up, and they have to do this because it relates to duty classification and tariff classification. So, yes, we definitely have seen an improvement and an attention to detail on that level, with respect to better visibility and traceability within the supply chain.
HGI: Even without IEEPA tariffs, it seems that uncertainty is here to stay. What advice do you have for importers trying to navigate this new landscape?
P.S.: The administration has been very volatile. It’s changing from month to month, or more or less depending on what the relationship is with the particular country that our clients do business with.
That would be my final point, use a strong customs broker/freight forwarder to help structure transactions. Have a trade attorney that’s well versed and has their ear to what’s going on in government, because it’s very important for them to have sources in the government. And then lastly, whoever your working capital lender is, there should be frequent dialog with that lender to keep them in the loop as to what your company is doing. Give that lender as much visibility as you can, because that helps. The more visibility the lender has, the better their ability to help clients. Lenders hate surprises.
