The Big Trade War Dilemma for Start-Ups

Here’s the situation: You’ve spent years perfecting your product, acquiring customers, and maybe even entering the US market. And then – boom. New US tariffs threaten to wipe out your margins, break your supply chains, and shake your business model to the core.

In our evolving guide "Should I Stay or Should I Go?" – Risk Mitigation Strategies for German Start-Ups Facing US Tariffs, our partners Dr. Amir-Said Ghassabeh (Corporate/M&A expert) and Dr. Niclas von Woedtke (Venture Capital expert) provide answers to the most pressing questions we hear from German start-ups:

Should you stay in Germany and tackle these challenges with smart financial and operational strategies? Or should you move your production and HQ to the US to bypass the tariffs?

As a leading international law firm, we at Taylor Wessing regularly advise start-ups on exactly these kinds of decisions – whether it’s optimizing supply chains, securing funding before trade barriers hit, or strategically realigning the business. This guide walks you through two practical strategy paths – both viable depending on your goals, product, and risk appetite.

Let’s dive in.

🚩 Option 1: Stay in Germany & Buffer the Impact

If you want to keep your German base, you’ll need to rethink your supply chain, pricing, and risk management strategy.

What you can do from Germany:
🔍 Optimize your supply chain → Find suppliers outside tariff-heavy regions, adjust logistics.
💰 Financial hedging → Protect against exchange rate fluctuations, rising input costs, and credit risks.
📈 Smart pricing models → Pass on cost increases to customers without losing them.
🏦 Secure funding early → Raise before tariffs begin to weigh down your valuation.
🇪🇺 Tap into public funding → Access Sondervermögen, EIB capital, and innovation grants.

📌 1. Adjust Your Supply Chain to Avoid Tariffs

✅ Find alternative suppliers → If your product depends on parts from Mexico, Canada, or China, check whether you can source from Vietnam, Taiwan, or Eastern Europe instead.
✅ Build up inventory → Where possible, bring in products before the tariffs take effect to buy yourself time.
✅ Use customs strategies → Ever heard of the first sale rule? You can reduce customs duties by optimizing how your import value is calculated. Another trick: duty drawback programs let you reclaim tariffs already paid on re-exported components.

💡 Expert Insight: A hardware start-up we advised was able to apply a tariff strategy that exempted its product from additional duties – saving thousands of euros. These solutions exist, but require proactive planning.

💰 2. Financial Hedging – A Highly Underrated Tool

❌ What happens if the USD strengthens by 10%? Your product instantly becomes 10% more expensive in the US.
❌ What if your key US customer runs into payment issues due to tariffs? You might get paid late – or not at all.

✅ Hedging strategies provide solutions:
🔹 Currency hedging → Lock in EUR/USD rates so exchange rate swings don’t eat into your margins.
🔹 Trade credit insurance → Protect against US customers defaulting due to trade turmoil.
🔹 Commodity hedging → If you rely on chips or lithium, secure your input prices before they spike.

💡 Expert Insight: A MedTech start-up we supported used FX hedging to stabilize its pricing for the US market. Many founders underestimate how much currency volatility can impact their margins – it’s a risk worth managing.

📈 3. Adjust Your Pricing Without Losing Customers

🔹 Don’t shoulder all costs yourself. Even a 7–10% increase (instead of passing on the full 25% tariff) can stabilize your margins.
🔹 Be transparent. A separate “tariff surcharge” on invoices signals that this is a temporary measure.
🔹 Add value. Combine price increases with customer perks or improved service.

🚀 Case Study: A German D2C brand introduced a temporary tariff surcharge – customers accepted it because they were informed upfront.

🏦 4. Raise Capital Early – Before Tariffs Hit Your Valuation

🔹 Why now? Tariffs can shrink revenue and make fundraising harder down the line.
🔹 Best timing: Secure a round now, before investors start adjusting valuations downwards.
🔹 Bonus tip: EU and German funding (e.g., Horizon Europe, EIB funds, Sondervermögen) can help cushion the cost impact.

📌 Unlocking New Capital Sources:
Across Europe, new initiatives are emerging to channel institutional capital more directly into start-ups—among them Germany’s WIN Initiative, France’s Tibi Initiative, and the Mansion House Compact in the United Kingdom. These programs aim to strengthen the availability of growth capital across the continent and offer young companies an alternative to U.S.-based investors.

💡 Expert Insight: We've advised founders to bring forward their fundraising rounds to build financial buffers before tariffs take effect. Securing capital early can help avoid major issues down the road—especially when start-ups position themselves strategically with the right funding sources and investors from the outset.

🚀 Option 2: Expand to the US & Avoid Tariffs

If the US is your primary market, it might be time to build a local presence to sell your products “Made in America” – and duty-free.

What you can do in the US:
🏭 Set up manufacturing → Avoid tariffs by producing or assembling locally.
🏢 Establish a US HQ → Boost investor confidence, streamline regulation, and connect with customers.
💸 Tap US funding programs → Tax incentives, subsidies, and public grants.
🎟️ Consider a US IPO → Nasdaq listings often mean higher valuations for tech start-ups.

💡 Expert Insight: Many start-ups underestimate how many incentives US states offer to attract businesses. We’ve helped clients assess and unlock tax breaks and grant schemes that made their expansion strategy financially viable.

📌 Access to Capital as an Additional Driver:
Beyond trade policy, access to growth capital is a key factor driving expansion into the U.S. market. As we are currently seeing across the entire DACH region, many European start-ups are moving to the U.S. early—not only in response to trade barriers, but also because American investors often write larger checks and enable faster scaling.
📈 For German start-ups, entering the U.S. market can not only help avoid tariffs, but also open up new financing opportunities, strategic partnerships, and a stronger market position.

⚡ Stay or Go? Our View

Ultimately, the right strategy depends on your product, your market position, and your growth trajectory. Some start-ups will stay and weather the storm with solid mitigation strategies. Others will see the opportunity to scale through US expansion.

💡 As legal advisors to high-growth start-ups, we regularly help founders secure financing, assess supply chain risks, and strategically plan their US market entry.

👉 If any of this resonates with you – let’s talk. The earlier you prepare, the stronger your position will be.

Conclusion

✅ Now’s the time to rethink your strategy.
✅ Your best option depends on your industry, your risk appetite, and your long-term vision.
✅ One thing is clear: Standing still is not an option.