A $250M US equipment maker buys $150M of materials and components: 45% domestic, 30% Mexico, 15% China, 10% EU. We ranged the tariff rate by origin, the USMCA compliance share and the pass-through to customers, and ran 10,000 scenarios. The duty bill runs $9M to $17M. What decides EBITDA is not the rate. It is how much of it the customer pays.
// an anonymised composite, not a client · commodity and tariff ranges from public forward curves and bank forecasts · not investment advice
Tariffs are a cost line that changes by press release. Most budgets carry them as one number. Three things actually move the line. The rate, which depends on the country of origin. The share of Mexican volume that qualifies under USMCA, which is paperwork and always less than 100%. And the share of the duty the customer ends up paying.
Our company: $250M revenue, $150M of purchases. Domestic 45%. Mexico 30%, of which about 80% is USMCA-compliant and duty-free. China 15%, at an effective 30% including the Section 301 layer. EU 10% at 15%. Duties are paid at the border, roughly 75 days before the customer pays for the finished product.
Duty bill $11.25M. Half passed through to customers. EBITDA $30M, 12% of revenue, after the $5.6M the company keeps. One number for each, no range.
Duty = China spend × China rate + Mexico spend × non-compliant share × Mexico rate + EU spend × EU rate. EBITDA hit = duty × the share the company keeps. Cash tied up = duty × 75 days. Our ranges:
| Driver | Plan | Range | Shape | Why |
|---|---|---|---|---|
| China rate, effective | 30% | 20% … 55% | uniform | court rulings and reciprocal rounds; ρ +0.3 with the EU rate |
| Mexico, non-compliant share | 20% | 10% … 35% | uniform | rules of origin, certificates, supplier changes |
| Mexico rate, non-USMCA | 25% | 0% … 35% | uniform | the review outcome |
| EU rate | 15% | 10% … 25% | uniform | trade deal terms |
| Share the company keeps | 50% | 20% … 80% | uniform | big jumps are harder to pass on; ρ +0.3 with the China rate |
Note the last row. Pass-through is the one driver the company controls, and it has the widest range in the table because most contracts are silent on it.
There is no hedge for a tariff. No exchange trades it and no bank writes it. The instruments that exist are the ones in the model: the share of Mexican volume that qualifies under USMCA, the sourcing mix by origin, and the pass-through clause in the customer contract. That is why this article treats them as drivers with ranges rather than as footnotes.
Budget versus the simulated range, duty bill
Duty paid, $M. Blue bar: P10 to P90. Dot: P50. Dashed line: the $11.25M budget.
The budget sits below the median. The bill is more likely to be $13M than $11M.
One year in four EBITDA lands below $27M. The cash is the quieter problem: duties are paid at entry, so in the P90 case $3.4M sits in working capital before any of it reaches the P&L or the customer.
What moves the year
Share of the total EBITDA swing, one driver at a time between its P10 and P90.
The rate everyone reads about is the second bar. The contract clause nobody reads is the first.
Who sets the driver
The same swing as above, grouped by who sets the driver. Bars: share of the total swing.
For tariffs, management controls more than half of the swing. That is unusual, and it is the point.
Unlike steel or gas, more than half of the tariff swing is in two things the company runs: the paperwork that makes Mexican volume duty-free, and the sentence in the customer contract that says who pays a new duty. The rate is the part you cannot control, and it is the smaller part.
Bear (P10, about $25M): the China rate lands near 50%, Mexico compliance slips, customers accept only 30% of the increase. $3.4M of cash goes out at the border first.
Base (P50, about $29.5M): a normal year that still misses the budget by half a million, because the rate ranges are skewed up and pass-through is skewed down.
Bull (P90): a rate cut on China, 90% compliance in Mexico, 70% passed through. The budget is beaten by about $3M.
First, USMCA paperwork: get the non-compliant share of Mexican volume down to 5% … 15%. Second, move 40% of China spend to a compliant Mexican supplier at 8% higher unit cost. Everything else unchanged, same seed.
Chance EBITDA holds $30M
Same model, same seed. One change per row.
The P90 duty bill falls from $16.5M to $15.4M with the paperwork and to $12.8M with the move.
The paperwork is worth six points of probability and costs a customs adviser. The supplier move is worth nine and costs 8% on the moved spend. Neither is as large as the pass-through bar in the chart above, which is a sentence in the customer contract.
What share of Mexican volume is USMCA-certified today, and who signs the certificates? Which contracts have a tariff surcharge clause? How many days sit between paying the duty and collecting from the customer? At what China rate does EBITDA fall below the covenant?
Tariffs are three drivers, not one. The rate by origin makes the headlines. The compliance share and the pass-through decide the year, and the cash. Range all three and the tariff line stops being a surprise.
// method: simplified driver model, plan values set to a typical cost structure for the size, ranges from public forward curves and bank forecasts; 10,000 Monte Carlo scenarios per run through the ScenarioCast engine, correlations and hedges as stated in the model section; sensitivities one-driver-at-a-time at marginal P10/P90; what-ifs re-run on the same seed. Figures rounded. Our estimates, not the company's. Not investment advice.