U.S. Tariffs Spur Chapter 11 Filings
September 2025
While the imposition of new trade policies and the recalibration of specific tariffs is by no means a new phenomenon, the sheer scale, scope, and unpredictability of recent U.S. trade policy has created an extremely challenging environment for U.S. businesses that rely on imported supplies to sell their products to U.S. consumers. This is particularly true for companies that have been (or may now be) grappling with low margins and liquidity issues or companies that are vulnerable to sudden decreases in demand or competition from suppliers unaffected by import tariffs. While it is way too early to assess the long-term consequences of the Trump Administration’s trade policy, the short-term effects are visible in a handful of distressed companies, some of which have resorted to U.S. bankruptcy courts for protection. The key question is: Are these cases a harbinger of what we might see over the next 12 to 24 months, or are they exceptions to the rule as companies adapt to the new U.S. trade policy – and the retaliatory responses that we will inevitably see from other countries?
Tariffs are intended to protect domestic industries from foreign competition and to remedy perceived trade imbalances, but increasing tariffs often come with the immediate (and unintended) consequence of exacerbating financial stress for companies. Tariffs are taxes imposed on imported goods, and for many companies, particularly in manufacturing, retail, agriculture and logistics, tariffs increase the cost of imported components or finished goods. These higher costs must either be absorbed by businesses or passed on to consumers. In many cases, companies operate on thin margins and lack the pricing power to shift these costs, resulting in squeezed profits, reduced liquidity and poor long term cash flow sustainability. Businesses that cannot pass these costs onto consumers may experience margin compression, leading to cash flow issues, which may trigger covenant breaches on loans or impair a company’s ability to service its debts.
While the imposition of new trade policies and the recalibration of specific tariffs is by no means a new phenomenon, the sheer scale, scope, and unpredictability of recent U.S. trade policy has created an extremely challenging environment for U.S. businesses that rely on imported supplies to sell their products to U.S. consumers. This is particularly true for companies that have been (or may now be) grappling with low margins and liquidity issues or companies that are vulnerable to sudden decreases in demand or competition from suppliers unaffected by import tariffs. While it is way too early to assess the long-term consequences of the Trump Administration’s trade policy, the short-term effects are visible in a handful of distressed companies, some of which have resorted to U.S. bankruptcy courts for protection. The key question is: Are these cases a harbinger of what we might see over the next 12 to 24 months, or are they exceptions to the rule as companies adapt to the new U.S. trade policy – and the retaliatory responses that we will inevitably see from other countries?
Tariffs are intended to protect domestic industries from foreign competition and to remedy perceived trade imbalances, but increasing tariffs often come with the immediate (and unintended) consequence of exacerbating financial stress for companies. Tariffs are taxes imposed on imported goods, and for many companies, particularly in manufacturing, retail, agriculture and logistics, tariffs increase the cost of imported components or finished goods. These higher costs must either be absorbed by businesses or passed on to consumers. In many cases, companies operate on thin margins and lack the pricing power to shift these costs, resulting in squeezed profits, reduced liquidity and poor long term cash flow sustainability. Businesses that cannot pass these costs onto consumers may experience margin compression, leading to cash flow issues, which may trigger covenant breaches on loans or impair a company’s ability to service its debts.
The U.S. Tariffs: A Short Timeline
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The U.S. Tariffs: A Short Timeline
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A Constantly Shifting Landscape
As a result of the constantly shifting trade landscape, businesses across the globe are forced to operate in a state of uncertainty as to what impact tariffs will have on daily operations and ultimately, their bottom line. Modern supply networks are globalized and optimized for efficiency purposes and cost savings, and while there may be incentives to manufacture and buy locally, many companies are actually looking to the global markets to fulfill their business needs. When tariffs are introduced or increased, companies are forced to reconfigure these supply networks, which could mean sourcing materials from more expensive or less reliable suppliers, or moving production altogether. These shifts are costly, time-consuming, and fraught with risk. In addition, retaliatory tariffs from other countries can further hinder exports, cutting off key revenue streams.
Trade Relationship Management
As of June 2025, the top five largest trading partners with the U.S. based on reporting from the U.S. Census Bureau were: for imports: Mexico, Canada, China, Ireland and Vietnam, and for exports: Canada, Mexico, China, the United Kingdom and the Netherlands1. Since the announcement of new tariffs on February 1, 2025, firm trade deals have been announced with Vietnam (blanket 20% tariff on Vietnamese imports and no reciprocal tariffs on United States exports)2, the United Kingdom (certain aspects of that trade deal, namely tariffs on steel, aluminum and derivative products remain unsettled)3 and the European Union (even though a significant first step, the July 27, 2025 political agreement struck between President Trump and European Commission President Ursula von der Leyen is, in fact, a nonbinding agreement to further negotiate tariffs between the United States and the 27 nation bloc)4.
More recently, President Trump announced steeper tariffs on more than 60 countries that went into effect on August 7, 2025—with tariffs ranging as high as 50% for some countries. For example, Canada, one of the U.S.’s largest trading partners for both imports and exports, saw tariffs on most of its exports to the U.S. increase to 35% from 25%, and tariffs on exports from Brazil to the U.S. increased to 50%5. President Trump has also threatened to impose tariffs of at least 25% on companies such as Apple and Mattel that manufacture products outside of the U.S. on their imports into the U.S.6.
Trade Relationship Management
As of June 2025, the top five largest trading partners with the U.S. based on reporting from the U.S. Census Bureau were: for imports: Mexico, Canada, China, Ireland and Vietnam, and for exports: Canada, Mexico, China, the United Kingdom and the Netherlands1. Since the announcement of new tariffs on February 1, 2025, firm trade deals have been announced with Vietnam (blanket 20% tariff on Vietnamese imports and no reciprocal tariffs on United States exports)2, the United Kingdom (certain aspects of that trade deal, namely tariffs on steel, aluminum and derivative products remain unsettled)3 and the European Union (even though a significant first step, the July 27, 2025 political agreement struck between President Trump and European Commission President Ursula von der Leyen is, in fact, a nonbinding agreement to further negotiate tariffs between the United States and the 27 nation bloc)4.
More recently, President Trump announced steeper tariffs on more than 60 countries that went into effect on August 7, 2025—with tariffs ranging as high as 50% for some countries. For example, Canada, one of the U.S.’s largest trading partners for both imports and exports, saw tariffs on most of its exports to the U.S. increase to 35% from 25%, and tariffs on exports from Brazil to the U.S. increased to 50%5. President Trump has also threatened to impose tariffs of at least 25% on companies such as Apple and Mattel that manufacture products outside of the U.S. on their imports into the U.S.6.
Year-To-Date Imports By June 2025 (U.S.) – Top Five Countries
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Source: Census
Year-To-Date Exports By June 2025 (U.S.) – Top Five Countries
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Source: Census
Year-To-Date Imports By June 2025 (U.S.) – Top Five Countries
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Source: Census
Year-To-Date Exports By June 2025 (U.S.) – Top Five Countries
Hover to find out more
Source: Census
The Consequences of Low Diversification
For those businesses lacking a sufficient financial cushion or the ability to avoid tariff-induced disruptions by pivoting away from supply markets that are subject to import duties, the result has sometimes been Chapter 11 or similar insolvency proceedings in other jurisdictions. In particular, retailers that rely on imported goods, manufacturers sourcing parts from overseas, and logistics companies hit by rerouted supply chains have all reported increasing financial strain. This can be seen in statements made in several recent bankruptcy filings:
Claire’s, an American go-to establishment for ear piercing, colorful and trendy jewelry and merchandise targeted towards girls, tweens and teens.
- The Company relies heavily on foreign suppliers. Indeed, between November 2024 and April 2025, the Company purchased approximately 70% of its inventory from suppliers located outside of the U.S., including, among others, 56% from mainland China, 8% from Vietnam, and 3% from Thailand. As a result, the Company has been significantly impacted by the implementation of sweeping tariffs on imported goods in April 2025, which led to higher projected costs and uncertainty in inventory pricing. The Company could not raise prices to fully offset the effects of tariffs on the Company’s cost of goods sold7.
At Home Group Inc., an American big-box retail chain of home furnishing stores.
- Beyond macroeconomic challenges, retail industry headwinds, and internal pressures, the Company has faced significant challenges in addressing tariffs given its reliance on goods sourced from China. Despite the Company’s experience with navigating tariff changes in recent years, the current tariff policy dynamic introduced a new level of volatility during the early stages of the new senior management team’s implementation of its refined business strategy. The introduction of broad-based tariffs caused significant unpredictability and disruption to the retail industry and put retailers—especially At Home—in a difficult position8.
Forever 21, a multinational fashion retailer.
- The debtors’ business has been negatively impacted by the “de minimis exemption” which exempts goods valued under $800 from import duties and tariffs. Consequently, retailers that must pay duties and tariffs to purchase product for their U.S. stores and warehouses have been undercut. Despite widespread calls from U.S. companies and industry groups for the U.S. government to create a level playing field for U.S. retailers by closing the exemption, U.S. laws and policies have not solved the problem9.
Sunnova, an American solar energy company.
- Over the last couple of years, a combination of industry-specific pressures and macroeconomic headwinds resulted in reduced investment in, and diminished profitability for residential solar. These forces include economic volatility, above-target inflation, prolonged high interest rates, and more recently, tariffs and uncertainty over federal incentives for solar power generation10.
Hudson Bay Company, a Canadian department store retailer.
- Recent and continuing uncertainty in financial markets, together with trade tensions with the U.S. and the threat of tariffs, have created even more challenging conditions for refinancing and business operations11.
Uncertainty around tariffs will remain pervasive for the foreseeable future, and Chapter 11 is a meaningful (even if only) option for many businesses. Filing for Chapter 11 affords these companies the immediate protection of the worldwide automatic stay while also providing a forum for robust dealmaking. Debtors, lenders, creditors, contract counterparties and other interested parties can leverage the tools available in Chapter 11 to secure much-needed emergency financing, renegotiate contract terms, engage in marketing processes for the potential sale of the distressed company, right-size operations and workforce, pay off debts, and at the end of the process, hopefully emerge as stronger, more resilient companies.
Making Preparations for the Future
Looking ahead, businesses must consider the full spectrum of consequences associated with tariffs. While global trade negotiations are ongoing and the hope is for a win-win solution, the endpoint is unpredictable and the interim period may bring unintended side effects. As companies continue to navigate this evolving terrain, tariff risk mitigation is essential and the implementation of supportive fiscal policies may help stave off bankruptcy. However, for those companies without the requisite means to avoid bankruptcy filing, Chapter 11 provides a useful forum to bring all the key players to the table and iron out a comprehensive solution.
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