Just Tariff-ic: What Companies Can Do to Cope with Tariffs
“When the winds of change blow, some people build walls and others build windmills.”
—Chinese Proverb
Recently, the White House announced plans for new tariffs charged on imports coming into the U.S. from various countries, including China, Mexico and Canada. The Mexico and Canada tariffs are on hold for now after all sides negotiated a 30-day temporary delay, but no one seems to know what the end result will be. The uncertainty has left business owners scrambling to sift through a lot of misinformation and confusion.
So, is your only option to sit back and endure the tariff wars as they play out? Maybe – but maybe not. Here are a few ways you can position your business to shield yourself from the impacts of the tariffs (or at least limit them).
Assess Your Impact
Before you go into panic mode, study which tariffs affect your business and estimate what the dollar cost will be. Identify what goods are being taxed, and from which countries. Measure how much volume you bring in from those countries on a regular basis. You may find that the monetary impact isn’t as bad as you thought at first, or that certain tariffs don’t apply to the classes of goods that you buy. Conversely, the added costs could be significant and require a more robust response. The problem becomes much easier to deal with once you can quantify it either way.
Sharing is Caring: Negotiate with Suppliers to Find Ways to Share the Burden
Suppliers who value your business don’t want to lose it because of the increased import costs. Some may be willing to work with you to come up with ways to ease the burden for the sake of keeping the lines of commerce open. Make some inquiries into what types of deals they may have available for customers like you. For example, you can request updated volume discounts or explore cost-sharing arrangements. You may also want to consider whether it makes sense to stock up on supply now, before a particular tariff goes into effect. Preemptive buying can give your business a leg up on competitors who aren’t decisive enough to act before costs go up, while buying you time to plan your next course of action.
Reassess Your Supply Chain: Consider Moving Manufacturing or Changing Suppliers
It may be time to investigate making some changes in your supply chain. Depending on your needs, there may be an opportunity to bring certain manufacturing operations into the U.S., which seems to be one aim of the current administration. There may also be suppliers in other foreign countries which are not impacted by the same tariffs and provide goods or materials that are comparable in cost without sacrificing quality. Other suppliers may even be able to ship to you faster than your current vendor. Some companies have already announced plans to shift manufacturing from China to Vietnam, for example.
Recover Costs through Duty Drawbacks
Duty drawbacks are a lesser-known program offered by the government as a way to help companies deal with the impact of tariffs. The program allows businesses to claim – or drawback – a refund of duties or taxes on imported goods if certain conditions are met. Claims will generally be focused on goods which ultimately are exported back out of the U.S. The process itself can be pricey if you hire a customs broker or logistics company to handle claims on your behalf, so be sure to investigate whether it’s worth doing. You can also file yourself if you have the ability to provide proper documentation and match imports to exports. Smaller companies may not have enough volume to justify the cost and effort.
A few examples of goods that may qualify:
- Materials or components used in manufacturing a product that is exported outside the U.S.
- Goods that are brought into and leave the U.S. without significant modification.
- Imported goods that are rejected due to defections or not meeting specifications, if returned or destroyed.
Hot Potato! Should You Pass Tariff Costs on to Customers?
This is probably the least popular choice among the public and is a main argument for opponents of issuing tariffs. The unfortunate reality is that raising prices still might be necessary if other avenues have been exhausted. You can roll out increases strategically to lessen the burden on your customers. Consider whether the market will sustain a dollar-for-dollar increase or a smaller increase. Tariffs from other countries on U.S. imports may complicate things (more on this below), so you also need to keep in mind your end customer’s situation.
For example, you may increase your selling price to cover a 25% tariff on product imported from China. Someone in Canada buys your product at the higher price, while also being charged a Canadian tariff for product originating in China. The customer is essentially getting taxed twice on each purchase. The extra costs may be large enough for the buyer that they wind up buying less, or not at all.
Tit for Ta-riff
As mentioned above, the U.S. isn’t the only country that can impose tariffs. Other countries can and already have announced tariffs on the importing of U.S. goods in response to those levied on them, or to fuel their own agendas. China recently announced tariffs on a handful of goods that come from the U.S., such as coal, crude oil, and agricultural machinery. Mexico and Canada have threatened retaliatory tariffs if those from the U.S. take effect. Someone on your team should be regularly watching for any new or updated tariffs so that your business can respond promptly.
Wrapping Up: What it All Means, and How a Fractional CFO Can Help
Navigating the tariff landscape requires ongoing assessment and strategic decision-making to keep your business agile in the face of changing duties and customs policies. A fractional CFO brings the knowledge and expertise needed to evaluate these strategies, ensuring your business remains resilient. With deep insight into cost structures, supply chain adjustments, and cash flow management, a fractional CFO can help you make informed, proactive decisions that protect your bottom line.
Don’t navigate these challenges alone. Contact us today to learn how a fractional CFO can provide the strategic leadership your business needs to thrive – no matter what tariffs come your way.