Adding to the confusion is the fact that specifics of how tariffs may be implemented have been vague, says Tom Cook, CEO and managing director of Blue Tiger International, a management consulting firm specializing in global trade and supply chain management. “Unfortunately, when Trump issues these executive orders, he has been very ambiguous on how to exactly interpret them,” says Cook. “So even U.S. Customs doesn’t have the ability to know how to react. It’s a new law, but it isn’t complete, it isn’t thorough.”
Prices will rise
In the short term, many experts expect that companies will pass any tariff-related costs onto consumers. “Wallets of both businesses and consumers alike are going to feel the pain,” said Melanie Nuce, Senior Vice President, Innovation and Partnerships at the industry standards organization GS1 US. “Expect price shifts and product availability changes in the short-term. Small businesses that rely on imported materials—especially in home goods, apparel, and electronics—may have to raise prices or adjust inventory.”
The timing of increases will vary, according to Dean Alms, chief product officer of the risk management systems provider Aravo. “Target already announced that the tariffs will have an impact on costs and therefore consumer demand and revenue projections,” he says. “Ford has also said that tariffs will have a significant impact on the price of the vehicles it produces. Many products are sourced globally, so even if it’s ‘Made in America,’ it’s sourced from around the world, and therefore, tariffs will have an impact.”
As tariffs take effect, Alms recommends that companies immediately start assessing what effect they will have on their cost of materials and how any pricing adjustments that they make will affect demand.
Most industry experts, however, agree that price increases alone are not a good long-term solution. “While price adjustments, when necessary, can serve as a short-term measure to sustain profitability, they should be viewed as one component of a broader strategy, not as a reactionary step,” advises Seth Weisblatt, director at the supply chain technology provider, TrueCommerce.
Create a team
What can companies do to begin to create that broader strategy? The first step, says Cook, who recently published a white paper for the Council of Supply Chain Management Professionals on the topic, is to establish a team of people internally to watch very closely what the administration is doing and how the rest of the world is responding or retaliating. As part of that process, Cook recommends reading Trump’s book The Art of the Deal to better understand Trump’s negotiation philosophy and style, which is currently being used in tariff negotiations.
“He looks at the person across the negotiating table as an adversary not as a potential ally,” explains Cook. “And what he tries to do is to disrupt his adversary to make him off his center, to manipulate him to be off his game. He [Trump] believes he then gets a mental advantage.”
In addition to strengthening internal understanding of Trump’s tactics and the world’s responses to those tactics, Cook also recommends that companies draw on outside resources such as qualified consultants, freight forwarders, and customs brokers.
Choose your strategy
Once you have your team and partners in place, companies should take a comprehensive look at the wide range of possible mitigation strategies, some of which have been around for decades.
“Tariff mitigation has always been issue, it just is obviously more dramatically an issue today,” Cook points out. The challenge going forward, he cautions, is that the Trump administration is looking to tighten up on some of those options as executive orders governing trade are put into place.
Here are just a few strategies that companies should consider:
Utilize foreign trade zone: Foreign trade zones are designated areas in the United States where companies can import and store goods with reduced or even eliminated tariffs. In a recent article, consultants from AlixPartners recommend that companies analyze their supply chain to identify which products or components would benefit most from FTZ placement. Cook advises, however, that while FTZs remain great resources, they should be used cautiously as Trump is working to exclude certain products from certain countries.
Find domestic sources of supply: Most experts recommend that companies find alternative sources of supply, particularly looking to reduce their reliance on China, if possible. Onshore suppliers, according to Aravo’s Alms, are ideal as they allow for more proactive risk management over the long term.
“We are already seeing shifts to onshore production and assembly. For example, many tech companies are building major facilities in the U.S.,” he says. “Some of this planning has been underway for years, but tariffs could encourage and accelerate it even more.”
Reshoring, however, is a complex process that can take years to successfully accomplish. “Nearshoring and change of manufacturing are pretty painful things to do in a supply chain,” says Nuce. “And we are $1 trillion underfunded for the infrastructure we need to truly bring manufacturing back to the U.S.”
Source from countries with free trade agreements: An alternative to reshoring is to source from countries where the U.S. has free trade agreements, such as South Korea, Singapore, Australia, and members of the Caribbean Basin Trade Partnership Act.
Cook maintains that companies should continue to look at sourcing from Mexico and Canada, as he believes that a 25% tariff would not last longer than a few months at the most. Cook believes that continuing inflation and pressure from Fortune 1000 companies would drive the three countries back to the negotiating table.
In addition to diversifying your supplier networks, Weisblatt of TrueCommerce recommends keeping contracts relatively short, to allow for greater flexibility in responding to shifts in trade policy.
Engage in “tariff engineering”: In their recent article, Vandana Panwar, Richeek Maita, and Sudeep Sunam of AlixPartners define tariff engineering as “a strategic approach that involves modifying products or production processes to classify goods under lower tariff categories. This innovative technique can lead to significant duty savings and even exemptions from customs duties.”
One example of tariff engineering is a clothing manufacturing redesigning a shirt so that it contains less synthetic fibers. This change allows the company to reclassify to a lower tariff category, resulting in duty savings.
Invest in technology: According to AlixPartners technology is key to managing tariffs effectively. Automated compliance systems can help companies meet regulatory requirements, while artificial intelligence and machine learning tools can help predict potential tariff shifts and optimize sourcing strategies to minimize costs and risks.
Optimize your supply chain: Knowing that they face increased costs from tariffs, companies must take a closer look at their internal operations and seek to improve efficiencies, optimize their operations, and cut costs. These cost savings can help at least partially offset the increases in costs from tariffs.
If there is a silver lining in all this chaos, it may be this: The uncertainty around tariffs emphasizes the importance in investing in efficient supply chain management processes, knowledgeable employees and partners, and robust supporting technology.
Editor’s Note: This article was updated at 3:16 pm ET on March 6 to include the exemption of goods from Canada that are compliant with the USMCA.
