Focus on Tariffs: 5 Steps to Help Reduce Impact

At a glance

• The main takeaway: With uncertainty swirling around new tariffs, potentially impacted businesses can now take steps to prepare and reduce impact.
• Impact on your business: New tariffs could raise material costs, disrupt the supply chain, and alter the compliance environment, but proactive strategies could help mitigate the effects.
• Next steps: Potentially impacted businesses should act now to prepare. An advisor from Aprio’s Customs and Tariffs or Transfer Pricing teams can help.

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The full story:

Recent headlines regarding the potential for new tariffs under President Trump’s administration have put the world economy on high alert. While the details and scope of the tariffs are changing too rapidly to speculate on final versions, the oscillation has only heightened feelings of uncertainty for the companies that could be impacted. How can you prepare for a future state that changes daily?

While we may not know what finalized tariffs will look like, we can leverage past trends and industry proficiency to anticipate potential impacts and help you develop agile mitigation strategies.

Understanding potential impacts

Regardless of which countries and materials the tariffs are ultimately levied against, the most expected outcome is increased prices for affected products. Although tariffs are theoretically designed to impose on foreign countries and support domestic manufacturing of goods, the reality is that the indirect impacts are felt on a broader scale, with the actual cost of the tariffs being passed on to importers, exporters, and buyers, both domestically and abroad. Businesses and consumers alike should also brace for potential supply chain disruptions and time-to-market disruptions as impacted stakeholders scramble to innovate solutions that will mitigate direct impacts on their respective bottom lines.

Importers and exporters dealing with goods affected by any future tariffs can also likely expect changes in the culture of compliance, especially in the form of increased enforcement by U.S. Customs and Border Protection (CBP). Investigations and penalty cases will likely rise if new tariffs go into effect.

Creating proactive strategies

Companies don’t need to wait for tariffs to go into effect before taking steps to prepare. Many of the most powerful strategies for mitigating the impacts of tariffs can be set into motion now, often with beneficial results. Any company importing or exporting goods and materials, especially multinational companies, can help set themselves up for success with these five steps:

1. Review your customs strategy

Potential tariffs are a good reminder of how important it is to periodically review your customs strategy and consider whether it might be necessary to reclassify your product for customs and tariffs purposes. The Harmonized Tariff Schedule (HTS) code you’ve been using historically may not be the best or most accurate option anymore. As tariffs evolve and change, so will the HTS codes specifically impacted. Similarly, review the country of origin for your products and whether it’s still accurate or could be changed.

Consider completing a customs valuation as a proactive step to review your current strategy and identify potential beneficial changes, such as possible exclusions or alterations to product classifications. A trusted international trade advisor can guide you through this process.

2. Refresh your transfer pricing strategy

Similarly to reassessing your customs strategy, multinational companies should consider reevaluating their customs valuation and transfer pricing strategy. Completing a transfer pricing study with the help of an experienced advisor will be one of the most powerful tools for mitigating the effects of tariffs.

A comprehensive transfer pricing analysis can help with modeling and understanding the full impact on transactions with related parties and identify procedural steps for minimizing those impacts. A transfer pricing study can also help to identify non-manufacturing or non-importation-related items that may not be subject to duties.

3. Adopt a compliance mindset

As mentioned above, imposing new or increased tariffs will likely increase scrutiny and enforcement. It’s important to remember that while it’s necessary to trust advisors, they are not responsible for your compliance. Taking a proactive approach can refrain from surprise investigations and penalties. Internal and external audits, performed periodically, can help identify and rectify possible exposure before the CPB gets involved.

Companies can also consider using tools like the Automated Commercial Environment (ACE) portal to report imports and exports for CBP review. Reviewing any contracts in place with vendors and/or customers may also be beneficial. Tariffs could trigger drastic changes in supply costs that one party cannot realistically swallow, requiring contract renegotiations.

If you find yourself the subject of a customs investigation or facing penalties, remember that it is possible to appeal your case.

4. Speak straight with vendors and customers

Communication will be one of your most critical and valuable tools throughout these uncertain times. Any tariffs that go into effect will have widespread impacts felt by you, your competitors, vendors, and customers. Have honest conversations with your vendors and/or customers about price changes. As mentioned above, renegotiate contracts proactively to mitigate volatility before it reaches your bottom line.

5. Build a powerful network of advisors

No single person can be fully knowledgeable in all the moving parts of international trade. Surround yourself with the best advisors and trust in your team of professionals. The most critical roles in preparing for and responding to potential tariffs include a trustworthy customs broker, a knowledgeable international trade advisor, and an experienced transfer pricing advisor.

What’s next?

As details around potential tariffs evolve, the five steps outlined above can help protect your business, revenue, and sanity. Building a robust network of advisors will help all the rest fall into place.

Aprio is here to help. Our Customs and Tariffs team and Transfer Pricing advisors are closely monitoring the news and are equipped with deep industry experience to help inform your strategies going forward.

Related Resources/Assets/Aprio.com articles/pages

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