After months of speculation, a large new piece of the tariff picture came into focus, and it’s already impacting companies (and their supply chains) in major ways.
Here, we’ll look at how these new tariffs may affect sourcing decisions, transportation networks, landed costs, and inventory planning — along with what companies can do right now to offset the impact through more intelligent data use, updated supplier strategies, and tactical contract renegotiations.
Tariffs on Top of Tariffs
In the first week of April, President Trump announced two additional tariffs, adding to those already announced. The stated intent of the new tariffs is to help facilitate the return of strategically important manufacturing industries to the United States, and the duties are necessary to stop decades of unequal treatment.
The two new tariffs include:
- A 10% “baseline” tariff on all countries, effective April 5. This 10% is in addition to any legacy/ existing tariffs for that country.
- A secondary “reciprocal” tariff individualized by country with an amount intended to target those with whom the US has the largest trade deficits. Effective April 9, many countries will now have tariffs of over 40% when everything is factored in.
For additional reference:
The full list of countries impacted and the total tariff amounts can be found here (click to read).
Clearing Away the Confusion… How Will Tariffs Be Applied?
How the tariffs will be applied remains confusing for many importers. For obvious reasons, it’s important that companies clearly understand how their imports will be affected.
In general terms, the announcement specifies that the additional tariffs will apply only to the non-US content of a subject article provided that at least 20 percent of the article’s value is U.S.-originating. It also authorizes US Customs and Border Protection to require the collection of such information and documentation, including with the entry filing, as is necessary to verify (1) the value of the US content of an article and (2) whether an article is substantially finished in the US.
Exceptions are referenced in the President’s statement as Annex II (click to read).
More (or Fewer) Tariffs Could Be Coming – Here’s Why
This is likely not the last word on tariffs and other costs that will impact supply chains. According to the Executive Order, the President may expand the scope of the tariffs if (1) they are deemed ineffective in resolving the emergency conditions (e.g., a continued increase in the overall U.S. trade deficit or “the recent expansion of non-reciprocal trade arrangements by U.S. trading partners” in a manner that threatens U.S. economic and national security interests), (2) any trading partner retaliates through import duties on U.S. goods or other measures, or (3) U.S. manufacturing capacity and output continues to worsen.
Alternatively, the tariffs may be decreased if any trading partner “takes significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters.”
This Is Far from the End of the Tariff Story
This is not the first shot in the new trade war. The long-discussed auto tariffs are now officially in place. The administration has also already imposed duties on imports from China, Mexico, and Canada, as well as 25% on steel and aluminum, including nearly $150 billion worth of downstream products.
This will not be the end of it either. The US will likely see responses from many countries. China has already responded by announcing a new 34% tariff on US imports, effective April 10. This drew a quick response from Trump that even more tariffs are coming for China.
To complete the cost picture for supply chains, importers need to consider something not technically a tariff but something just as relevant. The administration has also signaled that hefty port fees of up to $1.5MM are coming for every Chinese-built/ operated ship unloading in the US and other penalties related to countries importing petroleum from Venezuela.
It’s an understatement to say a dizzying amount of tariffs, fees, and other threats are being promised. The situation is extremely fluid, leaving a lot of uncertainty regarding which tariffs will actually be implemented and the amounts. Regardless, companies still need to understand and prepare for what’s to come as best they can.
How Will Tariffs Really Impact Supply Chain Costs?
Setting aside any discussion of whether the tariffs are good or bad, it’s certain that there will be a profound impact on supply chain costs for the foreseeable future. Companies must prioritize understanding how these imminent costs flow through their logistics operations, the impact on profit margins, and the effects on customers.
Why (and How) New Tariffs Cause Supply Chain Costs to Rise
All the tariffs we’ve outlined are duties paid to the US government by companies importing goods. That part is simple enough – tariffs have been a regular part of international trade for a long time, but changing duties can cause significant changes in how supply chains operate.
For example, higher duties can push companies to change where they source goods from. So, in that sense, the approach can be practical when the goal is to incentivize companies to do more manufacturing in the US. But it is more complicated than that.
As sourcing locations change, new and more complex supply chain cost structures must be weighed with the tariffs themselves as just one component of a complex calculation.
The direct supply chain impacts for companies include:
Sourcing locations WILL change. New locations and suppliers will likely operate with different labor and materials costs. Different governments will also have different reporting and regulatory requirements that you’ll have to adhere to. Onboarding new suppliers takes time and effort, too, including new training and getting all sides used to working together. Lead times can also change and be disruptive further down the supply chain.
Transportation networks WILL need to adapt. Shipping costs differ from country to country and lane to lane. Routes and costs will inevitably change, but not necessarily for the worse. That said, China is generally a less expensive origin to ship to the US from compared to many other Asian countries. It’s similar to choosing between two fulfillment centers and their proximity to your customers when considering small parcel carriers. Regardless, it is still prime time for contract renegotiation with carriers in all modes.
For most importers, calculating KPIs and metrics such as Cost of Goods sold is already hard enough to manage. The hard and soft costs when tariffs force companies to rework their supply chain are even more disruptive. By the way, importers are not the only impacted party, with suppliers also exposed to potential financial strain.
The Most Important Question: What Can Companies Do to Mitigate the Cost of Tariffs?
Higher tariffs do not necessarily mean costs will instantly go up for consumers. No company wants to raise prices if other options exist, so many will use them only as a last resort. For example, some companies with leverage can pressure their suppliers to lower their costs to offset the higher tariffs. Other companies may “eat” the additional costs and take the hit to their margins so as not to push away customers.
Unfortunately, in the end, someone still pays for the cost of more duties. Regardless of how the tariffs are settled, markets and companies must adapt. It’s unavoidable that there will be higher retail prices for some if not many, things.
The Solution Starts with Better Data-Driven Business Planning
It’s easy to see how new tariffs and uncertainty about more duties can be difficult for supply chains. It takes a plan. Not surprisingly, strategic and data-driven decision-making needs to be a part of it. The present situation magnifies the value and importance of proper business management through great (not good) use of data and analytics, supplier partnerships, and BI-supported business planning.
Luckily, the supply chain is a business function that, when improved through better data-driven decisions, can offset or minimize the impact of higher tariffs and the disruption to your supply chain costs.
Do This Now! Here are three areas within companies’ control today:
1 – New sourcing partners, locations, and mode changes can disrupt logistics networks, but they must be considered. Data is the key to accurate network modeling and cost mitigation for shifting supply chains. Companies must be prepared to compare the cost impact of changing suppliers from a material input, shipping cost, and lead time perspective.
2 – Another area that is certain to face cost pressure is inventory management. Many companies have already been front-loading imports to get ahead of the tariffs. Yet, the uncertainty over future production and demand will create new headaches when it comes to maintaining optimal inventory levels. Technology-supported demand planning in the face of uncertainty should be a priority.
3 – With change comes opportunity. As we explained, the tariffs will impact everyone in the supply chain, and it does not have to be you or your customers who pay for it all. Now is a necessary time to renegotiate your carrier contracts to make the best of a difficult situation. It’s a buyer’s market for most logistics services, and companies should take advantage.
Armed with data, advanced analytics tools, and market rate expertise provided by TransImpact, you can secure better rates to mitigate some or all of the tariff increases you face.
Email sales-info@transimpact.com for a no-obligation review of your supply chain.