Following the recent U.S. presidential election, the incoming administration of President-elect Donald Trump signals the possibility of new import tariffs, particularly targeting goods from mainland China and potentially extending to other nations. This shift may prompt retaliatory actions from other countries, placing manufacturers in a position where they’ll need to revisit strategies for managing tariff impacts.

In the short term, companies typically focus on mitigating tariffs’ immediate financial effects. One option is to increase product prices to cover rising input costs. However, this approach isn’t always feasible, especially in competitive markets, as it can erode your market share. Additionally, companies may face political and consumer backlash if price increases contribute to broader inflation.

Negotiating with suppliers to offset tariff costs by securing lower prices on materials is another tactic. This can yield the best financial outcome, though renegotiating contracts and conducting competitive sourcing requires time and may sour long-term supplier relationships. Cost-saving measures across your supply chain and operational areas are also worth exploring. Alternatively, your company could absorb the tariff costs by reducing profit margins, though this is typically a last resort — and not very likely.

6 Actions to Consider Now

Harvard Business School economist Willy Shih describes this as a setup for a “messy” scenario for both manufacturers and the broader economy. “People often don’t realize how reliant the global economy is on intermediate goods and raw materials we tend to take for granted,” Shih noted. He emphasized that now is the time for companies to examine their supply chains closely, identify their tariff-related vulnerabilities, and establish actionable steps.

With new and potentially extensive tariffs anticipated in early 2025, many companies have been preparing by evaluating various strategies. For instance, Stanley Black & Decker is exploring options to shift production and parts of its supply chain from China to other Asian countries or potentially to Mexico. Similarly, Apple, which relies heavily on production in China, is considering doubling its iPhone production in India—from around $15 billion to $30 billion over the next two years.

Following are six actions your organization should consider to address the upcoming tariff increases:

• Assess the impact: Analyze how the increased tariffs will influence the costs of your imported goods, including recalculating the total landed cost and pinpointing which products and components will experience significant cost rises.
• Explore alternative suppliers: Identify suppliers in countries that won’t be affected by the new tariffs. This may mean building new supplier relationships or increasing orders from current suppliers in tariff-free regions.
• Reshore production: Review the feasibility of reshoring manufacturing operations to the United States or moving to countries with more favorable trade terms.
• Optimize inventory levels: Balance inventory carrying costs with the risk of supply chain disruptions. Increasing inventory levels for critical products before the tariffs take effect can help mitigate immediate impacts.
• Classify goods correctly: Verify that all imported items are accurately classified under the Harmonized System (HS) to avoid unnecessary tariffs.
• Establish a Foreign-Trade Zone (FTZ): Goods brought into an FTZ are not subjected to tariffs until the finished product(s) enter the U.S. domestic market, and the tariffs on finished products may be lower than on imported parts and components.

QAD Helps You Navigate Tariff Complexities

QAD supports your business in managing tariff challenges and optimizing trade operations through several capabilities:

• Tariff Classification: QAD Import Management leverages AI-assisted classification for the accurate classification of goods with Harmonized System (HS) codes, ensuring companies apply the correct tariff rates, including those specific to China.
• Duty and Tax Calculation: QAD can automatically calculate duties, taxes, and fees on imports from China, factoring in the latest tariff rates. This allows your business to estimate total landed costs accurately.
• Trade Agreement Utilization: QAD’s Free Trade Agreement software identifies opportunities to use free trade agreements (FTAs) and trade preference programs that may reduce or eliminate tariffs for specific goods or conditions.
• Foreign-Trade Zone (FTZ) Management: QAD FTZ offers cost-saving and operational advantages by reducing or eliminating duty payments and Merchandise Processing Fees. It also streamlines record-keeping for goods entering and leaving the zone, boosting operational efficiency.
• Global Trade Compliance: QAD helps ensure trade compliance by managing necessary documentation and reporting for imports and exports. It maintains transaction records and ensures accurate, timely filings with customs authorities.
• Scenario Planning: QAD provides scenario planning tools to help model various scenarios, including tariff rate changes or sourcing adjustments, allowing your business to assess financial and operational impacts.
• Sourcing and Supplier Management: QAD solutions assist in evaluating and managing suppliers and sourcing strategies to mitigate tariff impacts. This includes assessing alternative suppliers in countries or regions with more favorable trade conditions.

Visit our website to find out more about how QAD can help you address fluctuating and increasing tariffs.