Mitigating Import Tariff Volatility: A Strategic Roadmap for Businesses

By Simran Sethi, Product Manager, Global Trade Intelligence, Descartes

In today’s fast-changing global market, import tariff volatility is more than just an extra expense—it’s a call to reimagine your entire approach to business. As trade policies shift rapidly and unexpectedly, especially in the U.S., companies must act quickly and smartly to manage risks and seize new opportunities. This roadmap outlines practical steps to assess your exposure, fine-tune your operations, and build a resilient supply chain that thrives despite tariff challenges.

• Understand Your Exposure: Thoroughly analyze impact of direct and indirect import tariff.
• Optimize Your Processes: Ensure accurate product classification, keep robust documentation, and explore tariff engineering.
• Diversify Your Sourcing: Broaden your supplier network to reduce dependency on any one region.
• Protect Your Finances: Build detailed financial models and maintain sufficient customs bond coverage.
• Stay Informed: Keep up with policy changes and industry trends to adapt quickly.
• Manage High-Risk Areas: Pay special attention to exposure from Chinese imports and have both short-term and long-term plans in place.

Tariff changes can significantly reduce your profit margins, depending on your industry and supply chain setup. While companies with strong profit margins might handle these costs more easily, those with lower margins or a heavy reliance on imports may need to adjust prices or even overhaul their operations.

Key Steps:

• Evaluate Product Viability:
  Decide whether to phase out products that no longer make sense or invest in cost-effective redesigns and strategic partnerships that keep your offerings competitive.
• Engage in Policy and Trade Compliance:
  Look for ways to influence tariff policy and use smart customs strategies—such as leveraging the first sale rule, delivery duty paid arrangements, and duty drawbacks—to ease your tariff burden.

Taking a close look at your import operations to understand where you’re most at risk. Examining business costs is the best starting point to strengthen your supply chain resilience.

What to Analyze:

• Direct Exposure:
• Create a detailed list or database of all imported products.
• Calculate current tariff costs for each product category.
• Note supplier details, including lead times and order requirements.
• Compare your profit margins before and after potential tariff hikes.
• Indirect Exposure:
• Identify which suppliers might pass on higher costs to you.
• Review contracts for any price adjustment clauses.
• Check how competitors are handling similar challenges and gauge how sensitive your customers are to price changes.

Plan for Different Tariff Scenarios:
The current situation is fluid and unpredictable, especially when viewed from various vantage points – the U.S., UK, European Union, and China and how they respond to tariffs on their imports into specific markets. As such, organizations should prepare for multiple outcomes, including:

• Base Case: Moderate tariff increases of 10–20%.
• High-Impact Case: A severe rise of 60–70% (for instance, on products from China).
• Targeted Increases: Specific hikes, like a 25% rise for goods from Mexico or Canada.

Remember: Timing is critical. Make sure your shipments arrive within port limits so that Customs applies the correct tariff rate.

Getting your product classifications right can uncover hidden savings and open new ways to reduce import tariffs.

Actions to Consider:

• Review HTS Codes:
  Double check that your products are classified correctly under the Harmonized Tariff Schedule (HTS). Explore alternative classifications that might attract lower duties.

• Keep Detailed Documentation:
• Maintain both digital and physical records.
• Set up clear audit trails linking each product to its tariff documentation.
• Conduct regular audits—say, every quarter—to ensure everything remains accurate.
• Explore Tariff Engineering:
• Consider making design changes to qualify for lower-duty classifications.
• Adjust your manufacturing or assembly locations to influence product origin.
• Weigh the cost of these modifications against potential savings.

Relying on a single region for your supplies can be risky in a volatile import tariff environment. Diversifying your sources not only reduces risk but also strengthens your supply chain resilience.

Key Considerations:

• Geographic Diversification:
• Identify regions with lower import tariff exposure and stable trade relationships.
• Map out potential new sourcing locations, considering both infrastructure and the benefits of trade agreements (like United States-Mexico-Canada Agreement (USMCA), Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), or Generalized System of Preferences (GSP)).
• Supplier Evaluation:
• Assess new suppliers based on their production capabilities, quality standards, and financial stability.
• Start with small trial orders before scaling up to full production.

Smart financial planning can help you cushion the blow of rising import tariffs. Consider an end-to-end supply chain operations analysis.

Financial Strategies:

• Cost Impact Analysis:
• Model different scenarios, considering not just tariffs but also logistics, storage, currency changes, and quality control costs.
• Don’t forget to factor in inventory carrying costs and necessary tech investments.
• Risk Mitigation:
• Adjust prices strategically and consider sharing cost increases with suppliers or customers.
• Optimize your inventory and explore currency hedging to protect against market fluctuations.
• Renegotiate contracts and tweak your product mix to keep your margins healthy.
• Customs Bond Management:
• Recalculate your bond requirements (usually about 10% of your duties, with a minimum set amount).
• Keep a close eye on your bond levels to avoid any customs delays or unexpected expenses.

Being proactive about policy changes can save you from last-minute surprises.

Monitoring Practices:

• Internal Coordination:
• Designate team members to track updates and hold regular strategy meetings.
• External Sources:
• Follow official updates from the Federal Register, U.S. Customs and Border Protection (CBP) bulletins, U.S. Trade Representative (USTR) notifications, and trade association newsletters.
• Industry Insights:
• Keep up with industry news through publications like the Journal of Commerce and American Shipper and consult with customs brokers and experts.

Establish clear communication channels with all stakeholders to quickly adapt your strategy as policies change.

Since many companies rely heavily on Chinese imports, it’s crucial to have a targeted strategy for managing exposure to higher import tariffs.

Key Actions:

• Assess Your Exposure:
• Review all imports from China, focusing on critical components and assembly locations.
• Determine how these imports affect your overall costs.
• Prioritize Critical Components:
• Identify which high-risk items are most important to your product line.
• Look for alternative sourcing options from other Asian countries or consider nearshoring in the U.S. or Mexico.
• Develop a Long-Term Strategy:
• Create a supplier diversification plan that spans multiple regions.
• Build relationships with suppliers in alternative markets such as Vietnam, Thailand, India, or Bangladesh.
• Consider nearshoring to take advantage of favorable trade agreements and implement strong origin verification processes.
• Take Immediate Protective Measures:
• Conduct a comprehensive supply chain audit to understand cost impacts.
• Update product classifications and expedite shipments of critical items if needed.
• Reassess your customs bond requirements and fine-tune your shipping procedures.

Tariff volatility might seem like a major headache, but it can also be a powerful catalyst for innovation. By taking a proactive and strategic approach across your supply chain, finance, and operations, you can turn these challenges into opportunities for growth.

By remaining agile and well-informed, companies can not only navigate tariff volatility but also gain a competitive edge in an ever-changing global marketplace.

This strategic roadmap is designed to help you turn import tariff challenges into opportunities for resilience and growth. Stay proactive, keep learning, and let these changes drive you toward a stronger, more adaptable future.

Mitigating the impact of volatile import tariffs a continuing challenge for businesses that move goods across borders. Descartes provides solutions that can assist your company in evaluating your shipping costs through HTS code searches and landed cost calculations. Descartes CustomsInfo Reference has an up-to-date database of more than 6 million regulatory sources covering 160+ countries. Its advanced global tariff code lookup and HS and HTS code search capabilities are accessed from a single-screen interface, helping import compliance professionals, attorneys, consultants, and others make significantly better classification decisions more efficiently, optimize duty spend, as well as support classification determinations for audit purposes. We also offer solutions that can help with management of FTAs and FTZs, as well as high quality global trade content that enables businesses to perform trade-related activities more efficiently and accurately through their global trade management system, minimizing the risk of non-compliance and facilitating smooth global trade operations.

If you’d like to know more about how Descartes can help, you can contact us or register for a free trial of our HS/HTS code search solution.

For more information on the strategies being used by industry leaders around the world to mitigate the impact of tariffs on their business, you can download our White Paper: What Companies are Doing to Tackle Escalating Global Supply Chain Challenges.