How can businesses navigate tariff uncertainty

April has been a roller coaster month for tariffs. The Trump Administration announced a number of measures, only for some to be delayed and others to be increased further. The result is additional tariffs on steel and aluminium, additional tariffs and the removal of the $800 de minimis limit for Chinese origin goods, plus additional 10% tariffs for nearly everyone else. Higher tariffs for most US trading partners have been delayed for 90 days, and it’s currently unclear what will happen at the end of this period.

These measures, and the speed at which they have been introduced, represent the most significant change to global trade since Brexit, and businesses are struggling to know how to react. While businesses are thinking about their options, with some considering changing where they source goods from, and others thinking about the model they use to import into the US, neither of these options are a quick fix. Hastily or poorly implemented solutions can result in measures that are at best ineffective, or at worst, seen as an attempt at tariff avoidance, causing more problems than they solve.

The key to managing the tariff uncertainty is to have a good understanding of your tariff exposure and confidence in the underlying data. This means ensuring that you understand how the classification and origin of your goods are determined and knowing how the customs value of your goods is built up. Only by having this base understanding is it possible for businesses to consider the viability of proposed solutions. 

The sudden imposition of additional tariffs has generated several proposed ways to mitigate them. While some of these ideas are tried and tested, others are less orthodox. In any event, each solution needs to be considered on a case-by-case basis. An example of this is the B2B2C model, where a US entity is introduced between the buyer (in the US) and the seller (eg in the UK) and the value for calculating the tariffs is based on the sale to the US entity. In some cases this model may work, however for others it will be difficult to justify the low margin on the sale to the US entity, and the high margin made by the US entity, when considering the functions of each. This arrangement may also be open to challenge where it is deemed artificial, with no commercial rationale for its introduction.

In summary, businesses should use part of the 90-day pause to take stock of their current customs position and not rush into any immediate supply chain changes, making sure they seek advice where needed. Those looking for a silver bullet are unlikely to find it. However, businesses that already have a good grasp of their own data will likely be best placed to navigate tariff uncertainty.