How Do Tariffs Affect Businesses? 5 Import / Export Strategies You Might Want To Adapt
The recent tariffs imposed by the US administration have led to ongoing trade tensions between the US and its traditional partners. As a result of this economic volatility, businesses around the world are now looking at how they can adjust their supply chains and business strategies.
But what is the best way to reduce the impact of tariffs and maintain competitiveness during these uncertain times?
In this article, we’ll explore five key import/export strategies that you can adopt to navigate import tariffs, manage costs effectively, and thrive despite today’s economic challenges.
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Why Tariffs Matter for Businesses
While some countries pursue economic liberalisation and deregulation to promote free trade, others choose to implement tariffs and import quotas to protect domestic industries.
Tariffs can affect businesses in many ways.
When companies import materials from other countries as part of their production process, tariffs can increase the cost of goods. This can reduce profit margins and make their products less competitive in the domestic market.
On the other hand, tariffs also increase the price of foreign goods. This can benefit domestic companies as their products become more affordable compared to imported alternatives.
But while tariffs are intended to benefit domestic industries, they may do more harm than good. According to the World Economic Forum, many economists see tariffs as a self-defeating mechanism, as they hinder global trade and raise prices for the people they are meant to protect. Tariffs can also provoke retaliatory measures from trading partners, potentially harming export-oriented businesses.
Direct and Indirect Impact of Tariffs
A direct effect of tariffs is the increased costs for imported raw materials, components, or finished goods, which can squeeze profit margins or force companies to raise prices. Tariffs can also disrupt supply chains and lead to higher inventory and logistics costs. Retaliatory tariffs imposed by trading partners are another direct consequence of tariffs. Retaliatory tariffs can harm export-oriented businesses by making a country’s products more expensive in foreign markets.
Indirectly, tariffs influence consumer demand, as higher prices may drive consumers to other products. Tariffs can also add more complexity to trade, as they force businesses to navigate complex tariffs, seek exemptions, or restructure their supply chains to minimise tariff exposure.
clearBorder’s expert trade consultants can help businesses mitigate the direct and indirect effects of tariffs.
5 Strategies for Mitigating Tariff Costs
1. Seek Tariff Relief
One way to reduce the negative impact of tariffs is to obtain tariff relief. Many governments offer exemption programs for specific industries or products, which can significantly reduce import costs.
Countries may also offer assistance programs, such as tariff relief schemes, export credit facilities, or trade adjustment assistance, to help companies mitigate the negative impact of tariffs and remain competitive in international markets.
Businesses can also find relief from tariffs by exploring free trade agreements such as the USMCA (formerly known as the North American Free Trade Agreement (NAFTA)).
Sourcing products from countries with favourable bilateral or multilateral trade agreements can reduce or eliminate import tariffs. For example, UK businesses can opt to trade with other countries in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Companies can also consider reshoring or nearshoring their manufacturing operations to avoid import tariffs altogether.
2. Enhance Compliance and Documentation
Another strategy is to consult with trade experts to enhance compliance with tariffs. Businesses can invest in robust compliance systems and training to ensure accurate documentation and adherence to tariff regulations. Staying informed about upcoming changes in tariff schedules and customs procedures can help businesses avoid costly penalties and delays, ensuring smooth operations as trade policies evolve.
3. Optimise Supply Chains
Supply chain diversification can be an effective strategy for reducing the risk posed by tariffs. By sourcing materials, components, or finished goods from multiple countries or regions, businesses can minimise their exposure to tariffs imposed on specific trade routes or partners.
This approach also provides greater flexibility and resilience in the face of potential trade disruptions and changing policies. However, finding reliable and cost-effective supply chains requires careful planning, risk assessment, and expert guidance.
4. Adjust Pricing
To offset this cost of import tariffs, businesses may decide to increase their prices. This strategy can help businesses maintain profitability in the face of tariffs. However, the cost of tariffs is passed on to consumers, which may cause them to look for cheaper products, limiting a business’s ability to stay competitive.
The benefit of adjusting prices is that businesses don’t have to adjust their supply chain or partnerships. The downside is that it can reduce customer demand and hurt brand image.
5. Advocate for Policy Changes
While it may be more challenging and require long-term commitment, businesses can directly influence tariffs by advocating for policy changes. Businesses can participate in industry associations or trade groups to collectively advocate for favourable trade policies and tariff structures. These organisations often lobby governments, provide input during trade negotiations, and help shape regulations that affect their respective industries.
Policy advocacy can also involve direct engagement with policymakers. For example, businesses can submit comments during public consultations, participate in government advisory committees, or meet with elected officials to communicate the negative impacts of tariff policies.
Future-Proofing Against Tariff Changes
International trade is currently in a state of flux, making it difficult for businesses to predict what tariffs will come next and how long they will last. This uncertainty makes taking a proactive approach essential.
To future-proof against tariff changes, businesses must regularly monitor trade policy developments, conduct risk assessments, and stress-test supply chains against potential tariff scenarios. Digital solutions can also provide real-time visibility into global trade dynamics and can help businesses anticipate and respond to new tariffs.
Partnering with trade experts like clearBorder can be invaluable for businesses navigating the complex landscape of international tariffs. clearBorder’s specialised training and consultancy services equip companies with expert knowledge and practical strategies to ensure compliance, minimise costs, and seize supply chain opportunities amidst changing tariff regimes.
Contact clearBorder for expert advice on how to overcome trade barriers.