(This column originally appeared in the Philadelphia Inquirer)
Are you upset about tariffs? Many of my clients are. But the smartest business owners I know put aside their emotions and instead focus on the task at hand: minimizing tariffs’ impact on their businesses. How? Here are nine ways.
There are numerous “free-trade zones” throughout the U.S. There are also many organizations offering “bonded warehouses.” Both strategies offersimilar benefits: deferring or even avoiding tariffs altogether.
Using this approach, the inventory that you buy is shipped directly to one of those locations. No tariffs are paid until the inventory is taken out of the warehouse and shipped to your location. My clients who are doing this are betting that President Donald Trump ‘s administration will be negotiating their currently imposed tariffs, and rates will decrease before they need the inventory.
Companies that sell their products internationally can avoid tariffs altogether by receiving and then reshipping their products directly from a bonded warehouse.
The federal government provides free consulting advice to businesses looking to buy and sell overseas through the U.S. Commercial Service, Export Import Bank, International Trade Administration, and Small Business Administration.
The World Trade Center of Greater Philadelphia (WTCA) provides assistance both to members and nonmembers through its many educational programs and direct services. The WTCA helps local businesses find materials in more tariff-friendly countries, matches companies with prospective suppliers, and can even arrange face-to-face visits with interested parties.
Many expect businesses to simply pass tariff increases directly to their customers in the form of price increases. But many of my clients are using the opportunity to take a hard look at their overhead costs.
Tariffs affect material prices which shrinks margins. But reducing costs in other places — eliminating unnecessary expenses, investing in technology, scrapping older inventory, managing utilities better, keeping headcount consistent — can make up for a portion of the additional tariff costs, so price increases are smaller. For them it’s not just margins — it’s all about net profits at the end of the day.
If you’re forced to increase prices, lean into your accounting system and be smart about it.
For your largest, best, and most profitable customers you may want to consider avoiding price increases, or you could offer them better deals (and make sure they know they’re getting special treatment). Customers who take up more of your time or are less profitable may be the ones who bear the full brunt.
Don’t be lazy and simply charge higher prices across the board. Use this as an opportunity to show your appreciation for your best customers.
This is exactly what the president wants us to do, which is easier said than done given the intricacies of the U.S. supply chain and many companies’ reliance on foreign suppliers. But pivoting to U.S.-based suppliers, where possible, could result in lower prices for key materials.
Also easier said than done — and with a longer timeline — is making products here in the U.S. Some of my clients began doing this after the election. Instead of buying finished products from overseas, they’re ordering supplies and raw materials (from other countries when they need to) and assembling or manufacturing here themselves or through partners.
It may also be possible to “reengineer” your products to include different components subject to less tariffs.
Also, don’t ignore the potential marketing opportunity of letting your customers know that you “buy American.”
Will President Trump’s tariffs be in place for the longer term? Already dozens of countries have said they want to renegotiate and even consider reducing their tariffs to zero. Because of this uncertain environment, it’s difficult to commit.
So it’s important to talk to your key vendors about navigating the next three to six months while this plays out. Some suppliers may be willing to offer a temporary discount or defer payments. Many will be open to more flexible pricing as tariff rates are bound to fluctuate. Others may be willing to negotiate their arrangements completely depending on your company’s importance to them.
It’s important to ask. If you’re able to diversify your supplier base then all the better.
Some of my clients are already showing a “tariff surcharge” on their invoices to customers so it’s clear what’s driving higher prices. It’s also a good way to cover costs without changing prices in your inventory system. As tariffs change, this line item can be adjusted and (hopefully!) eliminated altogether.
Accountants and financial consultants can assist with better forecasting, budgeting, and expense-reduction strategies. Attorneys can look harder at existing supplier contracts to find potential areas for renegotiation. Customs brokers can offer advice for minimizing tariff impacts by reevaluating product classifications to more advantageous tariff groups or suggest lower-tariff alternatives.
Taxes, legislation, regulations, tariffs … these are all things imposed by governments.
It’s understandable that the current tariff increases by this administration are frustrating — even potentially devastating — for many business owners. If you’re being particularly impacted you need to communicate your situation to your federal representatives.
These tariffs are imposed through Trump’s executive orders. Congressional legislation can supersede these actions. Even a failure to achieve this now isn’t the end of the road: Midterms are only a little over 19 months away and a new Congress can potentially pass laws to limit a president’s ability to impose tariffs.
