By: Adrienne Braumiller, Founding Partner, Braumiller Law Group
In today’s complex global marketplace, businesses are increasingly confronted with the challenges of supply chain disruptions, rising costs, and fierce competition—all exacerbated by trade remedy tariffs. While many of these tariffs are already in play, President-elect Trump has promised to impose new tariffs and increase old ones. These tariffs can significantly impact profit margins and operational efficiency. However, there is a silver lining: by employing specific strategies, companies can mitigate these adverse effects and maintain their competitive position. Below are some actionable strategies to help your business thrive amidst tariff challenges.
1. Harness the Power of Foreign Trade Zones (FTZs)
Foreign Trade Zones (FTZs) can be a game-changer for businesses looking to reduce tariff liabilities. These designated areas allow companies to store, process, or assemble goods without incurring tariffs until the products enter the U.S. market. This deferral not only provides significant cost savings but also offers greater flexibility in managing inventory. To implement this, consider researching FTZs in your region and partnering with an FTZ operator to maximize your benefits.
2. Apply for Duty Drawbacks
One of the most effective yet underutilized strategies businesses can leverage is the duty drawback program. This program allows companies to reclaim up to 99% of the duties paid on imported goods that are subsequently exported. For businesses that are involved in re-exporting or manufacturing products that utilize imported materials for international sales, this strategy can translate into significant cost savings.
To get started, familiarize yourself with the specific requirements of the duty drawback program. Ensure you have a solid record-keeping system in place to track imports and exports meticulously. This means documenting everything—from invoices to shipping records—so you have the necessary documentation to support your claims. Consider consulting with a customs expert to navigate this process effectively.
3. Engage in Tariff Engineering
Tariff engineering may sound complex, but it’s essentially about being smart with product design and composition. By making slight adjustments to your products, you could potentially qualify for a lower tariff rate. This might involve changing materials, altering manufacturing processes, or even redesigning the product to fit a different classification.
Before jumping into this strategy, conduct thorough research or seek advice from trade experts to understand how these modifications could position your products in a less tariff-laden category. This approach not only saves costs but can also add value to your products through innovative design enhancements.
4. Change Country of Origin
Another proactive approach is to consider shifting production or sourcing materials from countries that have favorable trade agreements. This tactic requires careful evaluation of the rules of origin and how they affect your supply chain. For example, if you currently source materials from a country with high tariffs, investigating alternative suppliers from nations with favorable terms could yield significant savings.
It’s crucial to understand that simply changing the source of materials may not be enough. Your product must undergo a substantial transformation in the new country to qualify as originating from there. This means the product must be significantly altered in terms of its name, character, or use.
Before making any changes, assess the potential impacts on your supply chain, including logistics, lead times, and the quality of materials. It may entail a bit of work upfront, but the long-term financial benefits can be substantial.
5. Leverage Special Trade Programs
Don’t overlook special trade programs such Chapter 98 of the Harmonized Tariff Schedule which includes various provisions that allow for tariff mitigation under specific circumstances and various other free trade agreements that might apply to your business. These programs can significantly reduce tariff rates on eligible products.
Take the time to research which programs your products qualify for and make the necessary adjustments in your sourcing and exporting strategies. Enlisting the help of a trade compliance expert can simplify this process and ensure you’re taking full advantage of all opportunities.
6. Implement Strategic Sourcing
In today’s volatile market, strategic sourcing is more critical than ever. By diversifying your supplier base and sourcing from multiple countries, you reduce dependency on a single market, thereby minimizing the impact of tariffs.
When implementing this strategy, consider factors such as pricing, reliability, and lead times. Building relationships with alternative suppliers can also help improve supply chain resilience and open up more opportunities for negotiating better terms.
7. File for Product Exclusions
Lastly, if you find that you are subject to particular tariffs, consider applying for product exclusions, where available. While these exclusions are often granted on a case-by-case basis, successfully obtaining one can provide your business with much-needed temporary relief from tariff burdens.
To enhance your chances of receiving an exclusion, be prepared to present a strong case outlining why your product should be exempted. Understanding the previous exclusions that have been granted can also provide insight into how to craft your request.
By adopting these strategies, your business can take proactive steps to navigate the complexities of trade remedy tariffs and safeguard its competitive edge in the global market. As always, consider seeking professional advice when navigating trade regulations to ensure compliance and maximize benefits.
Together, we can turn the challenges of the current trade landscape into opportunities for growth!
