With the global 10% baseline tariff set to expire on July 9th, US tariffs under the Trump administration are once again casting a shadow over business operations and decision making. Although the 90-day delay in the US tariffs announced on ‘Liberation Day’ offered a moment of relief, that window is quickly closing. With little sign of any more large-scale trade agreements before July 9th, businesses are bracing for the possible return of steep tariffs ranging from 20% to 50%.
Despite the uncertainty, business leaders can take proactive steps to manage this risk, starting with 5 key questions. It is essential that Procurement, Supply Chain and Logistics teams take the lead in this process, engaging the right people from business divisions, operations and legal.
How do our products and/or inputs map to the Harmonized Tariff System (HTS) and where do they originate from?
As the US moves away from the Most Favoured Nation (MFN) principle, the basis of the WTO trading system where all members’ products are treated equally, the driver of supply chain design is shifting from purely economic to a balance of competitive supply and political risk.
With this increased risk, a more accurate assignment of HTS code and origin is required to ensure tariffs are minimised, opportunities for duty drawbacks are identified and customs compliance is managed. Importantly, Country of Export does not always equal Country of Origin.
Can we front-load imports from countries exposed to >10% baseline tariffs?
Lessons from the UK-US agreement and other negotiations suggest that the 10% baseline tariff may be a US minimum rate. Therefore, maximising orders from countries with a ‘Liberation Day’ rate of >10% could provide short term savings in the event of no negotiated outcome by July 9th.
However, to take advantage of this window, businesses need to act fast and smart. It will be vital to understand if the capacity of suppliers and your operations is sufficient to process increased volumes.
What leverage do we have to negotiate a cost sharing arrangement with suppliers?
Before absorbing costs or passing them on to customers, assess whether they can be shared with the suppliers. Your Procurement team will be best placed to make this assessment, working with Business Divisions, Legal and Operations to review contracts, evaluate supplier alternatives, understand supplier financials, consider what they should mitigate and identify any other leverage.
How exposed are our supply chains to Chinese inputs?
US trade policy has taken a unique stance regarding Chinese trade, driven by strategic threat from China. This creates a risk premium on Chinese inputs and products, not just for direct imports, but also on indirect Tier 2 suppliers as seen in past bans on Huawei and ZTE electronics.
Mapping out Chinese inputs in your value chain is vital to maintaining resiliency and understanding future policy risks.
Should we pivot sourcing to suppliers in the US or lower tariff countries?
Assessing any alternative sourcing should consider immediate and long-term costs and benefits across the end-to-end supply chain. This can be done effectively through the use of digital twins, by modelling the impacts of different scenarios to inform smarter decision-making that optimises for your business objectives.
To future-proof this decision-making against potential changes in US trade policy, it is vital to consider the risks to individual products based on the criticality of that product to the US (from an economic, strategic, political perspective) and the replaceability of the product domestically.
Sectors more sensitive to the U.S. tariff changes—such as metals, electronic components, and pharmaceutical products where domestic sourcing is feasible—face greater risk to the validity of any near-shoring decisions if a U.S. administration change reverses any tariff increases.
Conclusion
In a period where the rules of trade are changing rapidly, it is easy to be paralysed by indecision. However, you can build resiliency and agility through investment in digital twins, the capabilities of your supply chain and procurement teams and the setting up of new supply networks. This combination will enable your operations to react faster and more effectively to the current changes in trade policy and the next trade disruption in a more unpredictable world.
We’re here to help you address your supply chain challenges and navigate through immediate and long-term risks to your operations. To learn more about our best-in-class supply chain processes, frameworks and capability development please contact Allison Ford-Langstaff or Robin Agarwal.