Custom Duties: Essential Awareness and Actions for Companies and Shops
Tariffs are making a big comeback, causing ripples across various business decisions—from supply chain restructuring to mergers and acquisitions. Yesterday, Jim Pratt, Co-Founder and Managing Partner at Forsyth Advisors, enlightened the Retail Marketing Society with insightful information on the ever-evolving tariff situation in a captivating presentation.
Pratt categorizes tariffs into three main types:
- Country-specific tariffs are quickly imposed or scrapped by authorities to tackle economic crises, like the recent fentanyl crisis' 25% tariff on Chinese imports. Although these tariffs can be powerful negotiation tools, their life spans may vary, such as seeing the abrupt postponement of tariffs on Canada and Mexico.
- Commodity-specific tariffs focus on strengthening domestic industries and usually stay longer due to their political appeal. Companies may run into prolonged challenges given the difficulties in obtaining exemptions or avoidance.
- Reciprocal tariffs level the playing field among trading nations. If one country hikes tariffs on U.S. goods, the U.S. can respond by raising its own tariffs. However, the administration's use of reciprocal tariffs in response to issues such as foreign exchange manipulation, VAT, and subsidies remains uncertain at this point.
Recent trade enforcement updates have tightened loopholes that were previously available for tariff avoidance. The "de minimis exemption," which allowed duty-free imports under $800 when shipped directly to consumers, and other commonly used tactics have been significantly restricted or eliminated. On top of that, the U.S. Customs and Border Protection (CBP) is now implementing maximum penalties without taking mitigating circumstances into account. There's also a new policy encouraging whistleblowers to report customs fraud.
In a "pivotal moment for innovation and adaptation," companies are exploring creative ways to dodge tariffs and maintain their competitive edge. Shifting supply chains to countries untouched by tariffs has proven to be extremely effective, as seen when 2018's 25% tariff on steel resulted in a 25% drop in imports from affected countries within the first year. Companies are also exploring legal and operational tactics, such as seeking product classification modifications to move into lower-tariff categories.
Mergers and acquisitions have been affected by this tariff surge, as due diligence is now critical to validate a buyer's belief in the company they plan to acquire. Misclassifications and unexpected tariff-related costs can jeopardize valuation and even the entire transaction, so being flexible and staying informed is crucial.
According to Pratt, staying adaptable is essential. He recommends:
- Monitoring competitors' imports and industry imports in general by utilizing publicly available databases.
- Being diligent about exploring alternative manufacturing locations and sources.
- Considering value engineering certain components or costs out of products.
In this rapidly changing business landscape, being agile and staying flexible is essential. While some companies are stockpiling imports, many are holding back, waiting for the dust to settle. Until then, staying informed, getting expert advice, and being adaptable will help retailers and brands navigate this complex tariff terrain.
- Brand tariffs, such as the 25% tariff on Chinese fentanyl imports, are challenging companies to adapt, as they navigate through different tariff categories to maintain a competitive edge.
- Forsyth Advisors' Co-Founder, Jim Pratt, suggests that retailers and brands should monitor competitors' imports, explore alternative manufacturing locations, and consider value engineering to stay adaptable in the face of ever-evolving tariff situations.
- As tariffs continue to influence business decisions, from supply chains to mergers and acquisitions, the safest strategy for brands may lie in flexible adaptability to the ongoing tariff changes.
