The following is a guest post from Andrew Siciliano, partner and head of U.S. and global trade and customs practices at KPMG . Opinions are the author’s own.
Tariffs have become an all-consuming force in U.S. tax and trade policy, which creates a complex puzzle for any business involved in international commerce.
Since January, President Trump’s executive actions have imposed new tariffs on imports from the U.S.’ three biggest trading partners — Canada, Mexico and China — resulting in widespread disruption. The announcements of 25% tariff on aluminum, steel, vehicles, pharmaceuticals and semiconductors, with more potentially on the horizon, make it exceptionally hard for businesses to protect themselves and their customers in the short term or to plan for the long term.
Businesses must recognize that solving the tariff puzzle is no small feat. It demands not only data to understand impacts quickly but also the flexibility to adapt to changing policies, advance business strategies, and protect the bottom line.
Here are four critical pieces of the puzzle that agile businesses must piece together to build resilience, fortify operations and stay competitive in this unpredictable tax and trade policy landscape:
1. Strategically leverage trade data: Use technology to analyze trade flows to spot vulnerabilities, model financial impacts, and identify cost-saving opportunities. Solid data and access to the right tools and technology ensure smarter, faster decisions.
2. Transform trade operations: Take a top-down look at processes, people, and systems to improve compliance and reduce tariff exposure. Consider building flexibility into contracts with clauses for price adjustments or tariff-sharing to protect your bottom line. A strategic approach can streamline operations and prepare businesses for the future.
3. Diversify supply chains: Mitigate risk by sourcing from alternative suppliers in lower-tariff countries. Diversification builds resilience and ensures continuity. Also, renegotiate with domestic and foreign suppliers to address tariff impacts.
4. Conduct a return on investment analysis: Explore duty mitigation and recovery programs such as:
- First sale for export. Utilize a lower dutiable value when more than two parties are involved in the transaction. This approach can significantly reduce the overall duty costs.
- Foreign trade zones. Leverage Foreign Trade Zones, which are considered outside the customs territory. Goods and parts within FTZs are not subject to tariffs until they enter the U.S. commerce, providing a strategic advantage for businesses.
- Duty drawback. Take advantage of duty drawback programs, which can allow for almost full tariff recovery. However, it is important to note that this option is not available for certain tariffs.
- Valuation unbundling. Remove non-dutiable costs from the declared value of goods. This often overlooked strategy can be particularly beneficial when goods are otherwise duty-free.
- Operational transfer pricing. Coordinate with the transfer pricing team to ensure that the value in related party transactions complies with tax and customs requirements and is not excessively high.
- Tariff exclusions. If available, request tariff waivers based on economic and business justifications. This can provide significant relief from the financial burden of tariffs.
While tariffs and changing tax and trade policies may seem daunting, solving the puzzle starts with preparation, creativity and adaptability. Each policy shift, supply chain disruption or new regulation adds complexity, but also presents an opportunity. By proactively embracing these changes, businesses can better prepare for the uncertainties of the current trade environment and position themselves for long-term success.
