How Tariffs Impact Your Domestic Supply Chain
As talks of tariffs continue to populate the news cycle, many U.S. companies are keeping watch, wondering what tariffs may be next and how their businesses may be impacted. It’s no surprise that a company doing business with China will experience fluctuations but even U.S. companies who don’t directly deal internationally will feel the impact of tariffs.
A Change in Products and Pricing
So how do tariffs cause issues for companies that do business domestically? The short answer is supply chains. Tariffs disrupt supply chains across the globe. So even if you’re buying your materials domestically, chances are your suppliers are likely importing or exporting.
One of the key ways tariffs may trickle down to your business via your supply chain is through pricing. Due to tariffs, your suppliers may pass the expense to you by raising prices to maintain a profit. For example, if you own a construction business, your building materials may become more costly due to tariffs on imported materials from China.
Tariffs in your supply chain may also mean a change in the contents of the products you purchase. Take tariffs on rubber being imported from China, for example. If your company has a fleet of trucks that you buy tires for from a U.S. company, you may see a change in the quality of the tires due to a change in where the materials are being sourced from.
Tariffs are also hitting specific industries harder than others. If you have agribusinesses in your supply chain, for instance, you may already be seeing the impact of Chinese retaliatory tariffs on products like soybeans and pork.
Evaluate Your Supply Chain
If you’re seeing a change in pricing or in product quality from your domestic suppliers due to tariffs, there are multiple avenues your business can take to reduce the impact. You may be tempted to pass that cost on directly to your customers by raising prices, but it’s important to weigh the pros and cons before doing so. If you’re seeing raised prices, an increase in your pricing model may help you stay afloat but it may also send your customers into the arms of your competitors. Before raising prices, it’s recommend to identify which suppliers of yours may be subject to tariffs. Not only do you need to evaluate who you’re purchasing from but where your vendors are purchasing from as well.
When evaluating your suppliers you may also want to compare pricing with multiple vendors. A vendor whose product is subject to tariffs may still be less expensive than another vendor, so it’s important to not make assumptions and do your due diligence. Additionally, there may be an opportunity to renegotiate pricing with existing suppliers. You may also want to evaluate suppliers that source products from another country. For example, working with a supplier that imports from Canada instead of China may be more beneficial. It’s important to note, however, when evaluating different suppliers and where their products are sourced from to consider the quality of the materials.
Monitor the Market
As of early November, a phase-one deal with China may include a tariff rollback and the majority of products subject to tariffs do not include consumer goods but that may all change very quickly. Even if you primarily do business domestically, it’s important to monitor updates in trade to know how they will impact your business. For example, if you’re considering expanding your operation, it may make more sense to do so now before tariffs potentially increase on products like office furniture, building materials or computers.
By monitoring updates in trade and evaluating your supply chain, you can better prepare your company for the changes tariffs may bring.
About the Author
Michael Salerno joined the bank in 2002 and currently leads the Global Banking team, which includes business development, international payments, foreign exchange risk management and trade finance solutions for corporate and correspondent banking customers. International issues can present challenges for organizations, and Michael enjoys creating simple and transparent solutions that reduce the complexity of doing business internationally.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.