President Trump’s tariff and trade policies, including initiatives like “Unleashing American Energy” and “America First Policy”) sparked widespread uncertainty and speculation about potential trade wars.
These policies led to significant tariff actions, such as a 25% tariff on Canada and Mexico, 10% on China, and threats of further tariffs on the EU and BRICS.
Importers and exporters are scrambling to plan contingencies for possible trade conflicts. While tariff and cost optimization is a prudent approach, relying solely on reactive strategies may incur substantial costs. It’s crucial to keep calm and build proactive, long-term solutions that address trade risk and optimize supply chain resilience.
5-Reasons why you should stay calm:
- Reason 1 Mitigating tariffs requires certainty: There is too much uncertainty around tariffs. It is still unknown if tariffs on Mexico, Canada and China will be sustained (long-term) and which countries are next.
- Reason 2 Tariffs are a negotiation technique: Countries can avoid tariffs if they align with US policy. President Trump has lifted tariffs in the past.
- Reason 3 Prior Administrations Increased Tariffs: Many were withdrawn or replaced by trade quotas (during the Trump & Biden administration) following negotiations and agreements.
- Reason 4 The US may not afford tariffs: Tariffs are inflationary, impede economic growth and deter industry & businesses to hire and invest.
- Reason 5 The government has other tools: Governments have access to non-tariff barriers and measures (NTBs) as alternatives to tariffs.
Read more below
Reason 1 Mitigating tariffs requires certainty:
There is too much noise and uncertainty to take meaningful action.
First, we are at round one of the tariff plan. Tariffs were imposed on Canada, Mexico (25%) and China (10%); we do not know which countries are next.
Reconfiguring your supply chain requires certainty. There is too much noise.
Second, the inauguration took place 2 weeks ago. Key positions are not filled in the USTR, DHS, DoC, BIS, etc., leading to operational challenges. To implement policies and levy trade deals, the administration needs functioning departments. More visibility over trade will happen after the administration settles in.
Third, the administration is tight-lipped about the trade plan. Nobody knows if they already formulated a plan and/or built policies to implement. Leaks have been rare and wrong.
You can plan contingencies but keep your cool and do not pull the trigger until you have reliable information.
Reason 2 Tariffs are a negotiation technique:
Countries can avoid tariffs if they align with US policy.
President Trump’s first term and the 25% blanket tariff on all Colombian goods show how tariff threats are used as leverage in negotiations related to US exports and border issues (migration and fentanyl). Whether the tariffs on Canada and Mexico will be sustained is unclear. Perhaps these will never actually be implemented or will be withdrawn.
The administration signaled its intent to increase tariffs on adversaries and trade partners who impose import restrictions on US merchandise (watch Lutnick’s confirmation hearing here).
Lutnick (DoC nominee) stated: “But the fact that we Americans cannot sell an American car in Europe is just wrong and it needs to be fixed.”
Negotiations with trade partners and adversaries are under-way. More official announcements will provide clarity.
Reason 3 Prior Administrations Increased Tariffs:
Many were withdrawn or replaced by trade quotas after negotiations & agreements.
During his first term, President Trump did implement tariffs on both adversaries and trade partners. These included tariffs on steel & aluminum (including derivative products), solar panels, capital goods, aircraft, agricultural products.
Many were withdrawn or replaced by trade quotas (during the Trump & Biden administrations) following negotiations and agreements.
In addition, many exemptions were implemented for specific HTS codes. Section 301 tariffs that target thousands of imported Chinese products (including commodities, parts, consumer goods, electronics, chemicals, components, capital goods, etc.) were extended by President Biden.
The strategies you deployed to mitigate the impact of these tariffs are still valid today.
Reason 4 The US may not afford tariffs:
Tariffs are inflationary, impede economic growth and deter industry & businesses to hire and invest
The US may not afford tariffs and a trade war for a sustained period. Literally. Tariff and trade wars have economic consequences, particularly in the current inflationary environment.
The administration’s trade policy (including tariffs) will be scrutinized by the Fed and will influence their decision to cut or maintain interest rates. “The (Fed) is very much in the mode of waiting to see what policies are enacted” (Powell, Fed Meeting 01/30/2025).
The Fed and the administration are very aware of the negative impact of tariffs on the economy. Tariffs impede economic growth, deter businesses (particularly manufacturers) to hire and invest.
Reason 5 The government has other tools:
Governments have access to an arsenal of non-tariff barriers and measures (NTBs)
In fact, the President’s executive order “Unleashing American Energy” (read our analysis here) alludes to increasing the enforcement of forced labor laws. This includes scaling the enforcement of current trade regulations (for example, section 307 of the Tariff Act, UFLPA, CAATSA).
In addition, the US could mimic the EU’s efforts to use environmental regulation as a trade barrier (such as the CS3D, CBAM, EU Deforestation-Free regulation). The US could scale existing regulation such as the Lacey Act or the Clean Water Act and build its own carbon border adjustment measure. Lastly, the US could implement other NTBs such as expanding the scope of the Buy American Act.
NTBs are increasingly used by governments, make sure you know how to manage these
Our conclusion:
Tariff optimization is not straightforward.
For example, Simply changing suppliers does not ensure changes in country of origin, and therefore may not reduce impacts of tariffs and other trade regulations.
Tariff optimization requires a high degree of certainty, which the chaotic environment does not provide. It also requires stable legal and compliance frameworks. Stability will come when the administration settles in, key positions are filled, and the trade policy as well as wider economic policy of the US are formalized. In the meantime, it is essential for importers and exporters to build robust trade compliance processes and end-to-end visibility on their entire value chain.
Tariff optimization is a long-term and costly process that can profoundly change your supply chain design and structure. Manufacturing domestically may not be a viable financial strategy.
Recommendations
Evaluate your current supply chain vulnerabilities and find easy to implement practices to lower or manage your risk
Make sure your HTS classifications are irreproachable:
Accurate classification is essential to tariff management and robust trade compliance processes
A basic understanding is not enough. You need an internal classification expert.
Become one today with the CCLS™!
Build or scale your duty drawback program:
Millions of dollars in refunds are available with the duty drawback program.
Save your company money.
Become an expert with the DBS™!
Understand the global ESG landscape:
NTBs are on the rise, and these have profound impacts on your value chain and market share.
Build your ESG Compliance expertise today!
Risk-proof your trade compliance programs:
Ensure your trade compliance programs align with federal requirements and trade regulations. That includes compliance with ALL federal regulations for both imports and exports.
Train your compliance teams on how to conduct an internal audit!