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What businesses can do to mitigate the effect of tariffs on imported goods.
Sweeping tariffs on imported goods mean business managers are making tough choices as the price of thousands of raw materials and finished goods has gone up. Increases of 10% to 25% are too much for most to absorb. See how some businesses are pivoting in response to tariffs.
Evaluate pricing
In many cases, the cost of tariffs is passed along to the buyer. When increasing prices, be transparent and explain the reason. Also, be prepared for the possibility that demand may dip.
Negotiate prices with suppliers. Start by reviewing contracts. “Some contracts allow for termination based on convenience, economic impracticability or Government action. If your contract includes any of these type clauses, you may be able to negotiate with your suppliers for more favorable terms,” says Kilpatrick Law.
Diversify sourcing
Are there suppliers of the goods you need in countries not subject to tariffs?” Reducing reliance on a single supplier or country can help minimize the impact of tariffs. Exploring alternative sourcing options, both domestically and internationally, can provide a buffer against price increases and supply disruptions,” advises True Commerce.
Improve efficiency
“Lean manufacturing principles—aimed at maximizing value, reducing waste and improving efficiency—can be a powerful tool in mitigating the effects of higher material costs due to tariffs,” says Ultra Consultants. “By identifying and eliminating inefficiencies in the production process, manufacturers can reduce costs and improve profitability even as tariffs increase prices.”
To start conversations about improving efficiency, ask:
- What could be streamlined?
- What could be automated?
- What could be eliminated?
- Is there a cheaper alternative?
- Which non-billable activities could be reduced?
- Where do bottlenecks happen?
Lobby for exemptions
Many industry associations and individual companies lobby the government for exemptions. In some cases, tariff relief is granted. However, S&P Global reports that exemptions may be temporary and may bring political visibility.
Managing cash flow
A sudden surge in costs due to tariffs can create a cash crunch. A business line of credit is a popular way to manage cash flow when unplanned expenses arise.
All loans subject to approval. Rates, terms, and conditions are subject to change may vary based on credit worthiness, qualifications, and collateral conditions. Federally insured by NCUA
Consumers business loans
Do you have business banking questions? Contact our knowledgeable commercial loan officers.