The U.S. trades with more than 200 countries and each trade agreement has a wide range of goods, services, tariff levels and other unique stipulations. Policy decisions on international trade made by the current administration have a number of middle-market businesses concerned about tariffs triggering a rise in costs to their materials, supplies and parts, as well as disruptions in their existing supply chain.
“Some clients are more concerned by potential supply chain disruptions,” says Kristin Krabacher, a Shareholder at Brady Ware. “Other clients are looking at how to stock inventories with needed materials and supplies prior to any dramatic shift in tariffs, depending on the countries from which they directly import or countries used by their suppliers.”
The ripple effect these tariffs will have will take time for some industries to understand where rate increases impact their business. But, there have been instances of some companies choosing to delay investments in new equipment or machinery, new technologies, or expansion into new markets until there is more clarity.
Smart Business spoke with Krabacher about tariffs and the impact they are having on U.S. businesses and how companies are mitigating the negative effects.
What are some ways that companies impacted by tariffs can adjust to mitigate the impacts of those tariffs?
Every company is unique and faces their own variables attributed to tariffs. Generally, however, supply chain diversification or exploring new suppliers in countries not subject to tariffs is one tactic companies are using to try to mitigate the impact tariffs are having on their business. Some companies are exploring reshoring production to the U.S. to avoid import duties entirely. Businesses can also optimize existing supply chains by renegotiating supplier contracts to share the tariff burden, or by strategically managing inventory to pull forward purchases before new tariffs take effect. From a financial perspective, companies might adjust pricing strategies, cautiously passing some costs to consumers. That has business owners faced with working to identify how much of those costs they can absorb and how much they should pass on to their customers.
What other implications might the tariffs have on businesses outside of the immediate impact — come tax season, for instance?
The main issue that is being seen from a tax standpoint is changes to projections. Companies are estimating a reduction in income for the year overall, with projections used during the first quarter for estimated tax payments being much higher than the projections used for the second quarter.
Overall, the uncertainty makes it difficult to plan ahead and there is a sense that a number of companies will be truing up estimated payments with the fourth quarter payment once companies have more year-to-date data to work with.
Who should companies work with to come up with a strategy to mitigate the impact tariffs are having on their business?
Businesses should surround themselves with the right mix of professionals. That is crucial in an ever-changing business environment. A company’s CPA and trusted business adviser can assist in the financial planning and income tax implications; their legal adviser can assist in navigating contracts and trade compliance; there are also supply-chain consultants and customs brokers that can help to optimize logistics and manage tariff exposure.
The tariffs situation has proven to be a challenge for many U.S.-based companies. Working with the right advisers can help businesses navigate the uncertainty. ●
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