The business world is getting ready for promised tariffs expected as soon as Feb. 1 of this year. Which tariffs will be issued related to which products and countries is unclear at this point. There have been mentions of 25% tariffs on Canadian and Mexican products. There were mentions this past weekend of tariffs on Colombian products for Colombia’s refusal to accept deportees. There have been mentions of potential tariffs on Chinese and European products. And it is reported that the U.S. Secretary of Treasury wants to enact a monthly increase of 2.5% on all U.S. imports. Until the tariffs are issued, the details will be unknown. But you can and should prepare now.
First, let’s clarify who pays tariffs. Tariffs are paid by the importer of record, which typically is a company in the U.S. importing a product from overseas. Foreign governments do not pay tariffs. While the importer of record may be responsible for payment of tariffs to the government, who absorbs the costs of tariffs depends on the terms and agreements in place in the supply chain for those products.
Second, even before the tariff details are known, you can prepare now by assessing your supply chain. Map out where your suppliers are located and where your supplies are coming from. Keep in mind that even if your products are being delivered or picked up from locations in the U.S., depending on your shipping terms and where the products are coming from, tariffs could apply. To anticipate how tariffs may affect your business, you should be mindful of your supply chain at all levels while simultaneously devising contingency plans to minimize or mitigate the impact of tariff increases. Once the costs of the tariffs hit, it is likely that those costs will crawl up the supply chain to you. It is best to be aware and prepared for what may come.
Third, assess your options by reviewing your supply chain contracts. Whether you, your supplier or your supplier’s sub-supplier is the importer of record, your contracts will determine responsibility within your chain for absorbing the costs of tariffs. If significant tariffs hit products in your supply chain, you can expect your suppliers will request price increases or assistance in dealing with the increased costs. Knowing your contract terms ahead of time will help you prepare and plan for these increased costs, including whether you may need to alter your terms with your customers as a result.
Finally, if you are in the midst of contract negotiations, assume and plan for tariffs. If you can negotiate the terms, include terms that provide for changes to price or other terms as necessary if tariffs are issued. If you cannot negotiate terms, price your products with tariffs in mind.
When tariffs are issued, there may also be other means of potentially avoiding the increased costs, including exemptions and classifications for products. But these options cannot be assessed until the tariffs are known.
Warner’s Supply Chain Industry Group attorneys are well-versed in handling tariff issues in supply chains and are ready to assist you when these tariffs are issued. For more information on navigating the upcoming tariffs, please contact Homayune Ghaussi, Aida Dismondy or a member of Warner’s Supply Chain Industry Group.
