Right now, it feels like there's a new tariff update coming out of the US almost every day. For businesses that ship to the country, it’s a time filled with uncertainty. But don’t fret! This article shares key advice to help SMEs navigate this shifting landscape and keep their goods moving with as little disruption as possible.
What are tariffs and how are they applied?
In simple terms, tariffs are taxes or duties that a government places on imported goods.
The main goal of tariffs is twofold. Firstly, to protect domestic industries – by making foreign goods more expensive, tariffs help local businesses compete more effectively. Secondly, they generate revenue for the government – particularly crucial in countries that rely heavily on trade.
US tariffs are paid to the Customs and Border Protection agency at ports of entry across the country. They vary depending on the classification code, value, country of manufacture and associated freight charges for the commodities involved.
Who pays tariffs?
In general, responsibility for payment of the tariff will be agreed between the shipper and recipient upfront. This forms part of the shipment’s Incoterms® – a uniform set of international trade standards that outline who is responsible for transportation, cargo insurance, export and import formalities, payment of duties and taxes, and at what point risk transfers from the seller to the buyer. This helps all parties meet their obligations.
The impact of the US tariffs
In recent months, the US has imposed a range of tariffs – particularly targeting imports from China, the EU, and other countries. These sudden trade measures have had disruptive effects on foreign SMEs, who often operate with tighter margins and less flexibility than large corporations.
Policy changes were often rolled out quickly, with minimal lead time, leaving SMEs scrambling to adapt – all whilst trying to meet US expectations for fast and reliable delivery.
The broader trade tensions have driven up freight costs, especially on heavily trafficked routes like Asia to the US. Some suppliers have had to reroute shipments to avoid certain ports or go through more complex customs processes. Tariff-related delays or inspections also caused demurrage fees, warehousing charges, and other unforeseen logistics costs.
Perhaps the most pressing question for any SME is this: who will end up covering these increased costs? For most, absorbing them internally simply isn’t realistic. But passing them on to customers can make their products less competitive. It’s no surprise, then, that this period has been deeply concerning for many businesses. The good news? While the challenges are significant, there are still steps SMEs can take to navigate them more effectively…
How can businesses mitigate the impact of US tariffs?
To lessen the impact of tariffs introduced this year, businesses should take strategic steps to adapt. Here’s how:
1. Take a proactive approach
Start by conducting a comprehensive audit of your supply chain to pinpoint areas of exposure to tariffs. Key questions to explore include:
- Which components or raw materials are imported?
- From which countries are these goods sourced?
- Are any of these items subject to existing or potential tariffs?
Tools like supply chain mapping software or even simple spreadsheets can help you track and assess where risks lie. This clarity will allow your business to anticipate cost increases and adjust procurement strategies before disruptions occur.
2. Consider diversifying your supplier list
Rather than relying heavily on a single country – particularly those subject to high tariffs – your business can:
- Seek out alternative suppliers in countries with which the US has favorable trade agreements (e.g., certain Southeast Asian nations).
- Consider nearshoring or reshoring to reduce dependence on international shipping and avoid geopolitical risks.
Diversification will not only help your business reduce tariff exposure but also enhance resilience against other disruptions like pandemics or natural disasters.
3. Explore new markets
There’s a big world out there! If US tariffs are cutting into your profit margins, you can consider other markets:
- Domestic markets, where tariffs are not a factor.
- Expand into other countries or regions where trade conditions are more favorable and tariffs are lower.
- Target emerging markets with growing demand for your products and fewer trade barriers.
- Look into regional trade agreements your country is part of, which might open doors to neighboring markets.
By not relying solely on the US, you’ll reduce your exposure to tariff-related risks and open up new revenue opportunities elsewhere.
4. Build strong relationships with trade and logistics partners
Strong partnerships can offer more flexibility and better pricing during turbulent times:
- Work closely with freight forwarders, customs brokers, and logistics providers to understand shipping timelines and costs.
- Develop relationships with suppliers that allow for better negotiation on terms or alternative sourcing options.
- Foster transparency and collaboration throughout the supply chain to make joint decisions that benefit all parties.
Reliable partners are crucial when adapting logistics strategies or when immediate shifts in supply are needed.
5. Stay informed about tariff updates
US tariff policies can change quickly and often without much warning. SMEs need to:
- Monitor government announcements from the US Trade Representative (USTR) and the Department of Commerce.
- Subscribe to industry newsletters or join trade associations that provide updates and policy analyses.
- Consider engaging customs brokers or trade compliance consultants to navigate complexities and stay ahead of changes.
Being informed will help your business adapt quickly, whether that means stockpiling goods before a new tariff hits or accelerating market shifts.
For SMEs, adapting to tariffs is not just about cost management – it’s about strategic resilience. By taking a proactive stance and focusing on diversification, market expansion, and partnership development, you will not only survive but potentially emerge stronger from the challenges posed by shifting trade policies.
US tariffs: FAQs
In general, responsibility for payment of the tariff will be agreed between the shipper and recipient upfront. This forms part of the shipment’s Incoterms® – a uniform set of international trade standards that outline who is responsible for transportation, cargo insurance, export and import formalities, payment of duties and taxes, and at what point risk transfers from the seller to the buyer.
Key reasons include:
- To protect US jobs and industries.
- To reduce trade deficits.
- To punish countries accused of intellectual property theft or unfair trade practices.
- To rebalance trade relationships in favor of the US.
- Increased costs on goods exported to the US.
- Sudden changes with little notice, making it hard to plan.
- More expensive shipping and customs processes.
- Disrupted supply chains.
- Difficulty meeting price and delivery expectations for US buyers.
Some options include:
- Shifting manufacturing or sourcing to tariff-free countries.
- Applying for tariff exclusions (in some cases).
- Re-negotiating supply chain terms.
- Exploring alternative markets beyond the US.
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