Preparing for Tariffs Under a Renewed Trump Administration

A Decade of Tariff History 

The last decade has witnessed significant shifts in U.S. trade policies, particularly under President Trump’s administration (2017–2021). Key measures included tariffs on steel (25%) and aluminum (10%) and comprehensive duties on approximately $300 billion worth of Chinese imports. These policies aimed at boosting domestic industry but also created challenges for manufacturers. The Biden administration maintained many of these tariffs, reinforcing their impact on the manufacturing landscape. 

Impact on Purchasing Teams and Companies 

Tariffs during this period affected purchasing teams in several ways: 

1. Rising Input Costs: Duties on essential raw materials, such as steel and aluminum, raised operational expenses, pressuring procurement teams to adapt their budgets and seek cost-saving solutions. 
2. Sourcing and Logistics Challenges: To manage tariff exposure, many companies shifted sourcing or rerouted goods through intermediary countries with limited value-add operations. This minimized direct tariff impacts but required careful logistical management. 
3. Operational Disruptions: Retaliatory tariffs and trade restrictions from affected countries created further complications in global supply chains, impacting production schedules and employment.
4. Increased Workload and Resource Strain: Most importantly, managing the additional complexities introduced by tariffs stretched already understaffed purchasing teams, pulling them away from their core missions of cost reduction and quality improvement.
   
   This diversion hampered ongoing strategic initiatives and long-term improvement program and had an untold opportunity cost impact on companies. 

Lessons Learned by Purchasing Teams 

To prepare for potential new tariffs, procurement teams should adopt both proactive and reactive strategies: 

1. Things to Do Now

These proactive measures can help procurement teams build a robust response to potential future tariff policies.

• Prioritize Spend Analytics: It’s essential for procurement teams to have a detailed understanding of what they source and from where. This enables them to identify vulnerabilities and prepare mitigation strategies based on comprehensive data. 
• Expand Supplier Networks: Diversifying suppliers to include sources from regions not likely to be tariff targets reduces dependency on any single country.
• Prepare for Supplier Onboarding:  CPOs should review and enhance onboarding processes, skills and resources to incorporate new suppliers smoothly. 
• Develop Cost Analysis and TCO Methods: Establish a standardized Total Cost of Ownership (TCO) calculation method to assess all cost elements, including freight, duties, and indirect expenses.
• Investigate Potential Alternative Sourcing: Explore sourcing from countries outside those historically targeted by tariffs, such as China, Mexico, Vietnam, and parts of the European Union. This helps build resilience in anticipation of future trade disruptions. 

2. Things to Do if New Tariffs Are Announced 

• Activate Creative Sourcing Solutions: Implement strategies like routing products through intermediary countries where minimal value-add occurs to avoid direct tariffs while maintaining compliance. 
• Leverage Duty Drawback Programs: Collaborate with logistics and compliance teams to reclaim tariffs on goods that are re-exported, offsetting tariff expenses. 
• Adjust Inventory Management: Review and increase safety stock levels of tariff-impacted products to provide a buffer against sudden cost increases. 
• Protect Core Strategic Efforts: Ensure that resources and focus are allocated to maintain core strategic initiatives such as cost reduction and quality improvement programs.
  
  This involves prioritizing workload distribution and leveraging technology or temporary support to prevent critical projects from stalling due to increased tariff management demands. 

Advanced Purchasing Dynamics (APD) is available to support organizations through specialized training, strategic insights, and tools that strengthen purchasing resilience and optimize performance in evolving trade landscapes.

Interested in preparing for possible new tariffs while protecting your bottom line?Watch our free webinar “Tariff Readiness 2024”