Rising tariffs are all over the news at the moment, with the current president of the United States, Mr. Donald Trump, trying to show force through the politically motivated tariff increases, and many other countries starting to retaliate.
While there are many implications on an international relations and global trade scale, we discussed how this shakes up our business.
As a founder, I need a mix of quick fixes and long-term strategies to protect the company.
I once joined a procurement startup for as cofounder for a few months and I can confidently say, that you can't just cross over start like in monopoly and get some fast money for the next round. *(It was called wantex, pretty cool idea, we had no cofounder fit, so I left)
So here are a few notes what we discussed, listed from short-term moves to future-proofing the business. Bibliography for further reading at the bottom.
On a note: If you have stakeholders, proactively communicate that you are taking actions to understand and mitigate the sudden impact and risk to the company. This will do wonders for trust and reputation.
Immediate Actions: Controlling Costs and Contracts
First, do a cost analysis and initiate the quick adjustments. In other words, I need to know what is affected and how much, and can I do some small fixes to dampen the effect a bit.
Breaking down the impact, thus, calculating the tariff’s cost per unit and its effect on margins is paramount. Identifying the high-impact items first should be obvious.
Offsetting costs elsewhere, If I can, might ease the shock. For example, I might reduce expenses in shipping, packaging, or marketing to balance increased tariff costs for a time.
Passing costs selectively could also be an option. Instead of increasing prices across the board, I would first adjust them only where customers are less price-sensitive.
Second, start to have supplier and contract negotiations. Now that I know the most severely influenced goods and by how much, I have the knowledge to talk with my suppliers.
I definitely ask suppliers to share the burden. Some might agree to split the additional cost, especially if you have a strong relationship or a good position. This is delicate, don't loose trust and reputation over a few bucks. Money you can afford to loose, reputation you can't.
I would try to negotiate multi-layered contracts with strong players. Instead of long-term fixed pricing ( these might be dangerous if tariffs change), I would structure agreements with:
Volume discounts
Flexible pricing based on tariff changes
Bundled services (e.g., logistics + manufacturing) to lower overall costs
Reconsidering the immediate sourcing path would also be high on my list. For instance, directly importing goods instead of byuing via middlemen might reduce layers of markups. If you have higher volumes there is a good chance you might be able to skip a middlemen or two.
Third, I make short-term supply chain tweaks.
Optimising shipping strategies, like consolidating shipments to reduce customs processing fees might be an option for many goods. Potentially you can even switch to suppliers with the same quality but distribution hubs in tariff-free regions. Might be a bit wishful, but that would be perfect.
Stockpiling key inventory was also discussed, if possible. If tariffs will rise further, pre-buying stock where possible to delay the impact is certainly sensible. I personally don't like that bet, because storage and insurance are not free and I was never in a position to simply being able to afford having large amounts of unsold goods in inventory. But depends on the business, really.
One thing that was mentioned as well was to see, if the government offers any sort of support for the industry vertical you are in. Such as stimuli or reductions in any sort of other taxes, fees and such. If they do, that might also be an immediate action to buffer the effect.
Mid-Term Actions: Adapting the Business Model
Once the immediate actions are done, you can react to the market and other participants. After all, they all do the same thing as well.
Supply chain adjustments and procurement will become competitive
Finding alternative suppliers to source from countries with lower tariffs or trade agreements will not be easy, but potentially still worth it. The blogs in the bibliography explain trade free zones etc more in depth.
A dual-sourcing strategy might be probable. Here, you use a mix of domestic and international suppliers to stay flexible with procurement. This creates additional admin and overhead though.
Reworking logistics might be worth it as well. You can adjust routes or fulfillment centers to avoid tariff-heavy regions.
Product and Market Adjustments
Look into reclassifications. This was mentioned by my friend, meaning that you might be able to reclassify your product into a different product class and hence reduce duty fees. Check with a trade expert for that.
Modifying your product might be considered in this manner as well. I would first look into small design tweaks that can place a product in a lower tariff category, before reducing the amount of goods per package and such. (A local grocery retailer did that, and people got really upset: Two biscuits less per package at the same price. They had to publicly take position ... Over a 3.- biscuit package.)
Exploring tariff-free markets might be an expansion opportunity. Thus, shifting focus to customers in regions where tariffs don’t apply could bring a massive opportunity.
Pricing & Contract Strategies. And interesting approach was mentioned to consider how to balance the tariff rollercoaster.
Introducing premium and budget options was mentioned as a long term solution. This meant to offer higher-end products that absorb the tariff and then have low-cost alternatives for price-sensitive customers. Sort of what grocery stores do when they offer their in house knock off brands. Balancing a whole portfolio of products will become pretty complex really fast, so you need people who understand what they do and have enough time to create strategies.
Avoiding risky long-term contracts was one thing we all agreed upon: Locking in prices for years can backfire pretty badly, if tariffs change. Instead, we aim to have floating or smart contracts even, linked to market conditions.
Long-Term Actions: Future-Proof Against Trade Shifts
On the long run you have time to build a system that can handle even hefty tariffs. But you really need to have a strategy and then undergird the system with proper actions. Thus, it falls into the general risk assessment and should be handled as such.
Restructure Production & Sourcing
Shifting production strategically: If tariffs stay high, explore setting up manufacturing in a tariff-free country. This has tax implications and might even influence reputation and more, so this needs to be well planned.
Investing in automation and other production cost-cutting methods is generally good, but you might be strategically planning this for certain goods first.
Considering joint ventures, co-manufacturing or other partnerships is my way as a biz dev founder of saying that we can partner with local firms and firms in countries with trade advantages. You can never predict the future but at least be set up to have the capability to act swiftly.
I believe that some quick actions can keep your business pretty stable, but it sucks no matter what.
For me, I take note to build more flexibility into our contracts and to actively diversify suppliers, (maybe even trading higher prices for lower supply chain risk), simply so I will have more reaction time if such events occur.
If you can get away from the reactive state to a proactive long term view, you will win.
Anyway, that's all I have for today, let me knwo your insights.
See you round,
Andreas
Bibliography:
Fundamental:
Koch, E. (2023). Internationale Handelspolitik. In: Internationale Wirtschaftsbeziehungen I. Springer Gabler, Wiesbaden. https://doi.org/10.1007/978-3-658-40069-9_8
Online Sources:
Clearit USA. Strategies to Reduce Tariff Exposure in 2025. https://clearitusa.com/strategies-to-reduce-tariff-exposure-in-2025/
Riedel Law Firm. Top 5 Strategies to Mitigate the Impact of Tariffs. https://reidellawfirm.com/top-5-strategies-to-mitigate-the-impact-of-tariffs/
Adams and Reese LLP. Tariff Mitigation Strategies: With Rising Global Costs and Uncertainty, Importers Should Know Their Options.
Trade Ready Blog (FITT – Forum for International Trade Training).4 Procurement and Pricing Strategies to mitigate the impact of increasing tariffs https://www.tradeready.ca/2019/topics/supply-chain-management/4-procurement-and-pricing-strategies-to-mitigate-the-impact-of-increasing-tariffs/
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