Preparing for Punitive Tariffs

In today’s uncertain business world, companies are faced with a multitude of challenges. In addition to known risks such as rising commodity prices and supply-chain bottlenecks, trade conflicts and the resulting punitive tariffs are also having an increasing effect. This development can have a significant impact on the competitiveness and profitability of companies.

In order to minimise the negative effects of punitive tariffs or even turn them into opportunities, it is crucial to take proactive and strategic measures at an early stage. Options without changes to the value chain can usually be implemented with a shorter lead time, but often do not have the same impact as levers that adjust the value chain.

Political engagement is a measure that is effective in the long term without having to adjust value creation. Active participation in political processes and cooperation with industry associations enable companies to represent their interests and work towards a reduction in customs duties. Lobbying and the development of interest groups can help to create a positive political environment for companies and avoid restrictive trade measures.

Putting the value chain to the test 

Companies also have a range of options at their disposal; however, these options require adjustments to the value chain. As a result, they can benefit from the changed framework conditions in the long term and to a greater extent. This includes optimising the logistics chain, for example: Identifying and using alternative transportation routes that are not affected by customs regulations can help companies save time and money. Efficient logistics planning and cooperation with experienced logistics partners are crucial here.

Diversifying the supplier base and looking for alternative suppliers in countries that are not affected by customs duties can also reduce the risk of customs charges. A broad diversification of suppliers can also reduce dependence on individual suppliers. However, one important aspect is ensuring quality, even with new suppliers.

When reviewing your own footprint, various relocation levels play a role. The relocation of final assembly to a beneficiary country enables companies to avoid customs duties on finished products and at the same time realise faster feasibility with lower investments. However, this increases the coordination effort. The complete relocation of production to a beneficiary country is a long-term strategic decision that enables companies to completely avoid customs duties. However, such a relocation requires careful planning and analysis of the economic and political framework conditions.

Another way to adapt the footprint is through joint ventures and licensing. Granting production licences to local manufacturers enables companies to manufacture their products under their own name in other markets and avoid customs duties. Joint ventures and licence agreements can reduce production costs for companies, but are often accompanied by a loss of control over production processes and a transfer of know-how. The acquisition of competitors and the use of the local footprint can make it easier for companies to enter the market and help to avoid customs charges. M&A transactions cause high costs and often a complex integration of the acquired company. On the other hand, they enable companies to benefit from existing structures and networks. 

Analyse risks and options at an early stage 

Early and careful preparation is a decisive success factor in coping with customs burdens. Companies should not wait until punitive tariffs have already been enacted before reacting, but should analyse potential risks at an early stage and develop preventative strategies. A structured approach is key here: Options should be examined, prioritised and evaluated in terms of their feasibility.