After months of speculation on how U.S. tariffs on certain goods from China, the European Union, and other countries might affect U.S. business and the overall economy, more local companies are starting to report concrete effects.
The picture has come into focus more clearly as companies have issued forward-looking guidance during second-quarter earnings season.
A fast-evolving trade environment
Since spring, a 25 percent U.S. tariff on imported steel products and a 10 percent tariff on imported aluminum products from all but a few countries have been imposed, citing national security concerns. In early July, U.S. tariffs were also levied on more than 800 imports from China valued at $34 billion, with the Trump administration referencing unfair trade practices. In addition, the administration has formally proposed tariffs on some 6,000 additional products from China, impacting more than $200 billion in imports, and reportedly it is still considering global tariffs on automobiles and auto parts — a major industry in the Greenville market. Meanwhile, China, the EU, and other countries around the world have begun implementing retaliatory tariffs in response to U.S. tariffs.
All this, along with continuing concern over ongoing North American Free Trade Agreement negotiations with Canada and Mexico, has created considerable uncertainty and made trade a top issue in many C-suites and corporate boards across the country. It’s also spurring action.
Doing business amid global trade uncertainty
Here are four steps your company can consider taking to help cope with today’s tumultuous trade environment:
STEP 1 — MEASURE: Companies can obtain their own global import and export data and model out the potential impact of current U.S. and non-U.S. retaliatory tariffs. Only by knowing the data can companies quantify the potential implications of the safeguard tariffs, assess the risks they face, and plan accordingly.
Companies can assess both the direct and indirect impact on their business, their suppliers, and customers. Companies should think carefully about who needs to help make these assessments. The list may include not only the C-suite, supply chain, procurement, logistics, and research and development, but also trade compliance, risk, finance, and tax. Companies should also conduct “what if” modeling to gauge the impact of future trade tariffs or other disruptions.
STEP 2 — ASSESS: Fully assess all the potential ways to mitigate, eliminate, or defer the tariff impact. This assessment should include the following:
- Confirm Effect – Examine such critical elements as the affected products’ country of origin and harmonized tariff classification to accurately ascertain whether a product is actually subject to the new tariffs.
- Strategic Sourcing/Manufacturing – Explore strategic supply chain restructuring and manufacturing options. Executives need to examine the nontrade impact of their decisions, as well, including logistics costs, transfer pricing ramifications, and tax implications.
- Core Trade Strategies – Assess and quantify the benefits of core trade strategies such as duty drawback, first sale and foreign trade zones, temporary importation bonds, and bonded warehouses.
STEP 3 — IMPLEMENT: Determine which strategies meet a company’s short- and long-term goals. While some programs may serve as “Band-Aids” until the tariffs revert to most-favored-nation tariffs, others could yield long-term benefits beyond minimizing the impact of the new tariffs.
STEP 4 — MONITOR: Continue to monitor trade developments and regularly update the company’s “what if” plan to respond quickly to the fast-changing global trade landscape.
As the U.S. and its trading partners work to resolve their trade disagreements, one thing is certain: Companies that don’t prepare for different possible outcomes could face significant disruption.
Terry Grayson-Caprio is office managing partner of KPMG’s Greenville office. This column represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.