Podcast: What should manufacturers do to prepare for changing tariff policies under the new presidency?

Jeremy Tancredi is partner in West Monroe's supply chain practice. He has 24 years of experience in the industry and currently manages productivity improvement programs for large distribution clients. Dan Swartz is international tax services principal at Crowe. Over the past 20 years, Dan has worked in trade advisory, customs brokerage, and global logistics and specializes in duty recovery, duty minimization, and trade compliance risk mitigation strategies for Crowe clients. Gregory Husisian is partner at Foley & Lardner LLP. Gregory is chair of the firm’s International Trade and National Security Practice, focusing on both international trade and international regulatory issues. Jeremy, Dan, and Gregory recently spoke with Jill Jusko, executive editor at IndustryWeek, about what U.S. manufacturers can do now to prepare for changes to trade and tariff policies.

Below is an excerpt from the podcast:

IW: Given that we don't know a lot yet about when and how tariffs may be impacted by the new presidency, what should manufacturers be doing to prepare? What should they be doing now?

JT: I think the first thing that I would recommend, and something we're talking to our clients at West Monroe about, is really just don't take too hasty of actions right now. The thing I would recommend they do is take a hard look at their supplier base. It's fairly straightforward to think about your tier one suppliers who are going to be sourcing products directly from China or some of these other places and plan accordingly with those sources. But what we're telling them to do is really take a look at those tier two and tier three suppliers as well. Any tariffs that impact those suppliers are going to filter back to the end manufacturer consumer. So understanding where all your tier two and tier three sources are coming from is going to help you plan accordingly, and then you can take a look at potentially sourcing different suppliers from different areas that may not be as heavily impacted by the new tariffs.

GH: I would agree with all of that, with what Jeremy just said, At this point, the key things to do are understanding and risk planning. A key thing companies can do is pull your ACE data from the customs portal and make sure you have a good understanding of what your tariff risk exposure is and from which countries, particularly with regard to China and Mexico. Those two countries have to be at the top of the risk planning. China is a bipartisan source of angst. Nobody is really going to complain too much if President Trump increases trade tariffs, and he's already shown once that he could do it. He has the authority under section 301 to declare that China is not in accordance with its settlement for the last 40 tariffs. So on day one, he could literally increase those imports. Mexico is a potential target because in 2026, the US MCA is up for reapproval. So that makes that a potential source of higher tariffs, even if it's part of a threat to achieve other goals such as immigration. So the first thing is to understand your risk exposure. And the second thing is to start risk planning, beginning with China and Mexico. Then after that, looking to see what your exposure is for the rest of the world.

IW: I have heard some comments from manufacturers about what they should be doing in advance. Are you telling anybody that they should be moving up capital equipment purchases or robust scenario planning? It sounds like some of what you said. And it sounds also like making sure you understand your country of origin is an important component.

GH: We're definitely seeing that. For some of our clients, they're trying to see where they can get goods that they were planning to bring in maybe next year and get them into the country sooner. Anything that's entered into the United States is obviously immune to the tariffs. People have already been in a multi-year process of moving production out of China. We're telling them that's great because they're at the highest level of tariffs, generally, but make certain you understand the substantial transformation rules. And if you're using parts and components from there, make sure you are doing it correctly because customs has unprecedented ability to see into importing patterns now, with all the data being electronic, and they're using that quite frequently and finding a lot of instances where people aren't really doing enough in the third country because they're using substantial parts and components from China. Those efforts by customs are only going to go up if the tariffs from China go up, because that's going to give people even more incentives to try to claim their products are from a different country. And that could lead to big, big bills for unexpected tariffs if customs disagrees with you on your tariff engineering strategies.

JT: To add on to that and to answer the question about large capital investments, that is the one area we are recommending potentially looking at for our clients. We know there is uncertainty, but we serve the upper mid market Fortune 1000 type of clients. So they don't always have the largest capital lying around for some of these major investments into manufacturing and automation and things of that nature. So any of those types of instances where we may not be 100% certain what the impact is going to be, but if it’s already in your plan for the future, do what you can to expedite that as much as possible to avoid additional tariffs on top of that.

IW: Dan, would you like to share some of your thoughts on what manufacturers can do to prepare with this level of uncertainty that still is facing us?

DS: I think there's two suggestions I have. I know everybody's recommending things such as going back and looking at your tariff classifications, looking at options for nearshoring. But from our experience with the 2018 tariffs, I really recommend everybody who's attending today's meeting find out who your customs broker or your bond broker is. A lot of companies have no idea who has sold them their customs bond, yet it's going to be one of the most important relationships that you have as we go through this period of increasing tariffs. The reason why is that your bond has a limit, and that limit is based upon the amount of duty that you accumulate during the 12-month period. And as the tariffs increase, your bond limit is going to have to follow. And as the bond limit climbs higher, the underwriters of the bond are now going to pay more scrutiny to your company. They're going to be wanting to look at audited financial statements, and in many cases, they're requiring that you put up collateral in the form of letter of credit. So I recommend now is the time to reach out to your bond broker. Start having a conversation with them instead of waiting until you start receiving insufficiency notices down the road with everybody else, and then trying to vie for some time from your bond broker. Also, if you're in the market shopping for a bond broker, there are some really good ones out there. They're relationship oriented and have good relationships with underwriters.

About the Podcast
Great Question: A Manufacturing Podcast offers news and information for the people who make, store and move things and those who manage and maintain the facilities where that work gets done. Manufacturers from chemical producers to automakers to machine shops can listen for critical insights into the technologies, economic conditions and best practices that can influence how to best run facilities to reach operational excellence.