The Skill of Adaptability: How to Survive During Whiplash Tariff Policy

The Current Political Climate Makes Business Forecasting Next To Impossible

About a year ago, I read an interesting article about government regulation. Some regulations are puzzling in the 21st Century.  For example, in beverage: Ohio prohibits alcohol advertisements referencing Santa Claus; Massachusetts bans happy hours; Utah bans “drink specials” entirely; Pennsylvania has only state-owned liquor stores but allows you to bring wine to restaurants; Arizona, New Mexico, and Ohio make it illegal to bring a bottle of wine into a restaurant but you can buy liquor almost anywhere. Internationally, it is even more confusing: in some parts of Mexico, you cannot buy (on-premises or off-premises) alcohol the week of an election, and in Canada, not only is alcohol heavily taxed, but it can only be sold at limited times, but marijuana is entirely legal countrywide.

As nonsensical as this all seems, government economic regulation rarely changes quickly, be it country, state/provincial, or even local. This makes it easy for businesses to predict its impact and/or build regulatory requirements into their pricing models.

Imposed Tariffs

Regardless of whether you support the current MAGA push, it is disruptive because it cuts away at the regulatory rulemaking process in which changes to government processes are vetted through notice and either hearings or advocacy filings by interested individuals in a process that sometimes takes years. In fact, the current U.S. Treasury regulations on tariffs were almost instantaneous. For example, tariffs were imposed for Chinese, Canadian, and Mexican goods last Tuesday, then rescinded some last Thursday, and then announced over the weekend that they would be back on. How can you figure out what to do?

I work with many eCommerce organizations, and this type of policy shift significantly impacts their supply chain analysis. I also work with Canadian and Mexican clients who now need to figure out whether paying double-digit tariffs if selling to US consumers will allow them to compete competitively in the United States. Considering even the largest of enterprises cannot plan for that type of impactful whiplash policy shift, what is an emerging company supposed to do?

What Not To Do In Uncertain Economic Times

The first thing is that you (and I) cannot freak out. The older I get, the more I realize that we are rarely alone in our business predicaments, especially when it comes to macroeconomic policies. Also, while freaking out is a natural reaction, it doesn’t move the ball forward.

You should also not put your head in the sand and hope for the best. In this environment, those who are adaptable will survive. Adaptability in business is the ability to pivot when necessary and embrace change, ensuring longevity in a rapidly evolving world.

Tariff Adaptability

The first step to adaptability (in my book) is to research and map out the options. Then, you modify your business plan quickly to account for the changes in the environment.

So, for my eCommerce clients, the problem that tariffs bring is that approximately 50% of eCommerce goods are procured from China, and tariffs on Chinese goods have gone up approximately 35% in the last couple of weeks. This means that a little less than a majority of goods purchased on eCommerce websites have just become 35% more expensive to procure.

The situation is complicated, which brings opportunities for the adaptable eCommerce seller who is willing to analyze all of their options carefully and execute quickly to beat out the competition. Some examples of how to mitigate the effect of tariffs include:

• Ship Chinese goods to US free trade zones (FTZ).  FTZs are designated areas where goods can be imported, stored, processed, and exported without being subject to traditional customs duties, taxes, or regulations until they leave the zone and enter the domestic market. By shipping goods into a free trade zone, you can defer your tariff payment. For example, say you shipped a container of yo-yos from China costing $50,000.  If you shipped to your current warehouse, the tariff you would pay under the new tariff scheme is roughly $17,500. But if you estimate that you can distribute the inventory over 36 months, pulling inventory from FTZ to inventory, e.g., three times over 36 months, you pay $5,833 per pull, thus easing the tariff burden.
• Procure goods from other countries with lower or no tariffs. Although this may be harder if the Trump Administration imposes worldwide reciprocal tariffs, it may be wise to look at procuring in other large industrial countries like India or Vietnam.
• Reverse engineer/reassess your shipped goods to procure parts from different ports to rely less on tariffed parts.
• Take a short-term hit and do not raise your prices despite an increase in cost to maintain market share.
• Raise the consumer prices to keep margins and watch your competitors carefully.

Conclusion

Regardless of the path you choose, you should not be sitting around and doing nothing. While I realize business is complex, even when you can read the tea leaves relatively, the tariff situation is going to reward the adaptable entrepreneur who does their homework and then makes informed decisions on the least destructive solution. Are you an adaptable entrepreneur?

Contact EmergeCounsel today for a free consultation!