San Francisco, CA – August 14, 2019
President Trump’s tariffs have cost U.S. businesses $3.4 billion in June alone, according to data compiled by Tariffs Hurt the Heartland in conjunction with The Trade Partnership. That research was released just as the President announced that he would impose a 10 percent tariff on $300 billion in Chinese imports beginning Sept. 1, escalating a tit-for-tat standoff that has already seen imports from China drop by 12 percent during the first half of 2019.
Speaking with corporate leaders, Carpe Diem Partners has new market research regarding the impact of U.S.-China tariffs on their businesses. As trade tensions between the countries have mounted over that year, companies and executive leaders impacted most have been wrestling with how to protect themselves from the disruption.
Based on our research, we see businesses taking three main approaches to combat this potentially disruptive and devastating situation:
Waiting it out
Given the mercurial President’s history of making (and later reneging on) threats and shifting targets, some companies are putting off any drastic decisions until they see how committed he is to levying this latest China tariff. Others are biding their time in hopes that the tenor of trade talks cools down. In the meantime, these companies are absorbing the costs for as long as they can while taking a wait-and-see approach. This is impacting budgets and resetting operating results with the street. “We’re holding firm to our costs for now,” one leader said, “but we expect we’ll eventually have to increase prices.”
Optimizing supply chains
Many companies are re-evaluating their sourcing and manufacturing options. Those that can are considering moving or diversifying sourcing and manufacturing to other countries, including the U.S. This might include a brief final assembly of finished goods in a nontariff country. However, it takes an agile and progressive supply chain leader and team to deliver on this objective. Others have employed the simpler tactic of building up their inventory of imported materials before new tariffs go into effect. At least one client is taking a more collaborative approach: “Our favorite strategy is to work with suppliers to split and reduce costs, build relationships, and consolidate revenue.”
Modifying products and packaging
Not all businesses are ready to pull out of tariffed countries, and they are already planning to employ tried-and-true methods of reducing import taxes. One of the most popular is to strategically modify their products’ designs to have them reclassified under the Harmonized Tariff Schedule (HTS), which would make them subject to a lower duty rate. This is a legitimate tactic called “tariff engineering.” Companies are also looking at changing packaging materials and size to mitigate the higher cost of overseas manufacturing and shipping.
The uncertainty created by the current trade war can take a toll on companies in terms of commercial strategy, supply chain operations and near-term financial planning. These market insights from Carpe Diem Partners are gathered from the firm’s extensive client work leading Board, CEO and CXO executive search engagements for consumer and technology-oriented companies. For deeper, custom insights, contact Jeff DeFazio at jdefazio@carpediempartners.com.
About Carpe Diem Partners
Carpe Diem Partners is a consultancy intent on disrupting the conventional approach to executive search. The firm is focused on Talent Management and Acquisition of world class talent: Boards Members, Chief Executives, CXO’s, Presidents and their direct reports. Carpe Diem advises multiple Fortune 100, Private and Investor-backed companies on leadership imperatives. Headquartered in San Francisco, CA with national presence and global experience in all regions. For more information, contact us at jdefazio@carpediempartners.com.