Armed with these strategies for reducing tariff exposure, manufacturers have new opportunities to help keep dollars and margins whole.
Tariffs are truly “A Tale of Two Cities.” Some manufacturers are celebrating, thanks to higher domestic demand and an opportunity to sell unused capacity. For others, tariffs have significantly hurt business — resulting in painful price increases, inventory valuation challenges, stalled M&A, and reduced demand.
When might tariffs stabilize?
Many manufacturers are asking when tariffs might stabilize. When can they resume forecasting, budgeting, and planning with some degree of confidence?
Looking back to 2018 — when President Donald Trump first enacted tariffs — it took about two years for tariffs to stabilize. The numbers remained constant from 2020 until Trump’s inauguration in January 2025.
The practicalities of negotiating with so many countries simultaneously are coming to light. Negotiations take time. Using history as a guide, numbers may not stabilize for several more months.
Tariff mitigation strategies for manufacturers to consider
For manufacturers ready to move beyond wait and see mode, there are strategies to help. The many options include:
- Bucket 1: Help find low hanging fruit immediately
- Goal: Help confirm you’re not paying a nickel more than you have to, regardless of rates.
- Tactics: Scrub invoices, tax approaches, accounting treatments, currency, etc.
- Deliverables: A roadmap of immediate tasks to execute.
- Bucket 2: Help reduce exposure/current footprint
- Goal: Identify short term investments for margin preservation.
- Tactics: Capacity-driven pricing, cash flow analysis, inventory techniques, warehousing strategies, tariff engineering, etc.
- Deliverables: A profitability/capacity-driven pricing model with dynamic inputs dynamic pricing outputs.
- Bucket 3: Help reduce exposure/reimagined footprint
- Goal: Long-term profitability for next 5-10 years.
- Tactics: Move production closer to markets to reduce border crossings.
- Deliverables: Business case scenarios for board-level long-term strategic planning.
Engage multiple advisors for improved tariff mitigation strategies
Tariffs are a team sport. It’s recommended to include input from international supply chain teams, bankers, trade attorneys, customs brokers, and engineers as this process unfolds.
Tariff mitigation strategies: Immediate, short-term, and long-term
Explore the many options for immediate, short-term, and long-term tariff mitigation strategies:
Immediate actions to help reduce tariff impacts
Invoice splitting
This is somewhat complex, but the basic premise is separating or splitting invoices into dutiable product related costs and non-dutiable services. Third party inspections, warehousing, freight and insurance are examples that could possibly be split out.
First sale
If an import transaction includes a middle entity, and three specific criteria are met, an importer might be able to declare the price paid by the middle entity or “first sale” to the factory or supplier. This could help manufacturers avoid paying tariffs on markups.
Duty drawback
If components (or whole assemblies) are imported and used in products exported, returned, or destroyed under warranty, a manufacturer might qualify for duty drawbacks. If the practice has been going on a while, there may also be refunds to tap into. Check and see if your ERP system requires tweaking for tracking purposes.
Supplier relationships
If you have strong relationships with suppliers, some may be able to absorb some of the tariff cost. However, if this well has already been tapped a couple of times, it may not be feasible to draw from it again.
VAT refund
Value-added tax (VAT) is often a significant source of revenue for countries outside the U.S. At a high-level, taxes are levied as sub assembles cross regions within a country. To encourage international trade, an exporter can apply for VAT refund prior to export. Confirm your supply chain partner is backing out VAT refund from product cost in countries where this practice is allowed.
Transfer pricing
For companies with multi-national interests, savings can be achieved through carefully orchestrated transfer pricing agreements. First, there are approaches for setting up subsidies for tax efficiency to consider. Next, agreements can be established between entities accounting for the location of IP, service payments, etc. CLA’s international tax team has years of experience with transfer pricing agreements around the world.
Sales tax
Have you considered the impact of tariffs on state-level sales and use tax? There may be situations where an importer is responsible for it and others where it can be backed out. Each case in each state requires careful analysis. CLA’s state and local use tax team can help sort out details.
Currency
Manufacturers who pay suppliers in foreign currency sometimes consider hedging strategies to lower exposure to currency fluctuations over time. Consult with an international banker for more information.
Chapter 98
Chapter 98 may apply to exports of articles previously imported for repair or modifications, items donated for relief or charitable purposes, prototypes, agricultural or horticultural items, products specially designed for the handicapped, and military clothing and equipment.
Customs payments
Some businesses pay customs and duties invoices via check. Direct ACH payment may help avoid certain fees.
Periodic monthly statements (PMS)
This program enables importers to pay duties as late as the 15th working day of the following month. Learn more details on the PMS program.
Get a tariff mitigation roadmap assessment, providing custom analysis of more than 20 techniques for tackling tariff exposure to spread risk and improve your business.
Short-term actions to help reduce tariff impacts
Tariff engineering
Tariff engineering involves exploring product designs for possible favorable tariff treatment. For example, a manufacturer could re-engineer an assembly from all aluminum to an aluminum core with plastic overlay. The net result could reduce tariffs on the finished good. If this approach is on your radar, don’t forget to keep track of R&D time and expenses for tax purposes.
HTS codes
Importers are responsible for HTS codes used to import items (versus a customs broker). It pays to check these codes carefully to confirm accuracy as codes can have wildly different tariff rates. Note tariffs can stack, with some goods having IEEPA + section 232 + section 310 tariffs applying. If codes haven’t been looked at recently, it may be worth a refresh. Here’s one tool (there are others) to look up tariff rates by HTS codes.
Inventory management
There are many considerations related to inventory strategy. What methods do you use to forecast demand and manage inventory levels? What impact do tariffs have on your inventory levels and management strategy? What changes might be needed amid higher prices and lower turns? The bottom line: does it make sense to consider an accounting method change?
Foreign Trade Zones/Free Trade Zones
Free Trade Zones operate outside the U.S. while Foreign Trade Zones (FTZ) operate inside the U.S. FTZs could provide deferral/cash flow management benefits, even if they cannot be used to avoid tariffs.
Some find FTZs a good option for regional distribution centers, and could provide tax/fee savings if products are exported. Storage time is indefinite, and duties are paid when goods are withdrawn.
There are different levels of FTZs, allowing a manufacturer to perform certain activities (from just warehousing and up to and including manufacturing) within the zone. A zone can be set up in an existing facility.
Note special software and documentation are required to manage FTZ-related inventory. The entity is subject to government audit at any time.
Bonded warehouses
Similar to FTZs, bonded warehouses offer cash flow deferral opportunities. In an FTZ, duty is calculated when goods enter the warehouse. With bonded, duty is calculated when goods exit.
Storage time is limited to five years. Goods can be sorted/cleaned/repackaged under customs supervision, but no manufacturing is allowed like in FTZs. There is also less flexibility as shipments are moved in and out in their entirety. In FTZs, you can withdraw goods as needed.
Relief process
In 2018-2020, there were opportunities for applying for relief from tariffs but none are being currently offered. Instead, we have seen a few exceptions make it through, most notably for semiconductors, pharmaceuticals, timber, certain metals, and chemicals. Negotiations are not impossible but take time. They are typically organized at an industry level with broad support. Support of trade attorneys is essential.
Long-term actions to help reduce tariff impacts
Global sourcing
As tariffs increase, many manufacturers are considering how to locate production closer to customers to avoid crossing borders. Building a business case for such moves involves many variables to land on a “best cost, best country” approach from a sourcing perspective. In-region supply chain professionals can help with finding, verifying, and qualifying new sources aligning with your goals for brand and geographic interests.
Nearshoring/onshoring
When it makes sense to consider creating or increasing state-side capacity to have production closer to customers, you have numerous options. Consider leveraging CLA’s concierge services for inbound business setup as well as tapping into CLA’s tax team to assist with tax credits and incentives as you navigate dealmaking at the state and local level.
Freight/logistics
For any of the above being considered, changes in product flow may influence freight and logistics costs and consolidations resulting in savings opportunities. CLA can assist with analysis and forecasting of shipping patterns.
How CLA can help with tariff mitigation strategies for manufacturers
While many are taking a wait and see approach during this period of tariff volatility, others are pivoting from defense to offense using this time to strategize, plan, and prepare. Armed with these more than 20 strategies for reducing tariff exposure, manufacturers can tap into new opportunities to help keep dollars and margins whole.
For more information and video clips on specific topics noted above, check out CLA’s 3-Part Webinar Series: Tariff Reduction Strategies. Need help building a roadmap for tariffs? Let’s talk.