Tariffs: What Brands And Retailers Need To Know And Do

Forbes

20-03-2025

Tariffs are coming. Maybe.
Tariffs are back as a core concern area, influencing decisions from supply chain restructuring to mergers and acquisitions. Jim Pratt, Co-Founder and Managing Partner at Forsyth Advisors and an expert in tariff risk mitigation, provided crucial insights into the evolving tariff situation to the Retail Marketing Society in a presentation yesterday.
Pratt explains that tariffs fall into three main categories:
Country-specific tariffs can be swiftly imposed or rescinded by the U.S. government in response to economic emergencies, like recent actions related to the fentanyl crisis resulting in a 25% tariff on Chinese imports. These tariffs are powerful negotiation tools, though their longevity can vary as we saw when tariffs on Canada and Mexico were announced and then almost immediately postponed. Commodity-specific tariffs are generally more durable and are typically aimed at nurturing domestic industries. These tariffs have historically demonstrated staying power because of their political appeal and can pose long-term challenges for businesses due to difficulties in obtaining exemptions or avoiding their impact.Reciprocal tariffs aim to equalize tariffs among trading nations. If one country imposes higher tariffs on U.S. goods, reciprocal tariffs allow the U.S. to raise its tariffs accordingly.
The use of reciprocal tariffs is highly uncertain right now because the administration is discussing the use of them to counter numerous problems including foreign exchange manipulation, VAT that numerous countries charge consumers on the purchase of all products and subsidies that other governments give their domestic producers. EU countries that charge VAT of 19-21% are particularly vulnerable to the accusation.
Recent shifts in trade enforcement have significantly limited traditional methods of tariff avoidance. Notable loopholes, such as the 'de minimis exemption' (previously allowing imports shipped directly to consumers under $800 to enter duty-free), have been severely restricted or eliminated. Furthermore, U.S. Customs and Border Protection (CBP) is now directed to enforce maximum penalties without considering mitigating circumstances. There is also new policy encouraging whistleblowers to report customs fraud.
Pratt points out that often, 'the easiest, safest, most effective path, isn't to address tariffs head on, it's looking at other costs in the supply chain.'
Shifting supply chains to countries or regions unaffected by tariffs can be highly effective. When the 2018 tariffs hit steel with a 25% charge, imports from tariffed countries declined by 25% in the first year and production shifted to Canada, Mexico and Brazil which received quota-based exemptions.
Louis Amoroso, CEO of winemaker Full Glass Wine, said this is a 'pivotal moment for innovation and adaptation.' as his company is 'proactively shifting our sourcing strategy." Full Glass, he says, is 'identifying emerging global regions less impacted by tariffs and diversifying our mix to ensure consumers still have access to great wines at reasonable prices.'
Companies also explore legal and operational tactics, such as seeking product classification changes to move into lower-tariff categories. If a Christmas sweater is tariffed as a sweater, the tariff may be lower if it's classified as a Christmas-related product.
Deferring tariffs may also be possible by negotiating valuation with CBP to exclude items like commissions, middleman markups, freight and inspection fees. Putting items in bonded warehouses until they're shipped to the end user may defer tariff payments.
Pratt notes tariffs have increasingly become a critical factor in mergers and acquisitions.
Due diligence conducted by a buyer in a transaction is often about confirming what a buyer believes about the company they're buying. When a buyer finds misclassifications or tariff-related cost increases that they weren't expecting, it can negatively impact the confidence that a buyer has about the company. That endangers valuation and even the entire transaction.
Tariffs are adding another element of uncertainty to a transaction. Pratt says he has already been in a deal where a tariff miscalculation led to a 20% EBITDA impact and required the deal to be renegotiated.
Pratt says remaining flexible is key. He suggests:
- Tracking competitors' imports and industry imports generally through publicly available databases.
- Be diligent about exploring alternative manufacturing locations and sources.
- Consider value engineering certain components or costs out of products.
One of the issues confronting the entire economy is how rapidly changes are happening and not having time to adjust. It's impossible to know how long that will continue or what it will take for industry to adjust to the accelerated rate of change.
Some CEOs I talk to are rushing to import stock before the tariffs take hold. But the vast majority are not. They are sitting tight, not wanting to get stuck with a high inventory level if the economy faulters and feeling uncertain about which strategy will be effective.
It's going to take some time before this shakes out or before the administration changes course. In the meantime, getting smart about tariffs, getting good expert advice and remaining flexible is the best that any retailer or brand can do.