Before you start panicking, it’s important to know that the announced tariffs may not affect your business. Here are some key points from the US Trade Representative (USTR) concerning the recent tariff increase.
Key Points on Tariff Announcement
- USTR has increased the Section 301 List 3 additional duty rate on $200 billion of Chinese-origin products from 10% to 25% (the rate already in effect for $50 billion of products on Lists 1 and 2).
- The increased duty rate applies to specified products that have been imported to the US on or after May 10, 2019, and exported to the US on or after May 10, 2019. Specified products exported to the US prior to May 10 are eligible for the preexisting 10% duty rate, provided they are entered into the US before June 1, 2019.
- The duty rate increase applies to over 5,700 Harmonized Tariff of the US (HTSUS) subheadings that cover food items, chemical intermediates, textile intermediates, fuel products, metal tools and housewares, electric and electronic consumer devices, vehicle components, and furniture, among others.
- The USTR has confirmed that it will establish a process for requesting exclusions from the tariffs for List 3 products.
However, even if the tariffs may not directly affect your business, this should sound loud alarm bells and serve as a wake-up call for your supply chain team. Plan with your internal team (i.e. engineers, sourcing personnel, finance manager, manufacturers) to re-evaluate your supply chain strategy, determine vulnerabilities, and develop contingencies — leverage platforms such as Partsimony to help identify alternative sources. The global manufacturing landscape is changing, and you should ensure your organization is proactive in adapting before it’s too late.
Below are a few important things your business needs to be doing now in order to prepare.
What do companies need to do?
- Assess your supply chain: Understand your supply chain at an in-depth level — know your supplier’s strengths and weaknesses. Which suppliers within your network will be affected by the tariffs? Where can you find alternative sources to mitigate tariff cost impact (e.g. local sources)? Where can you mitigate risks to your supply chain?
- Update product designs: Redesign components within your products wherever available — identify potential opportunities such as alternative material specifications based on your product’s design intent. This will help lower your product costs in an impactful way
- Reevaluate your long-term strategy: Become more proactive and establish robust supplier blend strategies to maintain your supply chain’s competitiveness. Being single-sourced on components from one major supplier is not a long-term strategy. Ensure you have available alternatives in place, should your main supplier become impacted by tariffs or a natural disaster.
What do manufacturers need to do?
- Assess your core strengths: Understand your shop’s competitive edge at a deeper level — your shop’s strengths & weaknesses, product focus, and types of customers you want to work with. You may need to drop some customers to make room for preferred customers who best align with your business’s long-term strategy.
- Engage in productivity projects: Implement LEAN manufacturing principles and address inefficiencies within your shop. Eliminate waste wherever possible — wasted motion made by operators during manufacturing operations is typically overlooked at most shops and contributes to increasing your shop’s variable costs.
- Reevaluate your long-term strategy: Become more proactive and develop ways to maintain your business’s competitive advantage. Establish a strong customer acquisition channel to feed your shop business, which better aligns with your core strengths.
Regardless of the current tariff war, there will always be a need for your business to rapidly adapt to dynamic challenges. Ensure your supply chain doesn’t go the way of the dinosaurs.