Decoding the Tariff Puzzle: A Call to Action for Businesses

This article is a guest post by Andrew Siciliano, a partner at KPMG and head of U.S. and global trade and customs practices. The views expressed in this article are solely those of the author.

Tariffs have become an overwhelming force in U.S. tax and trade policy, creating a complex puzzle for all enterprises engaged in international trade.

Since January of this year,President Trump's executive ordershave imposed new tariffs on imports from the United States' three major trading partners—Canada, Mexico, and China—triggering widespread market disruption. Announcements of 25% tariffs on aluminum, steel, automobiles, pharmaceuticals, and semiconductors, along with the possibility of additional measures in the future, make it difficult for companies to protect themselves and their customers in the short term and to plan for the long term.

Companies must recognize that solving the tariff puzzle is no easy task. It requires not only data to quickly assess the impact, but also the flexibility to adapt to policy changes in order to advance business strategies and protect the bottom line.

The following four key strategies are the puzzle pieces that agile companies must integrate to build resilience, strengthen operations, and maintain competitiveness in an unpredictable tax and trade policy environment:

1. Strategically Leverage Trade Data

Use technology to analyze trade flows to identify potential risk points, model financial impacts, and uncover cost-saving opportunities. Reliable data and access to the right tools and technologies can ensure smarter, faster decision-making.

2. Transform Trade Operations

Take a holistic view of processes, people, and systems to improve compliance and reduce tariff exposure. Consider embedding flexibility clauses in contracts, such as price adjustment or tariff-sharing mechanisms, to protect profits. A strategic approach helps streamline operations and prepare for the future.

3. Diversify the Supply Chain

Mitigate risk by sourcing from alternative suppliers in low-tariff countries. Diversification enhances resilience and ensures business continuity. At the same time, renegotiate with domestic and international suppliers to address tariff impacts.

4. Conduct Return on Investment Analysis

Explore tariff relief and recovery programs, such as:

• First sale for export:Utilize lower dutiable value when transactions involve multiple parties. This method can significantly reduce overall tariff costs.
• Foreign trade zones:Utilize foreign trade zones, which are considered outside the customs territory. Goods and components within these zones are not subject to tariffs until they enter the U.S. customs territory, providing companies with a strategic advantage.
• Duty drawback:Utilize duty drawback programs, which can allow for nearly full recovery of tariffs. However, note that this option does not apply to certain specific tariffs.
• Valuation unbundling:Exclude costs that should not be subject to duty from the declared value. This often-overlooked strategy is particularly beneficial when the goods themselves are duty-free.
• Operational transfer pricing:Coordinate with the transfer pricing team to ensure that the value of related-party transactions complies with tax and customs requirements and is not overstated.
• Tariff exclusions:Where feasible, apply for tariff exclusions based on economic and commercial reasons. This can significantly alleviate the financial burden of tariffs.

Although tariffs and ever-changing tax and trade policies may seem daunting, solving the puzzle begins with preparation, creativity, and adaptability. Every policy adjustment, supply chain disruption, or new regulation adds complexity, but also brings opportunity. By proactively embracing these changes, companies can better navigate the uncertainties of the current trade environment and lay the foundation for long-term success.