Businesses should prepare as higher tariffs are coming!

2024 was unexpected all around the world, and the coming year seems to be way more evolving. The global supply chain seems to have hit a drastic change in the United States.

Not only this the political and economic shift has affected the whole trading industry. Higher tariffs on imports from key trading partners are bracing global trade for the impact.

Rising costs, disrupted supply chains, and changes in freight costs are some of the changes that might occur. But what exactly are tariffs, and how can they affect the supply chain? 

Let’s discuss these drastic changes coming your way if you’re in this market.

What Are Tariffs? How Do They Shape Global Trade?

Tariffs are indirect taxes also known as custom duties. A tariff is a tax placed on goods when they cross national borders. There are two types of tariffs: import tariffs are the taxes on goods that a country imports and export tariffs are those taxes on goods that a country exports.

Tariffs are imposed either for protection or revenue purposes. They have been used for centuries; in 1789, the first tariff was passed.

These taxes are:

• Calculated based on the tariff classification or commodity code under the HS.
• Harmonized System (HS) is a 10-digit code that determines the duty rate

The Importance of Tariffs? Why They Matter

Tariffs are a crucial key in the world of global trade. In the United States, the Harmonized Tariff Schedule sets over 17,000 tariff codes, each with specific duty rates.

Tariffs increase the price of imported goods, making domestic goods cheaper. The duties are applied by calculating the percentage of the declared value of the goods. Governments impose tariffs to raise revenue and protect domestic industries.

Governments can use tariffs to benefit particular industries, they are also used as an extension of foreign policy to exert economic leverage

A Look Back at the History of Tariff Policies

Tariff policies have always influenced U.S. trade relationships. Among the first acts signed into law by the first Congress was The Tariff Act of 1789. These tariff were abandoned in the mid-20^th Century

The 2019 Tariff announcement proposed tariff ranging from 5% to 25% on Mexican goods, where as in 2020, The United States-Mexico-Canada Agreement (USMCA) announced no tariff on goods between these three countries.

Warnings Given by Economists to U.S. Government

Economists have warned that the rise in tariff policies could push duty rates to levels not seen since the 1930s, stoking inflation, disrupting U.S.-China trade, and forcing businesses to rethink global supply chains. The tariffs risk increasing inflation and can also lead to a slowdown in global economic growth. Companies are hesitating to expand due to the unpredictable logistics environment. There is a risk that the higher costs of imported goods might affect businesses on every level, so keeping this in mind is crucial.

Rising Freight Rates: How Tariffs Influence Supply Chain Expenses

There was a potential impact of higher tariffs on the ocean freight rates for Shanghai to LA and Shanghai to NY over the timeline. Freight rates have always been influenced by several factors which include:

• Global economic trends
• Demand-supply imbalances
• Shifts in trade routes

Not only this, but between December 2023 and July 2024, rates of container shipping between Asia and North America doubled, which resulted in a 1%-2.5% cost increase in imports. Understanding these dynamics is very important for businesses that aim to minimize costs.

Quick Tips for U.S. Importers to Navigate Higher Tariffs

Here are some quick short tips for businesses looking for immediate guidance:

• Build contingency plans.
• Stay informed about trade agreements and tariff changes.
• Work closely with trusted logistics providers.
• Evaluate supply chain costs closely.
• Reduce reliance on one region, instead chose partners from tariff-free countries.
• Use data analytics to forecast risks, costs, and adaptable strategies.
• Utilize Trade programs for cost reductions.

What Strategies Can Be Used to Mitigate Tariff Risks?

The challenges that US Importers have to face this coming time are numerous. To face them proactively you can use these strategies:

1. The first strategy is to diversify suppliers and change the sourcing location. Businesses can do Onshoring, which means moving operations closer to home, it can reduce tariff hikes. Partnering with suppliers of countries that are tariff-friendly can help businesses mitigate supply chain disruptions with less cost.
2. The second strategy is to explore Tariff Mitigation Programs that will decrease the financial impact of tariffs, such as Free Trade Agreements (FTAs) that lower or eliminate tariffs on certain imports, Duty Drawback Programs that help to recover duties paid on imported goods, or by adjusting products classification. 
3. One of the most important and effective strategies is building strong partnerships with suppliers as it helps in cost-saving opportunities, gives flexibility in contracts to adapt new rates, and focuses on suppliers who maintain one-time delivery despite higher rates. Partnering with reliable logistics providers such as TEU Global can make a significant difference, whether it’s the reduction of supply chain risks or the enhancement of agility.
4. You can invest in Data-Driven decisions as it is important when it comes to sudden policy changes. Staying updated about tariff changes, using various tools to identify perfect cost-effective solutions, and planning proactively can help you make informed decisions without things getting out of your hands.

Be Proactive: Take Action as Soon as Possible

Taking action earlier will have many advantages. Higher tariffs need to be dealt with strategies discussed above. These strategies will help the importers protect their supply chain, control the increasing costs, and make operational resilience strong enough in this disrupted market.

For expert guidance, partnering with TEU Global can ensure that all your logistics operations remain competitive.

The Next Step for Importers Against Tariff-Driven Disruptions

Every step in the Global trade system is unpredictable, but you should always be prepared to face any changes that might occur during your transit. Businesses all around the world can survive in this challenging environment by working on multiple strategies, building strong partnerships, and investing in analytics.