Navigating US Import Tariffs: 3 Key Challenges to Watch Out For

TLDR: This article outlines three key challenges US small businesses face due to new import tariffs: managing cash flow disruptions, increased administrative complexity, and the need for strategic tax planning to mitigate costs. Practical solutions include diversifying supply chains, enhancing financial forecasting, consulting trade experts, and staying informed of changes.

If you’re a small business owner in the US, you’ll have heard about the new import tariffs being introduced. They’ve dominated the news, and there’s been lots of debate over which countries they apply to, who foots the bill, and how it’ll affect American companies.

This has caused a lot of anxiety for business owners. If you’re feeling this, too, one way to feel some relief might be to better understand what these import tariffs mean, and how they’ll affect your business. 

To make this easier, we’ve written this guide outlining the challenges you might face, and help you understand how to react to these challenges. By the end of this blog, you should have a better understanding of the import tariffs that have been proposed, and have some guidelines to work with when navigating these new waters.

What is an import tariff?

An import tariff is essentially a tax on goods imported from other countries. Sometimes a tariff will be country-specific, and sometimes they’re based on the product's classification.

For example, the US government has recently announced country-specific tariffs against Canada, Mexico, and China. But they’ve also announced plans to impose a tariff specifically against steel and aluminum. The first tariff will only affect the countries specifically mentioned, whereas the steel and aluminum tariff will affect any country those metals are imported from.

Tariff rates can vary by a lot between different countries and categories, ranging from a few percent to more than 25%.

Who pays the tariff?

The tariff has to be paid by the importer of the goods. That means that if you’re importing goods from a country with an active tariff, you’ll have to pay more for the same products.

The only way around this is to switch to a supplier from a non-tariff country (unless the products fall under a product classification tariff). But this isn’t always possible, so in some cases the choice will be between reduced profits, or passing the cost on to the customers.

Key import tariff challenges

Challenge 1: Managing cash flow

One way import tariffs can affect your business is by disrupting your cashflow. Tariffs raise the cost of imported goods, which hits your bottom line.

These changes to your costs can also impact your financial forecasting. Especially right now as the tariffs change and evolve.

Overcoming the challenge:

• Diversify and optimize your supply chain: If possible, try to source products or materials from multiple countries to reduce tariff reliance. Explore domestic alternatives if available, and negotiate payment terms and bulk discounts with your suppliers.
• Strategic financial management: Enhance the accuracy of your cash flow forecasting with scenario planning.
• Pricing and cost adjustments: Implement dynamic pricing to more closely reflect market conditions, reduce non-essential expenses, and postpone non-critical investments.

Challenge 2: Increased administrative complexity

The next challenge you’re likely to face is an extra layer of admin complexity. You’ve got new requirements to be aware of, implement, and keep track of.

Where previously your focus would have been on tracking sales tax and regulatory requirements, you now also have to be mindful of import tariffs. Starting with whether or not it’ll affect you. 

There might also be some extra work to make sure your finance and reporting tools are set up correctly to accommodate the new tariff calculations.

Overcoming the challenge:

Here are some ways you can reduce the administrative load that comes with the new tariffs:

• Proactive management: Conduct regular internal compliance audits and develop a systematic tariff monitoring process. This includes talking with suppliers about product origins and preparing for tariff costs.
• Knowledge and expertise: You also need to train your staff on new tariff regulations, consulting with customs brokers and trade compliance specialists.
• Strategic supply chain optimization: Review and explore diversifying where you source your products. Evaluate alternative production or assembly locations, and try to build flexibility into procurement strategies

Challenge 3: Strategic tax planning for tariff mitigation

To reduce some of the financial impact of tariffs, it helps to optimize your tax strategies. This can include refining where you operate and where you source products from.

But this isn’t a straightforward process!

You’ll need to get to grips with the complexities of global taxes, decipher diverse tax laws, and stay up to date with evolving tax policies and trade agreements. 

Shifting supply chains or production locations might be the solution, but they can have huge tax implications, so you need to assess and understand the long-term financial benefits of any change.

Overcoming the challenge:

• Expertise and education: Hire or consult with specialists in international trade, and attend workshops and webinars on global tax strategies. If available, consult resources from industry groups for tax planning and tariff updates.
• Adaptable supply chain: Identify alternatives in countries with favorable agreements, and consider dual sourcing to reduce reliance on single suppliers or regions.
• Collaboration and networking: Share knowledge and resources within the business community and seek support and information from local chambers of commerce.

Real experts, not mindless software

Our focus at TaxValet is helping you with sales tax compliance, but we know how much the new tariffs will impact companies like yours. Because of this, we’re looking for any way we can help you reduce the impact of the tariffs on your business.

In the meantime, plenty of apps and software companies will promise to solve all your tariff problems for you, but this just lulls you into a false sense of security. Just like sales tax, working with real experts is the only way to be certain you’re getting your import tariffs right.

We hope this guide has helped you feel better about the new import tariffs, and if you need help with your sales tax, you know where to find us.

Want us to take care of your sales tax so you have one less headache on your plate? Book a free consultation to see how TaxValet’s team of experts can help.