Businesses facing President Donald Trump’s aggressive tariffs have a key question to answer — do we pass the cost onto customers?
Doing this doesn’t solve every problem for businesses and, in some cases, can alienate cost-conscious shoppers.
Kristin Bohl, a PwC partner for customs and international trade who is leading the Big Four firm’s tariff advisory work, told Business Insider that there are many options to mitigate tariffs while avoiding price increases.
While there are numerous options, three of Bohl’s top tips for surviving tariffs can be summarized as: refund, defer, and reduce.
Get a refund
Bohl said that one option was to pay the tariffs but get a refund.
“If you import your products here in the US and you subsequently export or destroy those products, you can claim duty drawback, which is up to a 99% refund of the duties paid at import,” she said.
Bohl said this was an extremely effective strategy for companies that had the requisite fact pattern during the China tariffs implemented during Trump’s first term.
For businesses that are net importers, this option would be more challenging, she added.
Bohl also cautioned that not all tariffs are subject to duty drawback — the tariffs introduced in February, the 10% that got amped up to 20% on China and Hong Kong, as well as the 25% on Canada and Mexico wouldn’t be eligible.
The new universal and reciprocal tariffs are eligible, she said.
Delay payment of the tariffs
Businesses can look into how to defer paying tariffs.
Things like bonded warehousing or foreign trade zones allow businesses to bring products into the United States but defer the payment of duties and fees until a product gets withdrawn for consumption in the US, the PwC expert told BI.
“If it gets re-exported, you never pay the tariffs. But if it does get consumed here, you’ve at least deferred your payment, so there’s a cash flow benefit.”
CHARLY TRIBALLEAU/AFP via Getty Images
Reduce the amount of tariffs
Bohl’s final suggestion was that businesses look at how to reduce costs that incur fees under tariffs.
Consider things like transfer pricing or unbundling to determine whether adjustments can be made to ultimately pay lower tariffs, she said.
“When you import something today, and you declare your price, can you unbundle from that price things that are not considered dutiable and not part of your customs value?” Bohl said.
Reducing is a point of focus for a lot of companies because it requires a lot of different departments in a company to be a part of the discussion.
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There’s no ‘one-size-fits-all’ fix
Outside these three key areas, Bohl emphasized that there was a broad spectrum of potential solutions.
“There are myriad strategies ranging from short-term, no regrets, easy to unwind all the way up to pretty significant investments of both time and money to get those things up and running.”
Leaders have to sit down and work out where on that spectrum they fall, she said.
“It is absolutely not a one-size-fits-all answer. There is huge variability depending on your products, your industry, and the size of your consumer base,” she said.
One long-term option is to move manufacturing to countries with lower tariffs or even the US.
“Either move your production or sourcing to a country that doesn’t have tariffs, which quickly just became nowhere, or you manufacture here in the US,” said Bohl.
Businesses can also have conversations with their vendors about their ability to work together to absorb some of the tariff cost.
Right now, the PwC leader said most clients are focused on short-term solutions. They are thinking about long-term options but weren’t making long-term moves “because of the uncertainty,” she told BI.
As if to underline that uncertainty, on Wednesday, Trump announced a 90-day pause on the higher tariff rates he introduced for roughly 60 of the US’s trading partners last week.
A blanket 10% tariff remains on most countries, and tariffs on goods for China have been raised to 125%.
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