With a new presidential administration taking office in January, businesses are preparing for one of the big changes that was talked about on the campaign trail. A promise of tariffs, with the intention to boost domestic production, could in fact end up hurting consumers.
If they are enacted, the tariffs will certainly have a huge impact on supply chains. Here’s a brief overview of what the tariffs can mean, and how much of the data work organizations are already doing can help them prepare for this possible new disruption.
What are tariffs?
Tariffs are not a new idea. A tariff is a tax on foreign-made goods. The companies importing the foreign goods pay a tax to their government; so in this case, a company in the United States importing something from another country would pay a tax to the U.S. government. In the United States, high tariffs were in place up until income taxes became the biggest source of revenue for the country almost 100 years ago. Because tariffs can lead to higher prices for consumers and reduced trade or retaliatory tariffs from other countries (or both scenarios), tariffs have been used less and less over the years.
The potential impact
During his first term in office, Donald Trump instituted tariffs that were mostly left in place by President Joe Biden. President Biden has also increased certain tariffs before leaving office. But President-elect Trump has said that he would impose a 25% tariff on imports from Canada and Mexico, in addition to increasing a tariff on goods imported from China. The tariffs are meant to encourage companies to make their products in the United States; however, in some cases, that just isn’t possible.
The tariffs affect raw materials as well as finished products, and there are some materials that are only available in other parts of the world. That makes it more expensive for some companies to produce goods that use foreign components. That’s why many companies are already making contingency plans that include raising prices. They need to offset the extra money they will have to pay for tariffs to make sure they have the materials they need for production.
How analytics can help
This is where analytics comes in. Many organizations have already done a lot of the same type of supply chain analytics that they will benefit from in the current situation. The pandemic exposed weak points in many supply chains, forcing companies to do full assessments to figure out where all of their materials were coming from and where they might need to find other options for supplies in case of emergency.
A comprehensive analytics solution can bring together all the data an organization has from top to bottom within the supply chain so the best decisions can be made under different circumstances. While many companies were forced to do this type of work in response to the pandemic, others were prepared for that instance because they took proactive steps during the first Trump presidency to deal with those tariffs. Some of the potential solutions analytics can help provide information for include:
- Re-organizing parts of the supply chain. Some companies have significantly reduced their exports from China in response to tariffs.
- Renegotiations. Suppliers are doing their own analytical work, and the numbers might tell them that they don’t want to lose a large company that might have other options. That will lead to situations where a supplier might be willing to take on some costs to offset the impact of tariffs in order to keep their business with an organization.
- Raising prices. For some companies, the only solution might be to pass the cost of tariffs on to the consumers.
Another result of increased prices at big retailers is that off-price retailers can benefit. Stores that already sell goods at a discount could see their business increase, and they might even get away with higher prices as well because of the increase in prices at the bigger stores. In some cases, the off-price retailers might not even be dealing with the tariffs, because many deal in excess inventory from domestic stores.
There is a lot of speculation in the supply chain industry right now. It is hard to know what exactly will be impacted when the new administration takes office. Is it all talk? Will tariffs be levied at a lower percentage than have been threatened?
Organizations are preparing for a scenario that may or may not play out the way they expect. That’s true of a lot of situations in business. The best tool to help an organization play out a variety of scenarios in unpredictable situations is data. Even if you can’t know for certain what is coming, the right analytics solution puts you in the best possible situation to succeed when it’s time to make decisions.
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