Strategies for Businesses to Navigate Tariff Challenges Without Increasing Prices

Companies confronted with steep tariffs face a significant decision: should they transfer these additional costs to their customers?

Although this approach seems straightforward, it carries drawbacks.

Kristin Bohl, a partner at PwC specializing in customs and international trade, highlights numerous strategies to manage tariffs without resorting to price hikes. Her top recommendations focus on three tactics: reclaiming, postponing, and minimizing.

Reclaim Paid Tariffs

Bohl advocates for paying tariffs initially, then recovering those costs through refunds.

She explains, "If you import items to the U.S. and later either export or destroy them, you can apply for a duty drawback, potentially recovering up to 99% of the import duties."

This tactic proved notably successful for companies with specific conditions during the initial phase of China's tariffs under Trump.

However, Bohl warns net-importing firms might find this strategy more complex.

Moreover, not all tariffs qualify for duty drawback. For example, the early 10% to 20% tariffs on China and Hong Kong and the 25% on Canada and Mexico are ineligible.

Postpone Tariff Payments

Companies can explore methods to delay tariff payments.

Options like bonded warehouses or foreign trade zones enable companies to import goods into the U.S. but defer duties until the goods reach the consumer market, as Bohl clarifies.

"If you choose to re-export, you'll avoid paying these tariffs entirely. Even if sold domestically, this deferral offers a cash flow advantage."

Lower Tariff Costs

Bohl suggests companies examine ways to cut expenses linked to tariffs.

By exploring options like transfer pricing or segregating charges, firms may lower tariff liabilities.

She advises, "Evaluate whether you can separate non-dutiable elements from the declared price to lower your customs valuation."

As tariff reduction requires collaboration across departments, it remains a focal point for many businesses.

Diverse Solutions for Varying Situations

Beyond these core strategies, Bohl acknowledges a wide array of other approaches.

"These solutions range from quick-to-implement, reversible strategies to those needing substantial time and resources."

Executives must determine which strategy aligns best with their unique business context.

"There's no universal answer: it varies greatly based on product type, industry, and customer base size," she notes.

One potential long-term strategy is relocating production to countries with favorable tariff conditions, or back to the U.S.

"Either shift production to a location without tariffs, which is becoming increasingly scarce, or manufacture domestically," Bohl suggests.

Companies can engage suppliers in sharing part of the tariff burden, further mitigating costs.

Currently, many PwC clients focus on short-term strategies while cautiously evaluating long-term options amidst prevailing uncertainties.

Illustrating the landscape of uncertainty, Trump recently announced a temporary halt on escalated tariffs for approximately 60 trading partners.

Meanwhile, a general 10% tariff persists, with China's tariffs heightened to 125%.