Tariffs - What to Do to Prepare
As Trump’s potential new tariff policies loom on the horizon here are a few steps that companies can take to prepare for the changes and minimize the impact:
1. Diversify the Supply Chain: Relying too heavily on China for apparel production has been a risky strategy in recent years. Diversifying the supply chain is crucial. Companies should start evaluating alternate sourcing options in countries with favorable trade relations.
2. Reassess Pricing Strategy: The additional costs from higher tariffs could force companies to adjust their pricing. Depending on how tariffs are structured, companies may need to determine if they can absorb the increased cost or pass it on to the consumer. A careful review of pricing elasticity and market conditions will be important for making this decision.
3. Invest in Automation and Innovation: The larger retailers’ automation in manufacturing could help offset some of the cost increases associated with tariffs. Companies should explore new technologies that improve efficiency, reduce labor costs, and help offset tariff-related increases in production.
4. Stockpile Inventory: In anticipation of tariff hikes, some apparel companies may want to stockpile raw materials or finished goods at lower tariff rates to buffer against future price increases. While this is not a long-term solution, it can provide some short-term relief.
5. Monitor Legislative Developments: Tariff policy can change quickly, and companies need to stay informed about any new legislation or policy shifts. A proactive approach to understanding tariff negotiations and adjustments can help companies make informed decisions about when to source or bring in additional stock.
6. China Back Up Supply Chain: China is a great location to manufacture certain types of products. If choosing to stay in China work with a manufacturer that already has experience and a proven track record of producing the same types of products in alternative countries of origin (for example if producing a technical jacket in China, it would be best to work with someone that can produce the same item in Vietnam).
7. Act: The likelihood of new tariffs being imposed is extremely high. If you are wanting to diversify start talking to new potential suppliers now. Depending upon the suppliers competency you can positively impact Q2 2025.
Articles of Interest
https://www.nytimes.com/2024/11/08/us/politics/trump-tariffs-china.html
https://www.cnn.com/2024/11/08/economy/steve-madden-china-trump-tariffs/index.html
https://www.cnbc.com/2024/11/12/trump-tariffs-companies-scramble-lobbyist-loopholes.html
https://www.yahoo.com/news/trump-ups-ante-tariffs-vowing-001501760.html