Trump’s first tariffs

On 22 January 2018 the United States imposed tariffs on imported washing machines and solar panels. Two specific, limited products, but with a larger meaning: it was the first step in a trade war that would intensify over that same year and would end up affecting many other sectors and countries. Washing machines and solar panels were, by their size, only a first chapter, and companies with international supply chains were right to read it as such.

The decision mattered less for its size than for what it announced. The world’s largest economy was beginning to use tariffs as a tool of trade policy. For any company that buys or sells beyond its borders, the message was clear: the rules of international trade could change quickly. That sense of fragility is itself a relevant change: anyone planning several years ahead needs to know which rules will apply, and a new tariff casts doubt on all the others.

What a tariff is

A tariff is a tax paid when a product is imported. It makes foreign goods dearer than local ones and, in doing so, protects domestic producers at the expense of the buyer. Its effect is not confined to the product taxed: it alters prices, supply chains and expectations.

Formally it is paid by the importer, but the usual outcome is that part of the cost is passed on to the final customer or cuts the margin of some company in the chain. The affected country may also respond with measures of its own, so an isolated tariff tends to become a series of crossed decisions. That is why it is worth understanding the mechanism before it reaches your own company. Understanding who pays and who benefits in each case helps anticipate the reactions of suppliers, customers and competitors.

A signal more than a measure

These two categories were a limited field in themselves, but the decision pointed to a change of direction in the trade policy of the world’s largest economy. Companies that buy or sell beyond their borders had to assume that the rules of the game could tighten quickly.

Signals of this kind have an effect of their own on decisions: those planning an investment, signing a long contract or choosing a foreign supplier do so with less certainty. The measure need not affect them today; it is enough that it might tomorrow. That uncertainty is a cost, even if it appears on no invoice, and it justifies keeping an eye on how the trade climate develops. Following news from one’s own sector, and not only general news, makes it possible to spot in time which products are in the firing line.

Preparing the supply chain

For a business owner, the practical question is how much of the cost depends on imported components, which countries they come from and what price-review clauses the contracts contain. Identifying alternative suppliers and reviewing delivery times reduces the impact of a sudden change. Already having contacts with two or three alternative suppliers, even if nothing is bought from them yet, greatly shortens the time to react when conditions change.

It is also useful to talk to customers before the problem appears: to agree how extra costs would be shared, how much notice would be given before prices change and what happens if delivery conditions change. A contract that anticipates these situations avoids arguments at the worst moment. And a foreign-trade adviser can help assess whether the company is more exposed than it seems. Doing this exercise once a year, with purchase data by country of origin, is a modest investment of time for very valuable information.

Trade measures are announced quickly; adapting a supply chain takes time, which is why it is wise to start early.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.