The New Trump Tariffs
Tariffs are a powerful tool for reshaping international trade and protecting domestic industries. However, their effects invariably ripple across entire supply chains, impacting foreign manufacturers, importers, wholesalers, retailers, and ultimately, consumers.
With the latest Trump tariffs now in play, businesses must navigate new economic realities, legal pitfalls, and strategic challenges. This post explores the expected ramifications of these just announced tariffs, highlights the key legal risks to avoid, and outlines various actionable strategies for businesses looking to safeguard their supply chains amid ongoing trade volatility.
A Tariff Tidal Wave Sweeping Across the Supply Chain
Tariffs trigger a chain reaction, distributing costs across every level of the supply chain.
While critics often claim that consumers bear the full brunt, past tariff rounds have shown that the impact is more widely spread. Manufacturers, importers, wholesalers, retailers, and consumers all absorb part of the burden. The key for your business is to take proactive steps to minimize exposure and shift the costs elsewhere.
Because most of my law firm’s clients are product buyers from China, Mexico, and Canada, this post will focus on how companies sourcing from overseas can handle these new tariffs in the most cost-effective way possible.
Before diving into strategies, let’s first examine how each player in the supply chain is impacted by tariffs.
Foreign Manufacturers
When the U.S. imposes tariffs, foreign manufacturers in affected countries—such as Mexico, China, and Canada—face immediate pressure. Their goods become more expensive for American buyers, threatening their market share. Historically, most manufacturers absorb at least some of the tariff costs by lowering prices, but for industries already operating on thin profit margins, this strategy is often unsustainable.
From my experience during President Trump’s previous tariff rounds on Chinese companies, nearly all Chinese manufacturers—when pushed correctly—substantially lowered their prices for our clients. This happened for two key reasons:
- The Chinese Yuan depreciated, automatically reducing the price in U.S. dollars.
- The Chinese government provided increased subsidies, allowing factories to offset the tariff impact.
If you’re buying products from China, you should aggressively negotiate with your suppliers to ensure they absorb as much of the tariff cost as possible. However, these negotiations must be handled strategically and correctly—otherwise, you risk long-term supply chain issues. For detailed guidance on how to do this safely, I strongly recommend reading How to SAFELY Reduce Your China Product Prices.
The Mexican Peso, Canadian Dollar, and Chinese Yuan have all declined in value over the past month, further impacting pricing dynamics. This currency depreciation presents a window of opportunity for buyers to push for even greater price reductions from their Mexican, Canadian and Chinese manufacturers.
Since 2017, I have strongly advised American (and other) companies to reduce their reliance on Chinese manufacturing. That remains imperative, as China’s relations with the United States and the Western World continue to deteriorate with no signs of improvement. See e.g. Would the Last Company Manufacturing in China Please Turn Off the Lights.
However, until there is greater clarity on viable tariff-free alternative manufacturing hubs, and until we see whether the just-announced tariffs will hold, I do not recommend rushing to relocate operations just yet.
For what it’s worth, I believe the 10% increase on China tariffs will remain in place—and could even rise further over time. However, I expect tariffs on Mexico and Canada to be lifted within 60 days.
I anticipate that both Mexico and Canada will negotiate agreements with the United States that limit their economic ties with China in exchange for a reduction or elimination of their tariffs.
Importers
U.S. importers must decide whether to absorb tariff costs or pass them down the supply chain by negotiating with suppliers and raising prices for wholesalers and retailers. Some will be forced to absorb all or most of the tariffs themselves, while others may try to pass the costs down the supply chain by negotiating lower prices with suppliers and increasing prices for wholesalers and retailers.
But as I described above, the key is usually to push back hard on your manufacturer—especially if that manufacturer is Chinese.
Wholesalers/Sourcing Companies
Wholesalers are caught in the middle—often the first to be cut when businesses look for cost savings. During the last Trump tariffs, many companies bypassed wholesalers to import directly.
For China-based sourcing agents, this often revealed massive markups. Our clients found that Chinese sourcing companies that were claiming a 5-10% commission were actually taking 45-100%.
Moreover, in virtually every case, the Chinese manufacturer was eager to eliminate the sourcing company and offered significant price reductions, often exceeding the impact of the tariffs. This was because the manufacturer could now share the cost savings directly with the American or foreign company buyer, while still making more than before.
If you are using a Chinese sourcing company, I strongly urge you to investigate eliminating them, as doing so may greatly lower your costs—even after factoring in tariffs. However, this process must be handled correctly, or you could face serious supply chain and legal issues.
For more on how sourcing agents impact pricing and how to navigate this transition safely, check out Sourcing Agents When Manufacturing Overseas: The Long Version.
Retailers
Retailers, both large and small, typically operate on thin profit margins, making tariff-related cost increases a serious challenge.
- Large retailers—such as Walmart—have strong buying power and will likely leverage their size to negotiate better deals.
- Smaller businesses, however, may struggle to absorb costs. Many will reluctantly raise prices, risking customer attrition.
In the last round of Trump tariffs, many large corporations secured exemptions while many smaller businesses struggled—or even shut down. This highlights why small and mid-sized businesses must be proactive in navigating tariff challenges.
Others will reassess their supply chain strategies, scrutinizing who they source from and looking for ways to tighten up purchasing processes.
During the last round of tariffs, many of our retail clients—both brick-and-mortar and online—used the tariffs as an opportunity to reassess their sourcing strategies. By optimizing their buying processes, they were able to reduce or at least stabilize their costs, despite the tariffs.
Regardless of your business size or role in the supply chain—whether you’re an importer, wholesaler, or retailer—it is critical that you stay informed on tariff developments. Working with international trade law experts can help you navigate risks, secure exemptions, and implement strategies to protect your bottom line.
Consumers
Ultimately, some of the burden will trickle down to consumers, but the extent of the impact will vary. Several factors—including how much of the tariff cost manufacturers absorb, how effectively importers negotiate price reductions, and whether retailers pass on cost increases—will determine how much consumers feel the effects.
While some businesses will successfully offset tariff-related cost increases, others will be forced to raise prices on everyday goods, from electronics and clothing to cars, avocados, and household appliances. Instead of sudden spikes, consumers may experience gradual price hikes, depending on how businesses adjust their sourcing strategies and pricing models.
Strategies for Reducing Your Tariffs
The following are some of the strategies businesses will likely be able to employ to reduce their tariff burden and protect their profit margin.
1. Product Exclusion Requests
Companies will likely be able to petition for specific products to be excluded from tariffs, with success likely depending on being able to demonstrate the following:
- That the product is not available from domestic suppliers.
- That the product requires specialized foreign expertise.
- That domestic suppliers cannot meet demand.
It is not yet clear which of the above will work with the recent tariffs, but if past performance is any guide, some or all of these will likely become solutions for some
2. Tariff Engineering (Legal Avoidance)
Accurate product classification under the Harmonized Tariff Schedule (HTS) is crucial, as tariff rates vary significantly based on HTS codes. During the last round of tariffs, our international trade lawyers helped numerous companies properly classify their products to avoid tariffs or determine how to modify their products to qualify for tariff-free classifications.
Virtually all products from China, Mexico, and Canada are now subject to tariffs, but this could change as trade negotiations evolve.
To eliminate or minimize your tariff exposure, consider working with international trade counsel to explore the following strategies:
Harmonized Tariff Schedule (HTS) Classification Review: Regularly review the HTS classification of your products to ensure they are classified correctly and that you are taking advantage of any applicable preferential tariff rates.
Product Modifications: Modify product design or features to qualify for lower tariff rates while ensuring compliance.
Utilization of Free Trade Agreements (FTAs): If your products qualify, utilize FTAs to reduce or eliminate tariffs. This requires careful adherence to the rules of origin and other FTA requirements.
Duty Drawback Programs: Explore duty drawback programs, which allow for the refund of duties paid on imported goods that are later exported.
Free Trade Zones (FTZs) and Bonded Warehouses: Utilize FTZs or bonded warehouses to defer or eliminate tariffs on products that will later be exported.
3. Country of Origin Adjustments and “Substantial Transformation”
The “substantial transformation” principle determines a product’s country of origin for tariff purposes. If a product undergoes significant modifications in another country, it may qualify as originating from that country—even if some components were originally sourced elsewhere.
Legally shifting a product’s country of origin can be a legal way to avoid tariffs, but the rules are complex. Simply adding a minor component in another country is not sufficient—the product must undergo substantial transformation to qualify.
During the last round of Trump tariffs, my law firm’s international trade and customs lawyers helped multiple companies strategically restructure their supply chains to ensure their products met the substantial transformation criteria, allowing them to legally avoid China tariffs. With this new wave of tariffs, we anticipate doing the same for products from Mexico, Canada, and China.
However, based on what we saw during the first round of Trump tariffs, many Chinese companies will encourage illegal transshipping as a workaround. It is imperative that you do not engage in this practice, as it carries severe risks, including substantial fines and even criminal liability.
For more details on what constitutes substantial transformation, check out Tariffs Against China Products: A Roadmap on What YOU Should Do Now.
To understand the massive legal risks of illegal transshipping and how it can backfire, see Illegal Transshipping Can Make YOU Rich: Meet the False Claims Act, where we discuss how we helped several clients collect millions of dollars by working with the U.S. Government in a case that resulted in $62.5 million in penalties for illegal transshipping violations.
4. Supply Chain Diversification
Sourcing from tariff-free countries can help reduce risk, but it requires a careful assessment of costs, lead times, product quality, and ethical sourcing practices. As I mentioned earlier, current uncertainties make major supply chain shifts premature. However, now is the time for companies to proactively research potential suppliers in countries like Vietnam, India, Thailand, Peru, Guatemala, Costa Rica, and Puerto Rico.
5. Negotiating with Suppliers
As discussed above, you should negotiate strategically with your current suppliers in Mexico, Canada, and China to ensure they share at least some of the tariff burden with you.
6. Force Majeure & Contractual Protections
Tariffs can disrupt existing contracts, leading to supply chain delays, cost increases, and potential legal disputes. To mitigate these risks, businesses should have their international legal counsel review any force majeure clauses to determine whether tariffs could qualify as an unforeseen event that may excuse contract performance. Since force majeure laws vary significantly across countries, it is crucial to work with legal experts who understand the laws of all relevant jurisdictions to ensure proper contract protection.
Additionally, modifying existing contracts (or drafting new ones) to include price adjustment clauses in contracts can help account for tariff fluctuations, ensuring that sudden cost increases do not disproportionately impact one party. It also may make sense for your contracts to clearly define responsibilities for tariff costs to avoid disputes and unexpected financial burdens.
Taking a proactive approach to your contract management will help your business adapt to tariff challenges, protect profitability, and maintain supply chain resilience in what has become an increasingly unpredictable global trade environment.
Conclusion: Navigating the New Trade Landscape
Tariffs don’t exist in isolation—they often trigger retaliatory measures and escalate into trade wars. The latest U.S. tariffs have already prompted counter-tariffs from China, Mexico, and Canada, disrupting global supply chains and impacting industries worldwide.
To stay competitive, businesses must assess their exposure, anticipate changes, and take proactive steps to minimize disruptions. Those that adapt quickly will be in a stronger position to protect profitability and maintain supply chain resilience.
I’ll never forget one of our clients who, back in 2016, made the bold decision to exit China entirely, even though all ten of its suppliers were there. It took them a year to fully transition, but by leaving way before their competitors, they became the low-cost leader in their market and avoided China’s COVID-era supply chain chaos. Today, their market share has grown by more than 15%, and their profitability has significantly increased. Their decision to relocate was a game-changing strategic move.
The global trade environment is unpredictable, and tariffs are here to stay. Companies act now—rather than reacting later—will gain a competitive edge.
Tariffs are here to stay, but you probably don’t have to absorb the full impact. Let’s talk.