How Manufacturers Can Manage Tariff Risk: Strategies to Reduce Costs and Supply Chain Disruptions

Manufacturers who import raw materials remain concerned about tariffs and their potential impact on costs and supply chain stability. While there’s no one-size-fits-all solution to reduce risk, there are practical steps manufacturers can take to protect their margins and maintain operations. Below, we outline three key tariff-related risks and offer strategies to help reduce exposure in both the short and long term.

1. Increased Material and Component Costs

Impact:

Tariffs on imported raw materials, such as steel, aluminum, and electronic components, can drive up input costs, shrinking profit margins, and forcing price increases.

Actions:

• Source domestically or from non-tariff countries: Shift procurement strategies to include U.S.-based or non-tariffed suppliers whenever possible.
• Negotiate long-term contracts to lock in prices with suppliers ahead of potential tariff increases.
• Reengineer products: While not a quick fix, redesigning products to use alternative or less heavily tariffed materials can help lower costs over time.

2. Supply Chain Delays and Disruptions

Impact:

Tariffs often trigger customs bottlenecks, increased inspections, and re-routed shipments, all of which can delay production schedules.
Actions:

• Increase safety stock: Build up inventory of critical components, especially those with long lead times or difficult-to-source materials, to buffer against delays.
• Diversify suppliers: Reduce reliance on single or sole-source vendors located in tariffed regions.

3. Unpredictable Forecasting and Planning Challenges

Impact:

Tariff volatility makes it difficult to accurately forecast production costs, inventory needs, and pricing.

Actions:

• Use scenario-based planning: Model best-, worst-, and most-likely tariff scenarios to prepare for a range of outcomes.
• Improve supply chain visibility: Invest in software that tracks cost and logistics data in real-time to support faster decision-making.
• Review tariff classifications: Ensure the correct Harmonized Tariff Schedule (HTS) codes are used, and investigate any potential exemptions or exclusions.

Understanding the Basics of Tariff Application

To better manage risk, manufacturers should be familiar with how tariffs are applied. The tariffs applied are based on many factors. The following list is not intended to be exhaustive of all criteria for using tariffs on imported materials.

• Harmonized Tariff Schedule (HTS) Classification: Each product has a 10-digit HTS code, which determines the applicable tariff rate.
• Country of Origin: The country where a product is manufactured or substantially transformed affects whether it’s subject to tariffs.
• Customs Value: This is the declared value at the U.S. border, sometimes called the transaction price, and serves as the basis for calculating duties.

Need Help Navigating Tariff Risk?

Tariffs can create uncertainty, but your risk management strategy doesn’t have to. Our team works with manufacturers to identify vulnerabilities, improve supply chain resilience, and protect margins. If you’d like help reviewing your exposure or exploring insurance and risk transfer options tailored to your operation, contact us today to start the conversation.