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Tariff alert: The impact on middle market consumer products businesses

RSM’s ongoing insights on global trade developments

INSIGHT ARTICLE  | 

Global trade volatility has been the mainstay in the last half of 2018 and will likely continue into 2019. How are these trade announcements and retaliations affecting middle market consumer products businesses, and equally as important, what should companies do to stay ahead of the economic impact of tariff outcomes?

At RSM, our consumer products industry professionals continue to monitor this issue and will provide periodic analysis to help our clients and contacts understand the implications as well as provide ways to address shifting trade policies.

Check back with us frequently for updates. For now, here’s what we know.

what's happening?

Trade tensions escalate with China
On July 6, a tariff of 25 percent went into effect on certain Chinese goods entering the United States. On the same day, China retaliated by implementing tariffs on a list of U.S. goods entering China. In response, on July 10, the Trump administration made an announcement to evaluate 6,031 products imported from China. Under this, an estimated $200 billion in goods would be subjected to a 10 percent tariff effective sometime after Aug. 30. This latest announcement impacts consumer products such as textiles, leather products, cosmetics, small appliances and food products (including certain fish, fruits and vegetables), just to name a few. Businesses can submit written comments on this most-recent announcement by Aug. 17. Meanwhile, China has filed a complaint with the World Trade Organization to protest these latest tariffs by the United States.

WHAT DOES THIS MEAN?

Keep a watchful eye
Presently, the volleying trade policies may not have a significant, overall macroeconomic impact on the U.S. economy; however, if tensions continue to escalate into a full-scale global trade war, the result could be a meaningful decrease to the United States’ gross domestic product. Still, because of the composition of the items subject to tariffs and the complexity of the current supply chain of most middle market businesses, it is difficult to estimate what the effect might be to any one industry or sector. As a result, each business, including those in the consumer products space, should evaluate the potential impact as it relates to their specific sector and business. For instance, a tariff’s impact on pricing is a major area of concern for consumer products companies. An evaluation of your own pricing strategies, supplier costs and margin management is essential during this period to anticipate possible pricing pressures in the future.

Also, again on a more macroeconomic level, because of the push and pull of trade policies, this environment may create newer trade opportunities for the United States to consider, like a free trade agreement with the United Kingdom, for instance. We’ll continue to monitor these and other developments.

WHAT CAN YOU DO?

Assess your current state
To stay ahead of the potential Aug. 30 tariff tax deadline, for now, consider the following:

  • Review all imported and exported products in your business to ensure accuracy of the country of origin and Harmonized Tariff Schedule (HTS) code to avoid paying any future unnecessary taxes and tariffs in incorrect jurisdictions.
  • Consider requesting a product exclusion for goods that would impact your business. The request period ends Oct. 9, 2018.
  • Assess your supply chain costs by considering options like renegotiating costs with existing suppliers or finding alternative supplier sources to ensure competitive costs.
  • Evaluate whether a product price increase is needed by performing market research and assessment to determine how your customer base will react to such increases.
  • Reach out to relevant trade organizations and business advisors to understand how others within the consumer products industry might be affected by the tariffs and to get further insights on helpful business practices countering tariffs’ effects.

Questions? Contact us for further insights and help.


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