Understanding Tariff Impacts on Trade Deals

Given the flurry of news articles about different responses to tariffs (especially as the end date for the 90-day pause on reciprocal tariffs approaches), I'm sure many folks (both in industry and academia) are struggling to wrap their heads around this topic. To aid in developing collective understanding, Yao J., David L. Ortega, and I worked together to coauthor a study titled, "Shock and Awe: A Theoretical Framework and Data Sources for Studying the Impact of 2025 Tariffs on Global Supply Chains" that can be freely downloaded from Journal of Supply Chain Management at this link: https://lnkd.in/gFHEpsdp. Below I've reproduced the diagram central to the framework we advance. A few words: •The crux of our framework is that changes in tariff levels cause firms to experience demand or supply shocks, which in turn can trigger a variety of behaviors (e.g., exporters reducing prices or shifting goods to other markets). These behaviors can be legal or represent misconduct (e.g., falsifying country of origin). While certainly not encouraging such behaviors, they will need studied (e.g., as in https://lnkd.in/gw5gQtPH). •Different actions result as importers make tradeoffs between (i) adjustment costs [e.g., the cost of shifting tooling from one country to another], (ii) transaction costs [e.g., the cost of teaching new suppliers how to produce your goods], (iii) adjustment costs for early action [e.g., reduced conformance quality while new suppliers move down the learning curve], and (iv) opportunity costs for late response [e.g., failing to shift production results in available capacity in alternative sourcing locations being captured by rivals]. •In general, I've been very pleased with how well subsequent news stories (e.g., https://lnkd.in/guMCCgrm) can be mapped to the theory we advanced. Implication: For anyone interested in understanding how firms are responding to tariffs in industry or academia, I suggest giving this paper a read. It's nontechnical and provides, to the best of my knowledge, the most holistic framework yet advanced for understanding this complex topic. #supplychain #shipsandshipping #supplychainmanagement #markets #economics #logistics #transportation

𝗖𝗠𝗢’𝘀 𝗣𝗲𝗿𝘀𝗽𝗲𝗰𝘁𝗶𝘃𝗲: 𝗖𝗮𝗻 𝗖𝗣𝗚 𝗯𝗿𝗮𝗻𝗱𝘀 𝗽𝗿𝗼𝘁𝗲𝗰𝘁 𝗺𝗮𝗿𝗴𝗶𝗻𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗻𝗲𝘄 𝘁𝗿𝗮𝗱𝗲 𝗿𝗲𝗮𝗹𝗶𝘁𝘆? (Welcome to 2nd Trump Tariffs Era) Tariffs are back, and they are hitting the bottom line harder than ever. With new trade barriers on China, Canada, and Mexico, CPG brands face a triple threat: rising costs, shrinking consumer demand, and disrupted supply chains. But here’s my question: Are we playing defense, or are we strategically pivoting? From what I can see, data tells us a clear story. Historically, high tariffs = lower trade competitiveness. Let's take a look at the U.S. Average Tariff Rates (1821-2016) and trade balance trends: ✅ When tariffs were high (pre-1940s), trade was limited, and the U.S. maintained a surplus. ✅ Post-1945, lower tariffs (via GATT & WTO) fueled economic expansion and trade growth. ❌ After the 1971 Bretton Woods collapse, trade deficits deepened as low tariffs persisted. 🚨 Today, reintroducing high tariffs could lead to cost-driven inflation, supply shocks, and loss of global competitiveness. ++ 𝗪𝗵𝗮𝘁 𝗧𝗵𝗶𝘀 𝗠𝗲𝗮𝗻𝘀 𝗳𝗼𝗿 𝗖𝗣𝗚𝘀 & 𝗗𝗶𝗴𝗶𝘁𝗮𝗹 𝗖𝗼𝗺𝗺𝗲𝗿𝗰𝗲 ++ - Higher Input Costs → Tariffs on raw materials (aluminum, steel, packaging) increase COGS, cutting into margins. - Consumer Price Sensitivity → Higher shelf prices = lower demand. Consumers switch to private labels, local substitutes, or DTC (Direct-to-Consumer) models. - Erosion of Market Access → Retaliatory tariffs make U.S. brands more expensive abroad, favoring European and Asian competitors. - Disrupted Global Supply Chains → Companies must rethink sourcing, warehousing, and last-mile logistics. ++ 𝗖𝗠𝗢 & 𝗖𝗙𝗢’𝘀 𝗣𝗹𝗮𝘆𝗯𝗼𝗼𝗸 𝗳𝗼𝗿 𝗡𝗮𝘃𝗶𝗴𝗮𝘁𝗶𝗻𝗴 𝗧𝗮𝗿𝗶𝗳𝗳𝘀 ++ 1️⃣Pass-Through Pricing? Be Selective. Don’t just raise prices. Instead, optimize pack sizes, value-tiered offerings, and bundling strategies to maintain affordability. 💡Data-driven pricing elasticity is key—test price sensitivity before making abrupt hikes. 2️⃣ De-Risk Your Supply Chain Nearshoring & Friendshoring → Reduce tariff exposure by shifting suppliers to Mexico, Vietnam, and Eastern Europe instead of China. 💡Dual-sourcing strategies ensure supply continuity amid trade wars. 3️⃣ Digital Commerce is the Safety Net DTC & eCommerce are the antidotes to tariff turmoil. 💡Selling via Amazon, Shopify, or localized fulfillment centers avoids tariff-heavy distribution routes. 💡Localized production + micro-fulfillment hubs = reduced cross-border shipping costs. 4️⃣ Work Capital & FX Strategy Matters More Than Ever Hedging currency risks & cash flow forecasting is critical when tariffs disrupt inventory costs. 𝗧𝗼 𝗮𝗰𝗰𝗲𝘀𝘀 𝗮𝗹𝗹 𝗼𝘂𝗿 𝗶𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗳𝗼𝗹𝗹𝗼𝘄 ecommert® 𝗮𝗻𝗱 𝗷𝗼𝗶𝗻 𝟭𝟯,𝟱𝟬𝟬+ 𝗖𝗣𝗚, 𝗿𝗲𝘁𝗮𝗶𝗹, 𝗮𝗻𝗱 𝗠𝗮𝗿𝗧𝗲𝗰𝗵 𝗲𝘅𝗲𝗰𝘂𝘁𝗶𝘃𝗲𝘀 𝘄𝗵𝗼 𝘀𝘂𝗯𝘀𝗰𝗿𝗶𝗯𝗲𝗱 𝘁𝗼 𝗲𝗰𝗼𝗺𝗺𝗲𝗿𝘁® : 𝗖𝗣𝗚 𝗗𝗶𝗴𝗶𝘁𝗮𝗹 𝗚𝗿𝗼𝘄𝘁𝗵 𝗻𝗲𝘄𝘀𝗹𝗲𝘁𝘁𝗲𝗿. #tariffs #CPG #FMCG #CMO

We’re not debating policy—we’re interpreting the math. In international trade, numbers speak louder than opinions. Too often, people talk about tariffs, duties, and VAT as if they're theoretical or "projected" costs. But when you're exporting to markets like Brazil, Colombia, or India, you're dealing with real, current costs—not forecasts. And those costs are shaping the global trade conversation, especially around the idea of reciprocity. Before forming a perspective on trade policies, it’s worth understanding what’s actually happening at the ground level. Not politics. Not the speculation. But the hard numbers. If you're in export, logistics, or policy analysis, this checklist should be your starting point: ✔ Break down duty + VAT + fees for each country ✔ Know your Total Landed Cost (TLC) inside out ✔ Use tariff databases to benchmark real costs ✔ Track how those costs impact product competitiveness ✔ Separate data interpretation from policy opinions The math is already there. You just have to know where to look. #GlobalTrade #SupplyChainStrategy #InternationalBusiness #ExportInsights #TradePolicy #TariffsAndDuties

Tariffs are back—and they’re not just a geopolitical headline. They’re a financial variable. This is going to be a core topic of discussion among corporate finance professionals for the foreseeable future, so let’s break it down… Yesterday, the White House rolled out a sweeping package of new trade measures, including significant tariffs and new levies across a range of sectors. The move — pitched as a broader effort to “rebalance” international trade — immediately sparked fear of retaliation threats from the EU and China, and market reactions were swift—futures dropped, gold spiked, and companies are already seeking tariff exemptions for critical parts. But let’s step back and understand the fundamentals… What exactly is a tariff—and why should finance professionals care? At its core, a tariff is a tax on imports. It’s imposed at the border and often framed as a way to protect domestic industries. But the implications go far deeper than politics: • It’s a cost input. Tariffs increase the landed cost of imported goods. That shows up in a company’s COGS, pricing decisions, and eventually EBITDA margins. • It shifts behavior. Companies re-engineer supply chains to avoid tariff exposure, which requires upfront capex, long lead times, and often introduces new geopolitical risk. • It fuels inflation. When tariffs are applied at scale, price pressures increase. That forces central banks—already walking an inflationary tightrope—to reevaluate the balance between growth and price stability. • It distorts markets. Tariffs can introduce artificial winners and losers, masking underlying fundamentals and complicating investment theses. So while these tariffs may sound like just another policy headline, it’s anything but. It’s a tax, a signal, and a catalyst—all rolled into one. This isn’t just a trade story. It’s a margin story, a volatility story, and—if it continues—a move that will impact everything from the price of your next car to global commerce infrastructure and the health of the economy. #Tariffs #TradePolicy #GlobalEconomy #CorporateFinance #RiskManagement #Inflation #BusinessStrategy #Tax #Finance #Leadership

The Trump administration's recent announcement of tariffs on European Union imports is set to shake up trade relationships across the U.S. As businesses and policymakers brace for potential disruptions, some states may feel the impact more than others. Which States Could Be Most Affected? According to import data, South Carolina and Kentucky stand out as particularly vulnerable. Both states rely heavily on imports from Germany and Ireland, which are key EU economies. South Carolina, for instance, has a strong automotive sector with deep ties to German manufacturers like BMW and Mercedes-Benz. Kentucky, on the other hand, imports pharmaceutical products from Ireland—a crucial supply chain for its healthcare and biotech industries. If tariffs increase costs on these imports, businesses in these states could face higher production expenses, supply chain disruptions, and potential job losses. Potential Scenarios: 1. Higher Prices & Supply Chain Delays: If tariffs increase the cost of German and Irish imports, companies may pass these costs onto consumers or face lower profit margins. 2. Shifts in Trade Partnerships: Some businesses may look to alternative suppliers outside of the EU, such as Canada, Mexico, or Asia, to mitigate cost increases. 3. Increased Domestic Production: Tariffs could encourage domestic manufacturers to scale up operations, though this transition would take time and require significant investment. 4. Retaliatory Tariffs: The EU could respond with its own tariffs on U.S. exports, potentially impacting American industries like agriculture, aviation, and technology. With the last one we can have an open trade war which will not benefit the US or the EU. Only China. If the U.S. imposes tariffs on the European Union, both regions will need strategic solutions that mitigate economic harm while fostering long-term trade stability. Here are win-win solutions that could benefit both the U.S. and the EU: 1. Bilateral Trade Negotiations Rather than escalating tariffs, the U.S. and EU could enter negotiations to revise trade terms on specific industries (e.g., automotive, pharmaceuticals, and agriculture). A tariff reduction agreement could be pursued in exchange for more balanced trade policies, ensuring fair market access for both sides. 2. Targeted Exemptions & Industry-Specific Deals The U.S. could grant sector-specific tariff exemptions to industries that rely on European imports, such as pharmaceuticals from Ireland or auto parts from Germany. In return, the EU could lower existing tariffs on key U.S. exports. 3. A New U.S.-EU Trade Agreement Instead of escalating trade tensions, both the U.S. and EU should leverage this moment to modernize their trade relationship. A balanced approach—combining strategic exemptions, investment incentives, and cooperative agreements—would strengthen both economies while avoiding unnecessary trade disruptions. #Trade #Economy #Policy #economics #politics

The 1930 Smoot-Hawley tariffs initially boosted revenue and protected jobs. Then came the retaliation that crashed global trade 66%. 📉 As today's tariffs reshape e-commerce, history offers crucial lessons on how negotiation might avoid past mistakes. Enacted amid economic turmoil in 1930, the Smoot-Hawley Tariff Act dramatically raised duties on over 20,000 imported goods. Its intentions were reasonable: protect struggling American farmers from foreign competition, preserve manufacturing jobs, and boost government revenue. Initially, it appeared somewhat successful. In late 1930, factory payrolls increased, construction contracts rose, and industrial production saw temporary upticks. Government tariff revenue initially climbed as expected. But these early wins masked deeper problems. Within months, 25+ countries retaliated with their own tariffs targeting American exports. Canada (our most loyal trading partner) immediately imposed duties on 30% of U.S. exports. European nations established trade blocs that excluded American goods entirely. A devastating trade war had begun. The results were catastrophic: 📉 U.S. imports fell 66% (1929-1933) 📉 U.S. exports collapsed 61% in the same period 📉 Global trade contracted by two-thirds 📈 Unemployment soared from 8% to 25% Perhaps most telling: both Senator Smoot and Representative Hawley lost their seats in subsequent elections as the policy's failure became evident. Fast forward to 2025. Today's tariffs—including elimination of the "de minimis" loophole and new duties on imports—represent another attempt to rebalance global trade. The market reaction has been swift and severe. However, unlike 1930, there's reason for cautious optimism: 1. Modern communication enables faster negotiation and compromise 2. Economic interdependence is far deeper today 3. Business leaders now understand tariff impacts better 4. The initial shock may prompt more reasonable baseline negotiations How can brands adapt in these uncertain times: ⛴️ Develop parallel sourcing options while mapping highest-margin products to highest-risk supply lines first. 💰 Recalibrate your allowable CAC based on new unit economics, while watching for efficiency opportunities in ad auctions as major players potentially pull back spending. ⏰ Extend supplier payment terms and implement JIT inventory strategies for tariff-impacted categories to preserve cash for potential supply chain restructuring. 💬 Frame necessary price adjustments around quality and reliability rather than tariff impacts, testing subscription models to lock in loyal customers at pre-tariff pricing. The coming months will likely bring intense trade negotiations, hopefully establishing a more nuanced approach that protects domestic interests without triggering the catastrophic chain reaction of 1930. For today's e-commerce leaders, the opportunity lies in building adaptive business models that can thrive regardless of how the trade landscape evolves.

What are Fashion Companies really doing to offset the impact of Tariffs? (Spoiler: It's much more than just moving sourcing out of China.) Tariffs remain a critical factor in fashion logistics and finance, but the strategies brands use to mitigate them continue to evolve. As we navigate the current trade risks, here’s a look at the sophisticated approaches companies are employing: - Diversifying Sourcing Strategically: The shift continues. While China represented 37% of U.S. fashion imports in 2018, current trends and projections place that closer to 26% for 2025. This involves not just moving, but building robust vendor relationships across diverse regions and fostering capabilities like cut & sew in emerging markets. - Disciplined Inventory Management: Smart planning via open-to-buy strategies is key to limiting overstock, minimizing markdowns, and protecting margin. Less inventory means fewer surprises—and less risk of deep discounting. - Tariff Engineering & Trade Program Mastery: Proactively redesigning products, adjusting materials, or changing assembly methods to qualify for lower duty rates. Simultaneously, maximizing the benefits of Free Trade Agreements (FTAs) and other preferential trade programs. - Optimizing Freight Costs: From maximizing PO efficiency to fully utilize ocean containers, to consolidating shipments at origin and securing favorable contracts, companies are focused on driving down freight costs and eliminating avoidable fees like detention and demurrage. - Rethinking Incoterms for Flexibility: Exploring various incoterms, including modified DDP (Delivered Duty Paid) variations, allows for more adaptable cost-sharing agreements between buyers and sellers. However, some incoterms come with varying degrees of risk. - Leveraging Bonded Warehouse Strategies: Using bonded warehouses allows importers to defer duty payments until goods enter the domestic market. This improves cash flow and better aligns tariff expenditures with actual consumer demand. - Implementing Strategic Surcharges / Cost Sharing: While often complex, some companies are implementing targeted tariff surcharges or negotiating specific cost-sharing mechanisms with supply chain partners to mitigate direct margin hits transparently. Similar to how we think about fuel surcharges and freight. What tariff mitigation tactics are proving most effective for your business right now? Share your insights in the comments below! #FashionIndustry #SupplyChain #GlobalTrade #Tariffs #Sourcing #Logistics #ImportExport #RetailStrategy #CostManagement #FashionBusiness #ApparelIndustry

The Double-Edged Sword of America's Low Tariff Policy The global landscape of trade barriers reveals a striking pattern: while tariffs have declined worldwide over recent decades, significant disparities persist between nations. The United States stands out for maintaining some of the world's lowest tariff rates, a policy that creates both opportunities and challenges for the American economy. American consumers benefit substantially from this approach, enjoying access to foreign-made goods with minimal additional costs. This keeps prices competitive and expands consumer choice. However, this openness is not reciprocated uniformly by America's trading partners. Many major economies impose considerably higher tariffs on American exports, creating an unbalanced playing field. This asymmetry produces a troubling dynamic. When foreign nations levy substantial tariffs on American products, their citizens are effectively incentivized to purchase domestically-produced alternatives. American manufacturers consequently face barriers to entering these markets, limiting their potential customer base and revenue streams. While lower consumer prices represent a tangible short-term benefit, the long-term implications deserve careful consideration. When American producers cannot achieve sufficient sales volumes or profit margins in foreign markets, they may struggle to generate the capital necessary for research and development. This constraint on innovation capacity could prove especially damaging in today's rapidly evolving economic environment. In the 21st century, where technological advancement and innovation drive economic growth and competitiveness, policy decisions based primarily on immediate consumer benefits may ultimately undermine America's industrial vitality. The ability to develop next-generation products and services requires substantial investment, which becomes increasingly difficult when facing persistent tariff disadvantages abroad. The challenge for policymakers lies in balancing the immediate benefits of low-tariff policies against the potential long-term costs to America's innovative capacity and industrial strength.

Global Sourcing Challenges in Retail: Insights from the Field I recently had an insightful conversation with a Senior Buyer at a major retail chain. Their team is working against the clock to shift sourcing out of China in response to potential tariff increases, which could significantly impact their cost structure and consumer prices. Here’s what I learned: Tariff Impact Strategy: If tariffs increase by 10%, their factory plans to absorb the cost. For increases between 10%-30%, the cost will be shared. Anything above 30% will inevitably pass to consumers. Resourcing Challenges: A recent trip to India highlighted limited improvements in processes and technology at local factories, making it difficult to scale production effectively. Domestic logistics also remain a bottleneck, with consistent delays and poor feedback from transportation teams. Balancing Costs & Service Quality: They’re grappling with the trade-off between low-cost solutions and service reliability, especially as missed delivery windows pile up. Lead times aren’t being extended, which further compounds costs and complexity. Looking ahead, they anticipate significant hurdles. If tariffs force a full exit from China, sourcing costs will rise, and consumer prices may follow suit—a challenge that will require innovative solutions and collaboration across supply chain networks. This conversation underscores the complexities of global trade and the ripple effects of economic policies. It's a reminder of the resilience and adaptability required to navigate today’s supply chain landscape. How are you preparing for these challenges in your industry? I'd love to hear your thoughts!

Unpopular Opinion: We Have an Import Addiction! "Liberation Day" or whatever you want to call yesterday Is making us all panic and focus on the wrong things. News stories with fear-inducing headlines: "Sweeping Tariffs Debilitating Stocks!" "Tariff Wars & Instability Intensify!" "What You Need to Know Now!" "Everything Will Cost More!" I spent a good two hours this morning, Searching for and analyzing data on goods From companies and countries, we trade with. My biggest takeaway from all the data was bleak. We don't have a #tariffs problem (despite the new ones). We have a problem with how our trade policy works. We have a problem of importing much more than What we export to 80% of our trade partners. Our imports are 48% higher than exports. We are being charged heavy tariffs by Developing countries for our goods. Now, that's not a problem by itself. It is a common phenomenon. The problem lies at the core: Demand elasticity of goods. Our imports fall into three major categories: 1. Critical goods with inelastic demand. --> Tariff increases will not reduce demand. --> Prices increase; suppliers don't lose much. --> Tariffs on many of these products unchanged. --> Fairly urgent need to find domestic producers. 2. Regular goods with normal elastic demand. --> Tariff increases will affect demand of these. --> Suppliers and buyers both need to negotiate. --> Cost differences may end up splitting equitably. --> Many export & import exchanges will occur here. 3. Non-essential goods with highly elastic demand. --> Tariff increases are hitting these goods the hardest. --> Suppliers stand to lose a lot more than consumers do. --> Quantity demanded of these goods will drop significantly. --> Key aspect of our import addiction comes from these goods. Actionable Insights: 1) Domestic producers should focus on the inelastic items. 2) Products: 9/10 imports are also our top export items. 3) Exporters from the USA: recalculate the real costs. 4) Importers in the USA: renegotiate the contracts. 5) Short term discomfort is almost guaranteed. 6) Give up the reliance on "cheap" imports! Follow Dr. Kruti Lehenbauer & Analytics TX, LLC for #PostitStatistics #PostitSaveit #Economics #DataScience Insights to grow and manage SMBs and your career!