With President Trump’s recent announcement that he signed an interim trade deal with China aimed at reducing, or eliminating, a portion of tariffs imposed on Chinese-manufactured goods, in exchange for China’s cooperation in making certain economic reforms, what legal strategies can you employ to protect your business?
- Review Your Current Contracts: Take inventory of which products are impacted by existing tariffs.Just because a product or component is sourced from China doesn’t mean it falls under a tariff.Become educated about the classification of products and components.Review any clauses in your agreements that address Incoterms, particularly your responsibility for risks associated with export and tariffs.
- Diversify Your Supply Chain: Calculate the overall financial impact of your current agreements where you are responsible for tariffs, and note the percentage of your business that these company agreements contribute to.This will allow you to make informed decisions about continuing forward with these companies, versus diversifying your supply chain and sourcing the same or similar products from other companies.Educate yourself about potential secondary and tertiary suppliers you can utilize, and engage with them now, so long as your contract does not prohibit you from doing so.You’ll want to stay nimble in the event tariffs increase and the burden of continuing to do business becomes financially irrational.When executing agreements with new supply chain partners, be sure to include the tariff provisions suggested below.
- Re-Negotiate Your Current Agreements: Review your current contracts and highlight areas of potential negotiation.What are you willing to forego in order to request reduced, shared, or eliminated responsibility for tariffs?In the alternative, how can you grab additional revenue streams from your supplier?One area you may want to consider is marketing.Your supplier may have the ability to tap into another budget to offset the cost of the tariffs for you, by investing additional marketing dollars into your programs.
- Implement a Bulk Buying Arrangement: Increase your minimum orders and negotiate with the suppliers for a lower price.By buying more, you can absorb the tariff and continue to be competitive in the marketplace.
- Assign Tariff Exemption Responsibility to the Supplier: Include language in your agreements that shoulders the burden of pursuing tariff exemptions to the supplier.Applying for a tariff exemption can be a burdensome and time-consuming process, and many tariff exemptions are denied for lack of completeness, or insufficient information.If the supplier pushes back, or refuses, modify this language to require mutual shared responsibility in applying for, and receiving, all applicable exemptions.There are professionals you can hire to do this for you, and you can agree to share the cost of their services.
- Include A Tariff Cap in Your Contracts: Include language in your new agreements that addresses and cap tariff risks.One option is to agree that once a tariff is increased a set amount, such as 3%, you will receive a price adjustment rebate or credit.A second option is to agree on periodic price adjustments, such as monthly, or quarterly, to compensate for rising or falling tariffs.By sharing the risk, you are both accountable for keeping your partnership running in a mutually beneficial manner.
You should consult with your attorney before applying any of the above suggested strategies to your business practices. A seasoned attorney will ensure that any language drafted is adequate, and protects your business interests appropriately. The above tactics are a snapshot illustration of several other techniques that can be utilized. Please feel free to reach out and schedule a call if you’d like to discuss your legal options in more detail, and learn about additional opportunities for your business.
Andrea A. Tarshus, Esq. began Tarshus Law Firm @Tarshuslaw.com in 2015 to fill a void in the legal ecosystem: efficient, accessible, and fair in-house and General Counsel legal services for business owners. Her engagements regularly include business legal startup paperwork, negotiating and executing contracts, administering internal legal and operational controls, and creating legal documents that protect the company’s best interests.
This article is intended to be informational in nature, should not be relied upon by the reader without consultation with an attorney, and does not create an attorney-client relationship between the author and reader.