How accountants can help their clients weather the trade war
October 10, 2019
Accountants and financial professionals are trusted advisors to their clients. But sometimes, the best path to advise isn’t always clear.
The ongoing trade war between the United States and China has created uncertainty and fear for businesses on both sides. Tariffs are increasing costs, disrupting supply chains, and upending carefully laid strategic plans. A culture of uncertainty and frustration is derailing business as usual.
The number and amount of tariffs imposed by the US and China in this trade dispute has been steadily rising since April 2017, arguably when tensions began. (Brush up on your history with this handy timeline).
Escalating tensions and tit-for-tat tariffs are beginning to affect business here and abroad. In July alone, American companies paid $6.8 billion in tariffs, the highest monthly total in US history. Approximately $3 billion of that total is from tariffs imposed in the past year by the current administration.
All of these tariffs are beginning to hit businesses where it hurts: their bottom line. Your clients may have been forced to raise prices, adjust their supply chain to find suppliers in more affordable areas, or swallow the tariff fees out of pocket. Even domestically focused industries are feeling the pinch through indirect consequences like slowing consumer spending and retaliatory actions by Chinese companies.
So, what can accountants do for their clients suffering the effects of tariffs?
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While it may sound obvious, the best solution for your clients is to not pay any tariffs at all. No, it’s not a pipe dream; tariff exemptions do happen.
Tariff exemption requests are more likely to be granted if your client can’t source a product from anywhere else. If any other company has already secured an exemption, your client has an even better chance of escaping tariff-free.
Here’s a list of tariff exemptions that have been granted. The Department of Commerce handles requests for steel and aluminum tariffs, and the U.S. Trade Representative (USTR) handles requests for imports from China. Encourage your clients to apply for a tariff exemption here.
Keep in mind that many proposed tariffs aren’t actually applied. Some political threats are simply that: threats which may or may not come to fruition. As well, some products have had the proposed 10% tariff removed due to health, safety, national security, and other factors.
Be sure you know what is fact and what is hype when discussing trade wars. Despite the doom and gloom headlines, the situation might not be as dire as your clients believe.
Source strategic supply chains
Changing tariff fees means changing global supply chains. A small difference in suppliers can translate into a big difference for your client’s bottom line. As a financial professional, you’re uniquely positioned to help your clients optimize their supply chain in the age of trade wars.
Map it out
Identify precisely where your client’s current supply chain is. This can be done manually, or there are a variety of software options. Ask your client; they may already have a detailed map of their supply chain.
Tariffs are categorized using specific HS codes for each material. US tariff rates are published in the Harmonized Tariff Schedule, while the WTO provides information for member countries with the Tariff Download Facility tool. Identifying precisely where tariffs are taking the biggest bite out of your client’s bottom line can help you provide the best cost saving advice.
Occasionally, it’s either too expensive or not feasible to change suppliers, even when taking into account additional tariffs. However, there might be other opportunities for your clients to reduce their costs.
Are there tasks done in-house that could be outsourced? Do you see any inefficiencies in inventory management or the manufacturing process? Can any general or administrative expenses be reduced? As your client’s trusted financial advisor, you need to ensure they have all of their options on the table.
Unfortunately, tariffs mean that some businesses must relocate their supply chains to stay profitable. If your clients are importing raw material that has been hit by tariffs, research the cost of sourcing that material from a nearby region. For example, if they are importing aluminum from China, it may be cheaper to source it from the US, Mexico, or other countries in the Asia-Pacific region.
Advise clients to outsource their manufacturing to a country where their products are already being sold. A few plane tickets to research production facilities abroad will be cheaper in the long run than paying expensive tariffs.
But perhaps your client is unwilling or unable to change suppliers or manufacturers. After all, good business relationships can be hard to find, and even harder to maintain.
Advise your clients to renegotiate deals with their suppliers with tariffs in mind. Their supplier may be able to take on some of the tariff burden. While it’s your client paying the tariff, their suppliers will feel the impact as it becomes more difficult to find buyers for their tariffed goods.
Encourage your clients to shop around to find the best supplier that is willing to work with them in this new era of global trade conflicts.
Urge your clients to consider stockpiling key supplies before a tariff takes effect. While this option isn’t feasible for everyone, it can provide a short term safeguard if tariffs were imposed on an essential material. However, be careful not to go overboard: you don’t want to create cash flow issues, cause unnecessary storage costs, or negate the benefits of just-in-time manufacturing.
Fintech solutions to rising tariffs
Veem, a global payment network, was designed with small businesses in mind. Seeing the pain caused by rising tariffs on international goods, Veem created the Tariff Relief Program.
Businesses can receive up to $10,000 toward verified tariff fees incurred on goods purchased using Veem’s global payment network. The program is free, but businesses must submit customs forms demonstrating the tariffs they have paid.
We're giving $10,000 to businesses affected by tariffs. Let us help you, here.
In uncertain economic times, business operations are easily derailed. Businesses, accountants, bookkeepers, and even consumers are feeling the pinch. Encourage your clients to sign up for the Tariff Relief Program to stabilize their cash flow, weather the storm, and get back to business as usual.