For many executives tracking the potential impact on businesses of more than 40 orders issued by President Donald Trump during his first week in office, the experience was akin to drinking from a fire hose — with the exception of tariffs.
Those expecting Trump to impose tariffs right off the bat against Mexico, Canada and China were disappointed. Instead executives concerned about tariffs were left parsing the comments Trump made while signing executive orders about plans to impose tariffs against Canada and Mexico on Feb. 1.
In the face of continued uncertainty, there are still a number of steps that CFOs and finance leaders should be taking to prepare for the anticipated changes to tariff policy, according to KPMG’s Andrew Siciliano, a U.S. national practice leader in the Big Four Firm’s trade and customs practice.
“Until the rules come out it’s going to be hard to pinpoint exactly what the financial exposure is, but I do think companies should be looking at a best and worst case scenario,” Siciliano said in an interview. “It’s still important for companies to determine their financial exposure if [tariffs] are implemented against goods coming from Mexico and Canada.”
Here are five ways CFOs can prepare for the potential rules.
1. Start with the worst case exposure: Collect data on the past volumes and projected volumes of goods flowing to your company from the countries on which tariffs may be imposed, he said. Then determine what the financial exposure is if the tariff is 25% on the full value of the finished good. “That’s your worst-case scenario,” he said.
2. Consider country of origin: Typically, where the components of a good originate is what matters when it comes to tariffs rather than the country that is exporting goods into the U.S., Siciliano said. “Country of origin usually drives it,” he said. That means, for example, that if a product is assembled in Mexico with components from another country, it’s likely only Mexico components and probably the assembly costs that would be subject to any new tariff against Mexico. As such, CFOs need to look at the supply chain and delve into the details of the origin of the goods and what’s being done with it in Mexico before it gets to the U.S. “All those things need to be considered,” he said. “What you don’t want to do is pay the 25% [tariff] on content that could be from other countries and is not subject to it.”
3. Speed up imports from countries targeted for tariffs: Many companies are moving goods into the U.S. early, ahead of the anticipated tariffs and warehousing them here until needed, he said. Costco Wholesale CFO Gary Millerchip is on board with that plan, saying on a December earnings call that the company would look to pull forward inventory buying as well as considering alternative sources for products, CFO Dive previously reported.
4. Explore tariff recovery strategy strategies: If you import a good from Mexico and then ship it to another country like the U.K. you could recover the tariff paid. When China tariffs previously hit, technology companies claimed duty drawbacks and were able to recover nearly all the tariffs if they exported the goods into other countries, he said.
5. Keep up with the news: Stay on top of the developments related to tariffs by watching news, LinkedIn and keeping up with industry associations as well as information available on government websites.
