Time to read: 5 min

In light of the big shift we will see on January 20th, 2025, with the 47th President re-taking the helm and a slew of Executive Orders forthcoming, I decided to sit down and talk to our Logistics Chief here at Fictiv, Mr. Vinny Licata.  I wanted to understand how we might help our customers navigate the current and potential Tariff changes that will occur. President-elect Trump said today he will bring additional tariffs on slowly.  But slow or fast the impact will be there.

Based on that, Vinny and I decided to whiteboard out key best practices and approaches and proceeded to build out this handy dandy “Tariff-Proofing your Supply Chain Reference Guide” based on what we know right now with updates to follow as things change.

Vinny is an expert with over 25 years of supply chain experience, holding leading roles at Fairchild Semiconductor, Diebold Nixdorf, and Sensormatic (a div of Johnson Controls). With all this experience Vinny comes to the table with, combined with the information I have gleaned from my latest customer conversations, my time working at Jabil, Dell and HP we put our experience and heads together  to present it here to you.

Please note: Every shop we work with is different of course, and these approaches may not be applicable or advisable for everyone, but at this important juncture we thought it might help guide you at the very least.

Enjoy and good luck!

If you’re building highly engineered products, mitigating tariffs requires strategic planning across supply chain management, trade compliance, and manufacturing processes. Here are key strategies:

1. Leverage Free Trade Agreements (FTAs)

  • Utilize Regional Manufacturing: Assemble or source components from countries with FTAs in your target market (e.g., USMCA for North America, EU agreements, or ASEAN).
  • Understand Rules of Origin: Ensure your product qualifies for reduced tariffs under FTA rules, often requiring a percentage of the value or production from partner countries.

2. Optimize Product Classification (HS Codes)

  • Accurate Classification: Ensure your product’s Harmonized System (HS) code is correct. Misclassification can result in unnecessarily higher duty and potential delays.
  • Disaggregated Classification: Break down complex products into components that might attract lower tariffs individually than the complete product.

3. Use Duty Drawback and Tariff Exemption Programs

  • Duty Drawback: Claim refunds on tariffs for imported materials/components if the final product is exported.
  • Temporary Import Programs: Utilize programs like bonded warehouses or free trade zones where materials can be imported, manufactured, and re-exported without paying duties.

4. Source Strategic Materials and Components

  • Low-Tariff Components: Source critical components or raw materials from countries with low or zero tariffs in your destination market.
  • Material Substitution: Replace materials subject to high tariffs (e.g., aluminum or steel) with alternatives (e.g., composites or other metals with lower duties).

5. Relocate or Diversify Manufacturing

  • Nearshoring: Move manufacturing to countries with favorable trade agreements to minimize tariff exposure.
  • Multi-Country Assembly: Spread production across countries to avoid triggering tariffs on finished goods while leveraging tariff-free component imports.

6. Apply for Tariff Exclusions

  • Section 301/232 Exclusions (for the U.S.): If your product uses components subject to special tariffs (e.g., from China or steel imports), apply for exclusions based on lack of domestic alternatives or critical need.
  • Essential Goods Waivers: Check if your product qualifies for exemptions under programs prioritizing strategic industries (e.g., medical devices, aerospace).

7. Invest in Trade and Supply Chain Technology

  • Customs Software: Use software to optimize HS code classification, track duty drawback eligibility, and manage FTA compliance.
  • Blockchain Tracking: Provide transparency in your supply chain to demonstrate compliance with rules of origin or sustainability requirements.

8. Re-Engineer Your Product

  • Localize High-Tariff Components: Redesign your product to manufacture the most tariff-impacted components locally in the target market.
  • Re-design –  design your product to meet a HTS classification with a lower duty rate
  • Modular Assembly: Ship products in modular, semi-finished states to benefit from lower tariffs on individual parts versus the entire product.

9. Advocate for Tariff Reductions

  • Industry Coalitions: Collaborate with industry groups to lobby for tariff reductions or exemptions on specific goods or materials critical to your product.
  • Government Programs: Engage with programs that support innovation-driven industries (e.g., clean tech, aerospace) and may offer tariff relief.

10. Engage Trade Experts

  • Customs Brokers: Work with experts to identify opportunities for tariff mitigation.
  • Trade Attorneys: Consult legal professionals to comply with international trade laws and challenge unfair tariff assessments.

Case Example

Aerospace Manufacturer Mitigation Strategy:

  • Sources composite materials from countries with FTAs to avoid high aluminum tariffs.
  • Uses duty-free zones for component assembly.
  • Applies for tariff exemptions under strategic industry programs.
  • Ships parts modularly, avoiding tariffs on fully assembled aircraft components.

By integrating these strategies, you can significantly reduce the tariff burden and improve your product’s competitiveness in global markets.

To minimize tariffs when manufacturing or importing products, the choice of materials can play an essential role. Strategies to avoid higher tariffs involve a mix of material selection, country of origin, and product classification under international trade agreements. Here’s how material choice can help:

11. Tariff Rates by Material

  • Natural Materials: Products made from natural materials like wood, cotton, or leather often have lower tariff rates than synthetic alternatives. However, this depends on the importing country’s trade policies.
  • Recyclable or Sustainable Materials: Some countries offer preferential tariffs for eco-friendly materials or recyclable goods to promote sustainability.
  • Specific Materials: Certain raw materials (e.g., steel, aluminum, plastics) may have high tariffs due to trade disputes or anti-dumping duties. Avoid these materials if they are heavily tariffed.

12. Country of Origin Rules

  • Preferential Trade Agreements: Some materials might qualify for lower tariffs or duty-free treatment under Free Trade Agreements (FTAs) or regional trade arrangements (e.g., NAFTA/USMCA, EU FTAs, or ASEAN agreements). Using materials sourced from countries within these agreements may reduce tariffs.
  • Local Content Requirements: To qualify for tariff reductions under FTAs, ensure a certain percentage of the material originates from the partner country.

13. Customs Classification

  • Harmonized System (HS) Code: Accurate classification of your product using HS codes is critical. Some materials have favorable classifications that attract lower tariffs.
  • Product Processing: Some tariffs are lower for raw materials or unprocessed goods than for finished products.

14. Special Tariff Exemptions

  • Duty Drawback Programs: In some countries, tariffs on imported materials can be refunded if the final product is exported.
  • Government Incentives: Some materials may qualify for lower tariffs or exemptions under government incentive schemes (e.g., materials for manufacturing renewable energy equipment).

Examples of Low-Tariff Materials

  • Textiles: Cotton or wool may attract lower tariffs compared to synthetic fibers.
  • Metals: Base metals like copper might have lower tariffs compared to steel or aluminum, depending on the country.
  • Plastics: Certain biodegradable or recycled plastics might qualify for lower duties.
  • Natural Wood: Untreated or unprocessed wood might have lower tariffs than treated or manufactured wood products.

Key Takeaway:

Research the tariff structure of your target market and consider using either less tariffed materials or qualify for exemptions through trade agreements or sustainable practices. Consulting a trade compliance expert or customs broker can provide tailored advice for your product.