As trade and tax policies shift, manufacturers and importers must proactively assess supply chains, contracts, cost structures, and tax strategies

By David Zaiken

Although the barrage of stop-and-start tariffs, court decisions and federal legislative budget negotiations has many middle-market manufacturers and distributors who import goods waiting to plan until the dust clears, now is the time to assess supply chain and tax strategies. Facing a range of business, tariff, tax reform, and supply chain issues, executives have much to consider.

Notably, the Trump administration increased tariffs on foreign steel and aluminum June 4, doubling them to 50% from 25%. The higher tariff rate will raise costs for major American companies that rely on steel and aluminum – such as automakers and airplane manufacturers – but small manufacturers will also feel the pinch.

Other enacted tariffs include a 25% tariff on all imported passenger vehicles and light trucks, as well as certain automotive parts; a 30% tariff on most goods from China; and a 10% baseline tariff on most U.S. imports. Although the baseline tariff is under litigation, it has been held allowable by the appellate court. Canada and Mexico goods are currently on hold but could get raised soon amid a detailed review of the tariff codes and qualification.

Know the Details of Your Supply Chain

The question is how to react to the short-term challenges while looking ahead at ‘what-ifs.’ The first step is to conduct a thorough health check and review of your business today. This entails a deeper review of the details of your supply chain and contract clauses. Be prepared to act within the next five weeks.

We suggest manufacturers and importers:

• Understand the supply chain, particularly the country of origin, where duties are being assessed.
• Negotiate with supplier that they will share the cost of the tariff.
• Review with customer if prices can be increased.
• Review the classification of goods and other customs matters. In our discussions with manufacturers, we have seen classification errors that need correcting, so be vigilant.
• Consider purchase of parts and assembly in the U.S., could result in a less costly custom classification.
• Examine your contracts.
• Think about exporting from Canada and Mexico, which are currently exempt from the 10% tariff on all trading partners.
• Examine whether the use of free trade zones or first sale rules makes sense for your business.

Tax Reform: More Complexities to Consider

Tariffs aren’t the only shift businesses must take into account to make strategic business decisions. The tax bill, which has passed the House but could change significantly in the Senate, contains numerous provisions that would have a major impact on businesses. Observers predict passage could take place by July 4, President Trump’s target, or by the August recess. In the meantime, lawmakers are discussing reducing the corporate tax rate to 15% on U.S. manufacturing, although the proposal is not in the bill today. Executives should carefully monitor progress in the Senate over the next three weeks.

As of June 9, the reform proposals include:

• Extending, and in some cases, expanding tax breaks enacted in the 2017 Tax Cuts and Jobs Act (TCJA), which are set to sunset this year.
• Allowing businesses to immediately deduct domestic R&D expenses.
• Reinstating 100% bonus depreciation for property acquired after Jan. 19, 2025, and before Jan. 1, 2030. The bill allows for immediate expensing of “qualified production property” only used for manufacturing purposes, so offices, labs etc., would not be covered. This provision is phasing out, with the deduction at 40% in 2025 and 20% in 2026.
• Basing adjusted taxable income, once again, on EBITDA for tax years between Dec. 31, 2024, and Jan. 1, 2030. It’s currently tied to EBIT for years after 2022.
• Changing the qualified business interest (QBI) deduction to 23% from 20% for pass-through businesses.

Avoiding Costs and Lowering Risk

Tariffs, taxes, and trade policies are shifting rapidly – and while the legal landscape is uncertain, your response doesn’t have to be. By developing a sound strategy, you can be ready to implement once the tax and tariff rules are finalized.

Start by asking yourself: What is our process for handling a changing supply chain and tax environment? If the answer is “We’re waiting to see what happens,” you’re exposing your business to unnecessary risk – and potentially avoidable costs. Tariffs aren’t theoretical. When that shipment arrives, someone pays.

You don’t need to predict the future – you need to prepare for it to give you leverage. Let’s talk about how you can plan for the variables in your cost structures, supply chain, and tax strategy.