Tariff Talk: Navigating the shifting sands – strategies for building resilience

The US Tariff regime has thrown global trade into a new era from which there appears to be no turning back. As we reflected in our initial analysis of the situation, businesses need to act rapidly to assess the implications, reviewing the impacts across their supply chains, customer contracts and financial forecasts.

Ending on 9 July, the introduction of a 90-day pause, during which most countries will be on the baseline reciprocal tariff rate of 10% (with potential increases based on the outcome of high-stakes behind-the-scenes individual country and trade bloc negotiations), has eased the immediate pressure for now – but there is still an urgent need to act, and what happens between now and then is yet to be determined. Indeed, this hiatus provides an opportunity to take ‘no-regrets’ actions and formulate mitigation plans and strategies.

What stage have businesses got to?

Tim Sarson

Partner, UK Head of Tax Policy

KPMG in the UK

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Arran Thoma

Director, Indirect Tax

KPMG in the UK

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A webinar which we held during the last week of April was unsurprisingly well-attended given the high importance of this topic to rafts of businesses – and it was clear from a poll we conducted during that event that most businesses have indeed sprung into action.

The question we posed at the start of our webinar was: “Given the U.S. Tariff announcements, what are the next steps for your business?”

The results were:

a) Understand tariff impacts – 60.2%

b) Tariff scenario modelling – 28.2%

c) Supply chain redesign – 11.7%

It is not surprising that the majority of businesses are in the first stage of understanding the impacts – but the fact that more than 10% are considering supply chain redesign even at this stage in the game is quite staggering. It underlines the enormity of what is going on.

A key message during the webinar was that the counter action to volatility in this environment is for businesses to take proactive steps to bolster resilience. Short-term actions include reviewing supply chains and optimising operations to minimise tariff impacts. Mid-term strategies involve investing in technology and exploring new markets, while longer-term plans focus on repositioning and diversifying suppliers.

Another key message is that this is about more than just tariffs on the final sale of your product. It potentially affects all the layers of your supply chain, with different nuances in different sectors, and with implications beyond the short term.

What are the sector-specific impacts and opportunities?

Different industries are feeling the impact of these tariffs in unique ways. The automotive sector, for example, faces challenges in accessing its biggest market with agreements for reduced tariff rates only applying to the 100,000 vehicle quota. The pharmaceutical industry, with its cross-border operations which can see products criss-crossing borders multiple times, must contend with potential standalone tariffs that could significantly affect costs.

Retail, although not a major US export market, is deeply intertwined with global supply chains, particularly those connected to China. The removal of the $800 de minimis threshold for Chinese goods adds another layer of complexity, affecting margins and pricing strategies, notwithstanding contractual obligations which are signed and sealed months or years in advance.

These impacts don’t only affect your business’s costs and customers. They could even raise ‘going concern’ risks to suppliers that your business relies on (for example, if that supplier is based in China) as well as balance sheet implications on inventory.

What actions can you take right now?

Our clients have been asking us for a comprehensive checklist to guide them through these challenges, emphasising the importance of visibility, scenario planning, and strategic alignment. By understanding the true cost to serve and leveraging global networks, companies can turn uncertainty into opportunity.

We divide areas to consider into three pillars: Operations and Commercial which includes areas such as supply chain visibility, contracts and channels to market; Tax and Compliance which includes customs, VAT and transfer pricing; and Governance and Finance which includes legal and regulatory considerations, financial budget and capital, and risk governance.

Across each of these, here are some of the key things to think about:

Operations and Commercial
- Try to gain proper visibility on your supply chain, including physical, financial, process, and decision-making flows.
- Consider modelling scenarios using technology and digital tools that can be tweaked dynamically to give you an indication of potential impact.
- Really get to understand your commercial relationships with suppliers, including Incoterms and Tier 1, 2, and 3 suppliers.
- Manage supply chain disruptions using ‘control tower’ approaches and integrate AI alerts into real-time planning and decision making.
- Think about your focus on customer ordering patterns, lead times, and Incoterms; prioritise collaboration.
- Check your dynamic pricing - calculate the true cost to serve, including tariffs, transfer pricing, and regulation costs.
- Leverage past experiences, such as Brexit, to inform current strategies rather than reinventing the entire wheel.
Tax and Compliance
- Closely examine which classifications you give your products as these really matter now, and model against different scenarios.
- Use this as an opportunity to review your end-to-end customs processes and take control where you’ve outsourced key aspects such as Customs Self-Filing to third parties.
- Consider the impact of transfer pricing on governance, intellectual property, and corporation tax.
- Think about how you can you use optimisation measures in other areas of tax such as VAT and capital allowances to offset the impacts from tariffs.
Governance and Finance
- Try to develop a full understanding of the economic implications of global trade and commodity pricing.
- Develop a clear strategy for financial planning assumptions.
- Ensure alignment of sales, operational, supply, demand, inventory, and financial planning.
- Strategically place stock and amend logistics flows; consider localisation strategies.
- Maintain supply chain focus on the board agenda, ensuring C-Suite and NEDs are kept informed.
- Engage with your auditors and advisers early to obtain their perspectives on risks and potential mitigations.

Key actions

With all of these factors in mind, essential actions to take now that will help you establish the big picture impacts and actions required include:

Map your supply chain (physically, financially, and in terms of decision-making).
Run scenarios on end-to-end impacts, including tariffs.
Understand the wider business impact, leverage disruptions, and adjust strategic plans accordingly.

Final takeaway

Although things may seem chaotic, it’s starting to become possible to read the runes more clearly. Seismic changes are afoot – and businesses need to adapt. By understanding the complexities and nuances of the tariffs, maintaining supply chain resilience, and exploring new markets, companies can navigate the shifting sands with more confidence.

Above all, start modelling the scenarios and work collaboratively to manage the future impact on your business.

Should you wish to discuss, please get in touch either with myself tim.sarson@kpmg.co.uk or your usual KPMG contact.