President Donald Trump hopes the tariffs imposed by the U.S. will encourage negotiations that result in new trade deals that are more favorable to the U.S. and eliminate the unfair tariffs and trade barriers imposed by the European Union (EU) and China. Should the tariff strategy not result in negotiations that produce fair trade for the U.S., there will be a significant impact on the world’s manufacturing footprint, including companies that make transformers. That impact is already being felt as we discussed in our previous article, “Concerned About Tariffs?”
What is best way to mitigate the impact of tariffs on the purchase of transformers? How can a buyer lessen the fear and uncertainty that exists in the supply chain?
The best answer to these questions lies in finding a transformer manufacturer that makes its products at multiple locations across the globe, including the United States of America.
The delicate balance that procurement professionals are facing is how to make the best buying decisions in light of the risks that are involved in buying from suppliers who are subject to tariffs. To help mitigate your risk, here are three factors to consider:
- What is your risk exposure? If your source of transformers involves a heavy exposure to tariffs, you’ll want to find an alternative supplier who manufactures and sources raw materials from many different countries.
- Where are your goods being imported from? You must understand the tariffs being imposed to goods that are subject to tariffs to know where to source the best products that don’t shoot a whole in your profits.
- Do you expect local supplies to artificially increase costs? We have seen this already. Steel from China has increased by 25 percent and domestic suppliers of steel have increased prices by 10-15 percent. Why? No explanation from suppliers besides “standard cost of doing business.” To us, this is an artificial increase in price to “game” the system.
- Does your present day supplier have a SOLID Risk/Mitigation/Contingency plans? You may be able to avoid the tariffs if your present day supplier has a plan that includes alternate country of origin, tariff re-engineering programs, IMMEX/NAFTA 2.0 approved locations, leverages FTZ (Free Trade Zones) and bonded warehouses and most important is a domestic manufacturer (higher domestic costs, but may still be less than the total cost of ownership of anything impacted by 25 percent tariff) to ensure continuity of product supply.
- Do you have an alternative supplier? You must know which countries supply your suppliers. If they are heavily dependent on one country (and that country is subject to tariffs) it could put your costs and ultimately profits at risk.
If you import transformers from China, your costs have already gone up and could go up even more. It has forced buyers to rethink their purchasing decisions and to look to buy transformers from U.S. manufacturers that are not severely impacted by the tariffs. Or they must look to countries outside the U.S. that are not subject to these tariffs.
With the prospects of U.S. negotiations not ending anytime soon and no deal imminent, buyers must look for a long-term solution to mitigate the impact of tariffs. As a recent article1 pointed out in its headline, “Just the fear of a trade war is straining the global economy.”
Other Tariff Related Wabash Articles:
- Part 1 of 3 (Concerned About Tariff’s and Impact to Power Transformers?)
- Part 3 of 3 (How the PowerVolt Group Can Help Eliminate Tariff Uncertainty.)
- “Just the Fear of a Trade War Is Straining the Global Economy,” New York Times, June 16, 2018 (https://www.nytimes.com/2018/06/16/business/tariffs-trade-war.html)
In our next blog post, we will explain how purchasing transformers from the PowerVolt Group can help alleviate anxiety and uncertainty and give you a reliable and cost efficient solution.