In a recent webinar moderated by Jackie Mattox, Founder and CEO of WE United, industry leaders Michael Knight, President & CEO of Endries, and Allison Sabia, President & CEO of Galco, discussed the complexities of tariffs, their impact on the supply chain, and the broader economic implications.
Understanding tariffs: a tax on imports
Michael Knight explained the fundamental nature of tariffs: “The first important thing about a tariff, which I don’t think is widely understood, is that it’s a tax, and it’s a tax that the importer pays.”
While tariffs and duties are often mentioned together, there is a key distinction. Duties, typically smaller and more universally applied, are factored into pricing structures and tend to go unnoticed by consumers. In contrast, tariffs can be significantly higher and more targeted, leading to direct cost increases for businesses and, ultimately, consumers.
Historically, tariffs were implemented to protect domestic industries from foreign competition. However, Knight pointed out that their role has evolved: “Today, tariffs have been weaponised – they’re being used as leverage to force other countries to make political or economic concessions.”
The current tariff landscape
Several tariffs are currently in effect, and new measures are expected to be confirmed by early April. These include:
- Section 301 tariffs – initially imposed by the Trump administration, these apply a 25% tax on Chinese imports
- Section 232 tariffs – targeting aluminium and steel products, this measure imposes a 25% tariff on goods not produced in the US
- EPA Act tariffs – a more recent addition, these impose two separate 10% tariffs on imports from China, including aluminium and steel-based products
In some cases, cumulative tariffs could reach 70% on certain goods, significantly affecting pricing structures and procurement strategies.
Business adaptation: absorption or pass-through?
With these tariffs in place, businesses must decide whether to absorb the costs or pass them on to customers. Sabia highlighted the ongoing struggles within the industry: “It’s been a rough two years, and the tariffs are just another hole in the boat we’re trying to patch up. For many companies, absorbing these costs is simply not sustainable.”
Knight agreed, noting that the industrial sector has already been in a recession for over two years. The additional costs imposed by tariffs could further erode profitability and consumer demand: “Margins in our industries aren’t that terrific to begin with. A 25% increase in cost isn’t just cutting into profit – it’s wiping it out.”
Most companies are opting to pass these costs onto customers, either by incorporating them into pricing or by adding separate surcharges. However, this approach comes with challenges. Some customers are pushing back, creating difficult negotiations across the supply chain.
Sabia stressed the importance of transparency and flexibility in managing these discussions: “Building trust with suppliers and customers is key. We have to be open about what’s happening and find solutions that work for everyone. Some customers prefer an all-in price, while others want a separate surcharge. It’s about being adaptable.”
The bigger picture: economic consequences
The uncertainty surrounding tariffs is another pressing concern. While some businesses hope the measures will be short-lived, Knight cautioned that they are likely to persist: “This isn’t going anywhere. It’s a long-term play to strengthen US manufacturing. If the goal is to bring production back to the US, that takes time. The government has to stick with this policy for it to work.”
However, he also highlighted logistical challenges. The US already faces a manufacturing labour shortage – with 462,000 unfilled jobs as of January – and infrastructure limitations in energy, transportation, and supply chain networks.
Additionally, tariffs could contribute to inflation, raising costs for businesses and consumers alike. The automotive industry, for example, is facing a tariff increase on imported vehicles from 2.5% to 25%, a change that could significantly affect car prices and demand.
Compliance and resource allocation
For companies dealing directly with steel and aluminium imports, navigating the regulatory landscape is a resource-intensive process. Knight shared his experience: “More than 90% of what I supply is made out of steel. Every day, our purchasing and sourcing teams are working with brokers to understand the latest changes and ensure compliance.”
The complexity of trade agreements, such as the US-Mexico-Canada Agreement (USMCA), adds another layer of difficulty, requiring businesses to dedicate significant time and personnel to determining tariff eligibility and strategic sourcing decisions.
Looking ahead: strategic considerations
With uncertainty remaining high, companies must weigh their options carefully. Knight summed up the current dilemma: “Do we just suck it up for a little bit and hope for the best? Do we get proactive and adjust our supply chains now? Every company has to make that decision for itself.”
As businesses navigate these changes, key takeaways include:
- Understanding the full impact of tariffs on cost structures
- Maintaining transparency with suppliers and customers
- Exploring alternative sourcing options to mitigate long-term risks
- Staying informed as new regulations emerge
Automation and AI-driven solutions are increasingly becoming the preferred method of managing compliance. “Adding more people is probably not the best solution for most companies right now that have already been stretched for two years,” Sabia explained. “There are several software companies offering tools to manage tariffs and trade compliance efficiently.”
No winners in a trade war
Historically, trade wars have been costly for all parties involved. Knight highlighted past statements from political leaders, emphasising that tariffs have rarely resulted in long-term benefits. “There are no winners in a trade war,” he stated. “Ronald Reagan said it best: tariffs create reliance on government protection, stifle innovation, and lead to price increases that ultimately harm consumers.”
China’s retaliation to US tariffs has targeted American agricultural exports, a move that has cost US farmers billions in lost revenue. “The government subsidises farmers to offset these losses, but at the end of the day, this money is coming from our customers’ wallets,” Knight explained. “It’s a cycle where businesses and consumers ultimately bear the burden.”
A new era of tariffs and global integration
Knight noted that, while tariffs are nothing new – having existed since the days of George Washington – the current environment presents a unique set of challenges. “What I would say is that right now is different than any other tariff time,” Knight explained. “None of us know what’s going to happen next week. The level of worldwide tariffs, both from the US and in retaliation, has never been seen before. And the level of global integration in supply chains today is unprecedented.”
The complexity of today’s supply chains, Knight continued, means that components often make many stops before reaching their final destination, making it more difficult to manage than ever before. “Distribution, for example, is far more complicated than it was even seven years ago,” he said. “I think it’s fair to say nobody has the answers. We haven’t lived through tariffs in this globalised world.”
Sabia echoed this sentiment, stressing the uncertainty and the importance of remaining adaptable in such a volatile environment. She highlighted that the ability to manage what is controllable – whether it be maintaining transparency with suppliers or making operational adjustments – was crucial for businesses during this period of instability.
Looking ahead: a strong economy in the face of disruption
As the discussion drew to a close, Knight and Sabia expressed cautious optimism about the future. “We have an incredible economy,” Knight stated. “Despite the challenges we face with tariffs, the US economy has been resilient, and I believe we will navigate this as we have in the past.”
Sabia agreed, adding: “It’s not the end of the world. We’ve faced disruptions before, and we’ve come through them stronger. This too shall pass.”
