US Tariff in January 2025

As the United States continues to navigate its complicated trade relationships with key allies and competitors, it is crucial for businesses to stay informed and prepared for potential changes in tariffs.

Here are some high-level action plans to think about related to the potential US tariff of 25% for Mexico imports , 25% for Canada imports and 10% for China imports to USA.   This is as of December 23rd, 2024. The rates are expected to change by the time President-elect Donald Trump starts his second term in January 2025.

There are 3 main factors to look at - selling price, cost of goods sold and selling markets.

1. Selling price.  When increased US tariff happened in the past, it normally results in higher selling prices to the consumers in the USA.  However, not all the increase in tariff is covered by the consumers. 

For example, if the increased tariff is 25%, 5% could be affecting the consumers, 10% to the

importer and 10% to the manufacturer/supplier. 

Conversations between stakeholders should start now and cover  financial scenarios

planning. For example, using real absolute numbers and having scenarios of 25%, 20%, 15%, etc. 

The key is having the uncomfortable conversations starting early as opposed to later.  

This is to ensure that the business stays competitive.

2. Cost of goods sold. To mitigate the impact of tariffs on their bottom line or significant consumer price increase, companies should consider implementing cost-saving measures such as renegotiating supplier contracts, optimizing production processes for efficiency, or sourcing materials from alternative markets with lower tariffs. This will help reduce reliance on countries subject to high tariffs and provide greater flexibility in managing costs. It is recommended that conversations and renegotiations with vendors need to happen now.
   

3. Selling markets.  Despite USA being the biggest consumer market in the world, it is highly recommended to double down on expanding outside USA, like Asia, Europe and Latin America. As I am familiar with alcohol beverage industry and being in Mexico, I have been exposed on the impact of higher US tariff on tequila exported to USA.  In this case, a more aggressive approach to expand in other countries like China, Japan, Poland, France and Brazil is highly advisable.

   
   

All the above are actions that companies should be doing regularly.  However, the announcement by Donald Trump made the scenario analysis and communication actions more urgent. 

As we head into a year of change, it’s important to have dialogue with partners, and experts by your side that can help you navigate change. Stay tuned and I’ll publish more as the world of tariffs changes!