4 Tariff Strategies to Turn Lemons Into Lemonade
This article was originally featured on Inc.
Tariffs are not a passing storm—they’re the new climate. Innovative companies are adapting; these are their tariff strategies.
Tariffs have shaken many businesses to their core, and rocked the economy. But tariffs are just like any other threat that businesses face – innovative entrepreneurs will always find ways to survive and thrive.
“Too many companies still treat trade policy like a passing storm instead of the new climate,” says Liz Hempel, a partner at McKinsey & Company. The tariffs, she suggests, are just “the warning shot” of broader disruptions to come.
Retailers and consumer products goods companies that rely on imports are immediately affected, but as Javier Palomarez, founder and CEO of the United States Hispanic Business Council, notes, tariffs are impacting businesses “in almost every industry, from construction to food services and technology.” And often, he explains, it’s not the tariffs themselves causing the most disruption, but “the uncertainty and fear that the implementation is creating.”
Tariff Strategies for Retail and CPG Industries
Of course, while large companies can implement sophisticated mitigation strategies, Palomarez highlights a stark reality for small businesses: “Our small businesses do not have the resources or access to capital to pre-purchase stock ahead of the implementation of various tariffs,” he says. And while domestic sourcing is often cited as a solution, he points out that this is much easier said than done.
“On top of the manufacturing of some goods simply being impossible in the United States, industries had little to no time to build out their domestic manufacturing infrastructure,” he says. “This paradox leaves small-business owners with virtually no option other than to raise prices.”
Mark Burstein, SVP Americas at Inspectorio and an expert on tariffs in retail and CPG industries, says that he’s recently been speaking with dozens of sourcing executives and has noted four primary tariff coping strategies that companies are evaluating:
Partnering with key suppliers to share cost burdens. In essence, he says, “brands and retailers want to produce a similar product that costs less to produce.”
Exploring shifts to alternative sourcing countries with lower tariff exposure. With this strategy, he says, “increased capacity means adding new operators, so we’ll see quality-control issues and production delays in the beginning. However, there are monitoring and reporting tools that can help mitigate those risks and create an easier transition.”
Adopting a more agile, just-in-time sourcing model. “With advanced supply chain technology, brands and retailers have the opportunity to monitor production at a much higher rate and make this strategy more feasible,” Burstein says.
Forming a dedicated sourcing task force to identify products that can be manufactured in the U.S. “If brands and retailers want to make products in the U.S. at scale, they’ll need to add suppliers that are essentially startups, and they will need technology that can help with onboarding and ensuring quality control,” Burstein says.
This can be especially challenging for companies importing from a number of sources. But, FabFitFun, under Michael Broukhim’s leadership, is not only adapting to tariff impacts on his organization, but serving as a solutions provider to help an entire ecosystem of brands weather economic policy shifts while creating new business opportunities.
Broukhim has launched the Tariff Relief Project, an innovative response to tariff challenges that offers:
Large-scale purchase support through orders of 25,000 to 250,000-plus units to brands facing tariff pressures, providing immediate volume and cash flow relief.
New distribution pathways through FabFitFun’s member base of more than one million subscribers, opening new markets for affected brands.
Strategic sourcing prioritization specifically targeting and prioritizing brands manufacturing in the U.S. or outside of China, creating incentives for diversified manufacturing locations.
A subscription box model to offset supply chain risks for partner brands while providing predictable scaling opportunities.
FabFitFun’s experience in helping brands recreate supply chains to navigate the complexities of shifting trade dynamics.
“One of our superpowers has always been working closely with brands to recreate supply chains,” Broukhim says. “For many, we’re the largest single SKU purchase order they’ve ever had. We’re using that superpower to help brands navigate the real pressures created by these tariffs.”
Larger organizations, and especially those with long-range planning cycles, have an opportunity to make major moves that can help them resist tariff pressures.
Playing the Long Game
It’s not just the recent tariff situation that has caused Frameology, a New York City-based direct-to-consumer photo framing company, to rethink its business practices. That rethinking started during the pandemic, says founder and CEO Ben Koren. “While all of our products are made in the U.S., some critical components have historically been sourced from China. When Covid hit, we saw not just short-term disruption, but a long-term shift: Globalization was fragmenting, and supply chain risk had become a strategic liability. So we rethought everything.”
The company took a number of steps to address instability at the time—steps that also position it well to deal with current volatile tariff shifts.
A multiyear effort to transition sourcing to U.S. suppliers.
Building deep inventory of remaining overseas components ahead of the 2024 election cycle. “We’re now sitting on a two-year supply, which gives us pricing stability and operational resilience,” Koren says.
Supplier and employee involvement and transparency. Transparency, says Koren, provides an opportunity to solve problems creatively. “We’ve been surprised and delighted by some of our partners’ solutions for cutting costs to offset the cost increases from shifting to an almost entirely domestic supply chain.”
Domestic sourcing, says Koren, has also become an important and powerful brand message and asset. “We’re actively communicating it to customers who increasingly value sustainability, transparency, and U.S. manufacturing.”
Freedom Forever, a residential solar company, is another organization that has found long-term planning a sound strategic approach to address short-term volatility. “Tariffs have had only a minimal impact on our operations,” says chief operating officer Brian Eglsaer. “We’ve seen marginal single-digit increases in equipment costs, primarily due to market oversupply and the significant reshoring of our supply chain over the past decade. Today, most of our products are made in the United States, which is a stark contrast to our reliance on overseas suppliers a decade ago.”
Like Frameology, Freedom Forever has taken specific, proactive steps to help mitigate the impacts of tariffs and other environmental shifts.
Strategic price reductions made possible through direct purchasing from manufacturers.
Supply chain reshoring.
Dynamic pricing models designed to “absorb any incremental cost increases without compromising our competitive margins,” says Eglsaer.
Technology-driven efficiencies. The company’s AI-powered, proprietary project management software, he adds, “provides seamless sales intake and predictive scheduling and optimizes workforce allocation, reducing installation delays and mitigating the impact of market fluctuations.”
One important strategy that Eglsaer encourages other companies to consider is focusing on “strengthening the industry – not just your company,” collaborating with industry stakeholders to address systemic challenges. For example, he says, “Solar sales misconduct continues to undermine credibility. The Recheck registry developed by Ohm Analytics with input from SEIA and other industry leaders illustrates a unified approach to setting nationwide standards for sales registration, certifications, licensing, and training. Working together on these standards can help improve overall accountability and create a more reliable market environment for everyone committed to quality and sustainability.”
Eglsaer also recommends a focus on the long game. “It’s easy to focus on quick returns. However, we’ve discovered that prioritizing a lasting legacy in renewable energy not only transforms an industry but also creates an enduring impact. By aligning profit goals with purpose, you build resilience and attract partners who share your vision.”
While companies like Frameology have successfully adapted, many smaller businesses face what Palomarez calls “a fog of war.” As he explains, “In the past few months, we have seen a slew of tariffs announced then delayed, increased, rescinded, augmented with exemptions, or all of the above. It’s created such a fog of war that your average business owner is frankly confused. Before they have time to adapt, things have changed again. Uncertainty is the bane of business, and the rollout of these tariffs has created nothing other than that.”
Hempel emphasizes that the companies truly positioned for success are thinking beyond just tariff mitigation. “Companies stuck reacting will pay the price in higher costs, product delays, and lost market share,” she warns, highlighting that the broader challenges of “climate risks, political fragmentation, and a shifting labor market” require comprehensive supply chain rethinking.
In a very uncertain environment, it can be helpful for companies to consider various scenarios and fortunately today there is advanced technology to help with that.
Scenario Modeling and the Power of AI
When the future, and even the immediate present, is as volatile and unpredictable as it has been under the new administration, it’s impossible for companies to play based on “what is.” Instead, though, they can plan based on “what ifs” – scenarios that can help leaders consider various situations and discuss how these situations might impact their business operations and practices.
Artificial intelligence is proving to be a powerful tool in this type of modeling, says Mark Morgan, president of global commercial operations at Kinaxis, a company that provides supply chain management solutions and works with firms including Ford, Unilever, and Merck.
“Instead of reacting in crisis mode, companies are leveraging AI to model disruptions before they happen,” Morgan says. “With real-time insights, they are making faster, more confident decisions to adjust sourcing, production, and logistics before the impact hits. The takeaway here is that scenario planning is the new solution. Companies using AI are not just reacting to shifting policies – they are staying ahead of them.”
KPMG also relies on AI technology to help clients model and scenario plan for different outcomes, says Andrew Siciliano, partner and head of U.S. and global trade and customs practices. Siciliano oversees a team of about 1,000 global trade and customers professionals working with multinational clients on “tariff mitigation, trade compliance and planning, the evaluation of cross-border transactions and compliance, managed services, export controls, and more.”
At KPMG, Siciliano says, “We’re encouraging clients to build resilience, fortify operations and stay competitive in this unpredictable tax and trade policy landscape – also staying on top of recent and future shifts.” They do this by:
Strategically leveraging trade data. Using technology to analyze trade flows to spot vulnerabilities, model financial impacts, and identify cost-saving opportunities.
Transforming trade operations. Taking a top-down look at processes, people, and systems to improve compliance and reduce tariff exposure.
Diversifying supply chains. Mitigating risk by sourcing from alternative suppliers in lower-tariff countries. Diversification will build resilience and ensure continuity.
Conducting a return on investment analysis. Exploring duty mitigation and recovery programs such as the first sale of export, duty drawback programs, and valuation unbundling.
The tariff situation is shifting rapidly, meaning organizations need to have a plan and the means to stay on top of the changes and potential impacts for them, their suppliers, partners, and customers.
Tariff Strategies: Keeping an Ear to the Ground
At Freedom Forever, Eglsaer says, a dedicated policy team led by policy director Ben Airth oversees state-level and federal policy issues that directly impact the company, which has headquarters in Temecula, California, and Las Vegas and operates across 36 states. That kind of dedicated focus is critical for companies of its size, Eglsaer says.
For small businesses particularly, information is crucial. “It’s critical to find a verifiable source for tariff information, and to take speculation with a grain of salt,” advises Palomarez. “When Trump addresses the cameras regarding the tariffs, he’s not just talking to us – and much of what he says might simply be a negotiation tactic,” Palomarez says. “The USHBC updates business owners weekly with current and announced tariffs to help cut through the noise.”
The three key considerations companies should be thinking about now, says Siciliano, are who will absorb the tariff cost, what is the customs value subject to the tariffs, and how to pay the tariff.
Who will absorb the tariff cost? Although the importer of record is responsible for paying the tariff, the burden may be split among multiple parties in the transaction. Also, it is important to understand the supplier and customer contract terms to assess whether cost sharing is contractually allowed.
What is the Customs Value subject to the tariffs? The way tariffs work is the tariff rate is applied against the declared import value. This may vary depending on the country of origin of the finished good and parts. Since the North American supply chain is extremely intertwined, it is common for parts to cross multiple borders in the supply chain, another key question is whether these products will be subject to tariffs more than once.
How to pay the tariff? A company can pay CBP directly or pay a fee to a customs broker to pay on their behalf for a fee. Companies that haven’t paid much in tariffs may want to sign up to pay CBP directly to avoid paying their brokers a percentage. Also, a customs bond may be required which will impact cash flow.
“Long-term effects could hinge on whether the tariffs are here to stay for the long run, or if they’re only fleeting,” Siciliano says. “Still, companies might consider reevaluating supply chains and trade flows, and possibly even re-shoring or onshoring strategies.”
Despite challenges, Palomarez sees entrepreneurial opportunity: “The real opportunity in these tariffs is business creation and expansion,” he says. “Our small-business owners are entrepreneurs, and by definition opportunistic. As the nation shifts its demand toward domestic suppliers and manufacturing, there is real opportunity for entrepreneurs to expand into that aspect of their industry.”
Palomarez also notes that “in the short term, as tariffs reduce exports and create an abundance of supply in domestic markets, some commodity prices are actually dropping,” creating potential investment opportunities. “If you are a business owner with any sort of capital to spare, this may be the time to invest it,” he says.
As businesses navigate these turbulent waters, Hempel’s observation rings true: “The only winning strategy is adaptability. The future belongs to supply chains that are diverse, have the right mix of local, global, and regional, and are built to keep goods moving and prices stable no matter the disruption.”