What can your company do to mitigate tariff impacts on manufacturing raw materials?
Manufacturing raw materials have been at the center of the trade wars between the U.S. and China. The impact of both the U.S. imposed and retaliatory tariffs has noticeably affected U.S. manufacturers. In a survey of 381 Ohio manufacturers, 66% claimed tariffs harmed their business. While these trade issues have not been undone, there’s been a lull in bad tariff news with a summit between President Trump and President Xi Jinping approaching. It’s hard not to see this as good news, and in even better news, two U.S. Representatives introduced legislation to delay section 232 auto tariffs. But trade tensions are far from relaxed as Trump recently stated the tariffs could remain for awhile. Should China not come to the table with a deal that meets his standards, Trump has made it clear he has no issue ratcheting up the tariffs.
The future of the U.S. trade war with China is far from certain. When first implemented, tariffs targeted imported manufacturing raw materials. On March 8, the current administration announced 25% tariffs on steel, one of the more impactful imports. Other companies have dealt with the increased price by passing it off to the consumer and cutting jobs. Manufacturing companies are not different in that regard. There’s no certainty that tariffs on imported steel will lower, rise, remain the same or even continue. But there are large disadvantages to banking on the best-case scenario. There is, however, a significant advantage to preparing for the worst.
Troubles with Tackling Tariffs
As discussed in a previous post, manufacturing companies have a few options to overcome these increased costs. While there are other options, like chipping away at manufacturing operating expenses, this is less common. Most manufacturing companies cut profit margins and/or pass expenses on to the consumer. The risk of a manufacturer cutting profit margins? Many manufacturers profit margins are already razor thin. It’s hard to run a company that doesn’t make enough money. The risk of passing the expense on to the consumer? U.S. consumers are one of the biggest losers in the ongoing trade wars. But even loyal customers might find it hard to cough up too much. Especially when they have access to a cheaper option.
Options Outside the Normal
Manufacturing companies considering the obvious options know their downsides all too well. Which makes the outside the box solution all the better. Consider vehicle programs. Sure, it’s how the mobile workforce gets from point A to point B. But it’s also an expense. And, depending on your vehicle program, it could be an easily minimized expense.
- company provided vehicles will save money in upkeep and reduced liability.
- car allowances can end systemic tax waste of the compensation process and protect themselves from violating labor laws for under reimbursing mobile workers.
- mileage reimbursement plans can reduce expenses associated with mileage fraud and protect themselves from labor law violation.
Shifting vehicle programs isn’t the traditional first step for companies dealing with the impact of tariffs, but there are significant benefits beyond cost control. Take, for example, insight into mobile workers’ field activities.
Gathering data like time spent driving, places visited and time spent at each location can help a manufacturing company. How? By gaining context into mobile workers trips, metrics and routes, companies can enhance their workforce. It will be easier to assess the efficacy of territories and optimize the time mobile workers spend on the road.
The Next Move for Manufacturing Companies
Given the uncertain future of trade wars, manufacturers should prepare for continued or raised tariffs. There are traditional ways to offset the increased expenses of manufacturing raw materials. But those have downsides of their own. Downsides that the solution of switching vehicle programs does not have. Interested in learning more? Find out in our guide Offsetting Tariffs: Mitigating Costs with Operational Efficiency Gains.