From penalty to playbook: Making tariffs work for you

Aug. 1 now marks the new reprieve date for the sweeping “reciprocal” U.S. tariffs introduced by President Donald Trump.  During this pause, country-specific tariff rates, except for China, have lowered to 10% allowing foreign governments time to pursue new bilateral trade negotiations.

Companies naturally dread tariffs for the uncertainty they bring—adding costs, supply chain volatility, and operational complexity.  The fear is valid, but incomplete. 

We have found in our supply chain consulting practice that constraints drive the most meaningful innovations. Tariffs are no different. They force rigor and surface inefficiencies.  Companies that lean into tariffs rather than react gain a competitive edge through smarter supplier networks, reduced risk, and optimized cost structures. 

Below are 11 reasons why tariffs enable smarter procurement and sourcing.

Basic 101: The tried and true

1. Catalyze domestic supplier development

Tariffs increase the cost of imported goods and can tip the balance in favor of domestic sourcing. The resulting shift to local supply often brings improved responsiveness, reduced logistics complexity, and tighter quality management.

Over time, these shifts will yield more than just near-term savings. Investing in domestic suppliers supports the rebuilding of industrial capabilities. It fosters closer collaboration, transparency, and innovation between buyers and suppliers. For companies operating in highly regulated or quality-sensitive sectors, the ability to maintain direct oversight and agile fulfillment can be more valuable than the marginal cost savings from importing. 

2. Drive geographic diversification

Tariffs reveal concentration risks that may have gone unnoticed during stable periods.  When duties apply unevenly across countries, companies must confront whether their sourcing is too dependent on one region. Strategic organizations respond by expanding their supplier networks into alternative markets, including parts of Eastern Europe, Southeast Asia, and Latin America. This diversification improves risk posture while maintaining access to competitive pricing and capacity.

Geographic diversification also builds long-term flexibility into the supply chain. A broader supplier footprint allows procurement leaders to respond more nimbly to future trade actions, natural disasters, or shifts in consumer demand. It enables reallocation of production and smoother continuity of supply, even in disruptive conditions. In this way, tariffs function less as a tax and more as a trigger for stress-testing and strengthening global sourcing strategies.

3. Create negotiation leverage

When tariffs increase costs they also change the dynamics of commercial relationships.  Buyers can use tariff data to engage in more informed, assertive negotiations with incumbent suppliers. Whether the objective is better pricing, revised freight terms, or stronger service-level commitments, tariff pressure becomes a legitimate point of leverage in procurement discussions.

In parallel, tariffs create a clear rationale for exploring alternative sources without damaging long-standing partnerships. Buyers can justify supplier transitions not as arbitrary shifts, but as necessary responses to external economic changes. This approach supports more disciplined supplier management while preserving the option to return if trade conditions improve. The ability to strategically apply tariff pressure without damaging relationships is a sign of procurement maturity and foresight.

4. Support national security and critical industries

Certain sectors directly link to national security and public infrastructure. In these areas, tariffs reduce dependence on foreign suppliers and encourage domestic capacity development. Companies operating in industries such as semiconductors, defense, critical resources, and energy may find that sourcing locally is not only financially prudent, but also strategically necessary.

Domestic suppliers in these sectors often receive government support, access to grants, and preferred placement in procurement programs. Companies that align early with these policy priorities can benefit from improved regulatory relationships, reduced risk exposure, and even competitive differentiation.

5. Spark innovation and material substitution

Tariffs force companies to rethink long-standing cost assumptions about materials, design, and processes. This pressure can be a powerful driver of innovation. Faced with aluminum tariffs, for example, a packaging company pursued a biodegradable alternative that not only avoided duty payments but also aligned with the company’s brand and emerging sustainability goals. 

This type of innovation extends beyond materials. Companies may redesign products, retool packaging formats, or adjust manufacturing processes to maintain margin and compliance. Rather than treating tariffs as an external tax, firms that take a proactive approach can use the moment to differentiate themselves. 

6. Promote total cost thinking

Beyond immediate price increases, tariffs serve as a wake-up call to move beyond traditional price-per-unit thinking. They surface the full spectrum of hidden costs associated with sourcing decisions, including discovery cost, on-boarding, lead times, order minimums, freight, insurance, warehousing, customs handling, and currency volatility. For organizations that have not built total cost models into their procurement process, tariff events highlight the value left on the table.

Smart companies take this opportunity to formalize total cost analysis into everyday decision-making. By evaluating suppliers based on their contribution to working capital, lead-time variability, and risk exposure, procurement leaders can build more resilient and cost-effective supply networks.

Skilled 201: Advanced thinking about tariffs

7. Test supplier loyalty

Tariffs introduce ethical and relational dilemmas. When trade policy penalizes a specific country, leadership must confront an uncomfortable question: Do we walk away from a long-standing supplier simply because they are on the wrong side of a political border?   Shifting tariff rates can undermine years of trust, shared innovation, and operational alignment. Tariffs are the loyalty test that challenges companies to weigh the tangible benefits of consistency against the financial pressure to pivot.

This is not an easy decision. Switching to a supplier in a tariff-favored country may yield immediate cost relief. On the other hand, maintaining a strategic relationship preserves continuity, quality, and joint long-term growth. Companies that act purely on tariff incentives may find themselves chasing short-term wins while eroding the deeper value of supplier collaboration. The most strategic players renegotiate, co-invest, or rethink manufacturing footprints with their partners. Tariffs test loyalty and reveal which partnerships can weather disruption.

8. Reduce waste and consumption

When tariffs increase the cost of imported materials or components, companies should examine the use of those inputs. This uncovers waste, inefficient product design, or missed opportunities to streamline specifications. One industrial manufacturer, for example, redesigned a key component to reduce the amount of imported resin by 20%. The change resulted in both material savings and improved product efficiency.

These moments drive conversations about lean operations and design for cost opportunities. Rather than simply absorbing the added expense, companies can use tariff pressure as the business case for reengineering and process improvement. The result is cost reduction, a stronger sustainability posture, and a more focused product development roadmap.

9. Uncover and correct trade fraud

Tariff enforcement reveals fraudulent practices that go beyond technical violations. One of the most common is transshipments, where goods originating in a high-tariff country are rerouted through a third country, repackaged, and falsely declared to shirk duties. Recent tariff agreements with Vietnam have made this more visible as U.S. trade officials move to close loopholes used to rebrand Chinese-made goods.

As governments intensify tariff oversight, they are increasingly targeting these backdoor tactics. Investigations into suspicious country-of-origin claims, mismatched documentation, and sudden trade volume spikes are becoming routine in regions where enforcement has historically been weak. Companies now risk not only financial penalties but also reputational damage and operational disruption. 

For sourcing leaders, this means that supplier vetting must go deeper than checking certificates of origin. It requires understanding the full chain of custody and ensuring suppliers are not engaging in fraudulent practices to preserve pricing. 

10. Encourage trade compliance as a competitive advantage

Companies with strong trade compliance capabilities will adapt to tariff changes without disrupting operations. A clear understanding of product classification, country-of-origin rules, and applicable free trade agreements enables sourcing teams to adjust more quickly and cost-effectively than competitors. When tariffs shift, organizations that have already invested in compliance infrastructure can reroute supply chains, reassign production, or update documentation with minimal friction.

Customs-related issues extend beyond tariffs. A sizable portion of cross-border shipping delays result from incomplete or inaccurate documentation. This is especially challenging in industries where components and finished goods routinely move across multiple countries during the manufacturing process. In these cases, optimizing customs clearance becomes just as critical as managing freight or production lead times. 

11. Bonus NexGen pro tip: Reverse engineer landed costs

When a domestic supplier acts as the importer of record, they pay the tariff upon entry into the country. However, that tariff applies only at the point of import not at each successive point along the supply chain. When the supplier resells the product to a downstream buyer, the original tariff cost becomes a smaller percentage of the total sale price. For example, a 25% duty paid at import might translate to only 10% or 15% of the final customer’s invoice value.

This detail matters strategically.  With the right visibility—such as through customs records or supplier tariff audit disclosures—procurement teams can reverse-engineer the landed cost and gain insight into what their domestic suppliers actually paid. In an environment with limited cost transparency this becomes a powerful tool. Buyers may be able to negotiate more favorable terms, challenge excessive markups, or justify alternative sourcing strategies.

Conclusion

While perceived as disruptive, arbitrary, and punitive, tariffs function as a forcing mechanism that challenges companies to evolve. Rather than viewing tariffs solely as an external tax, forward-looking procurement and supply chain leaders should see them as catalysts for better decision-making, deeper supplier insight, and long-term resilience.

Companies that invest in visibility, compliance, and sourcing agility will weather the next wave of tariff disruption and outperform. Now is the time to evaluate your sourcing strategy, pressure test your supply base and build a roadmap that treats trade policy not as a threat, but as a strategic advantage.

About the Author

Jeff Haushalter is a partner at Chicago Consulting. He designs supply chains for manufacturers, distributors, and retailers that reduce cost and improve service. His e-mail is [email protected].

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