7 Methods to Shield Your Business During Ongoing Trade Conflicts
With international trade getting increasingly complex, you'll need to adapt quickly, make decisive moves, and safeguard your business against uncharted territory. As the U.S.-China trade war escalates, it's not just theory; it's your profits, deadlines, and client trust on the line. Here are seven strategies to help you stay ahead of the curve:
Strategies to Protect Your Business During a Trade War
1. Embrace Flexible Pricing Models
Instead of clinging to rigid pricing, opt for models that can breathe with market volatility. Dynamic pricing, cost-plus contracts, or time-bound pricing is the way to go. Be transparent with clients, explaining why prices fluctuate. Building pricing models with tiers allows clients to choose between fixed pricing with lead times or flexible rates with quicker turnaround times.
Real-life Example: Maersk used a dynamic surcharge system during complicated trade periods, adjusting rates based on market volatility while keeping customers informed.
2. Diversify Your Supply Chain Geographically
Don't put all your eggs in one basket. If you rely too heavily on a single region, you risk exposure. Instead, source from several regions with differing trade vulnerabilities. Start by establishing back-up suppliers in other countries, test small shipments, and keep your options open.
Real-life Example: Apple shifted parts of its iPhone production to India and Vietnam during trade tensions with China.
3. Lobby for Industry-Specific Exemptions
Organized voices influence trade policies. While it may feel powerless during a trade war, joining trade associations or advocacy groups can help push for targeted exemptions, reduced tariffs, or postponed implementation timelines.
Real-life Example: The National Retail Federation pushed back against tariffs, fighting for exemptions on certain consumer products.
4. Establish Foreign Trade Zones (FTZs)
These designated areas (often near ports or airports) allow businesses to store, assemble, or process imported goods without triggering immediate duties. Duties may either be deferred, reduced, or eliminated depending on how the goods are handled.
Real-life Example: BMW's facility in Spartanburg, SC is one of the largest FTZs in the U.S., allowing the automaker to reduce tariff exposure and streamline logistics.
5. Onshore or Nearshore Critical Operations
Proximity is power. Relocating core operations to your home country or a nearby, low-tariff region gives you more control over quality, timelines, and labor.
Real-life Example: In response to growing concerns about a single supplier country, Intel committed over $20 billion to expand chip manufacturing in the U.S.
6. Develop Trade-Agnostic Product Lines
Design products with a focus on inputs or suppliers that aren't tied to high-risk countries or volatile trade zones. This may mean simplifying designs or using locally sourced materials.
Real-life Example: Hasbro expanded manufacturing in Vietnam and India while working on simplifying toy components.
7. Secure Tariff Clauses in Contracts
Contracts should include clauses that allow for adjustments due to tariff changes or trade restrictions. This ensures that both parties can renegotiate pricing, terms, or cost increases if needed.
Real-life Example: Ford renegotiated supplier agreements to include shared risk language, distributing the cost impact across partners.
- Consulting with financial advisors to identify potential investments in manufacturing industries that have stable supply chains or are less dependent on the ongoing trade war. This could serve as a hedge against any potential losses in your primary business.
- Collaborating with retail partners to promote locally-sourced or domestically-manufactured products, ensuring better profit margins and maintaining consumer trust due to the reduced impact of tariffs.
- Attending industry events and conferences focusing on technological advancements, as investments in automation and digitalization could help reduce reliance on labor-intensive industries and decrease the overall cost of operations amidst trade uncertainties.
