As the 2024 presidential election approaches, trade policies and tariffs are shaping up to be key issues that could significantly impact supply chains and business costs. This week’s presidential announcement where Biden called for increased tariffs on China EVs, EV components, metals, medical products, and more. This is an addition to the administrations previous announcement on increased China tariffs, knowing how to navigate these pitfalls by implementing diversification and contingency plans is key.

Jim Pratt, Managing Partner at value creation consultancy Forsyth Advisors, has been at the forefront of helping companies navigate turbulent tariff waters for over a decade. “We’ve been through administrations that took a hardline stance on tariffs before, like the Trump era,” states Pratt. “Inflationary pressures make it even more critical now for companies to have flexible supply chain strategies that can absorb potential tariff shocks.”

Pratt’s experience guides his recommendation that organizations should spread their risk through multi-country sourcing strategies. “The more you have that contingency planning in place, the better prepared you’ll be for disruptive events—especially likely ones like increasing China tariffs if certain candidates take office.”

While the Biden administration has maintained many of the elevated tariffs on Chinese imports, the rhetoric from candidates like Trump points to an even more aggressive posture, with threats of tariffs potentially exceeding 60% on all Chinese goods“The likelihood of Trump returning and tariffs going up is very high,” cautions Pratt. “With Biden, they’ll unlikely go away but will likely stay at the status quo levels.”

Regulatory actions beyond just tariffs also loom, such as restrictions targeting forced labor or intellectual property concerns. “In some ways, those focused regulations can be even scarier, as the impact is narrower but deeper for affected companies and industries,” explains Pratt.

Regulatory actions beyond just tariffs also loom, such as restrictions targeting forced labor or intellectual property concerns. “In some ways, those focused regulations can be even scarier, as the impact is narrower but deeper for affected companies and industries,” explains Pratt.

To mitigate such risks, Pratt advocates a three-pronged strategy:

1. Legal tariff exceptions should be utilized where possible, such as the Section 321 provision allowing tariff-free fulfillment of US consumer orders from Mexican or Canadian warehouses. “With the proper partner, you can set up an alternative warehouse in Mexico or Canada in as little as 90 days to run in parallel with US operations,” says Pratt. “Customers won’t even know their shipment originated outside the US.”

2. Mitigate country concentration risk through supply chain diversification across multiple sourcing locations. “For more than just tariff avoidance, a diversified supply chain provides choices, contingencies, and a competitive environment with your suppliers,” states Pratt.

3. Evaluate reshoring or near-shoring opportunities, taking advantage of developing manufacturing hubs like Mexico. “Driven by higher demand, Mexican infrastructure has seen rapid development, with openings for green-field investments or ‘shelter’ arrangements giving US firms ownership but a local legal entity,” describes Pratt.

As Pratt sums it up, “Understanding your current state, company goals, and risk points—then executing a weighted contingency plan factoring in competitor actions—is crucial to riding out any tariff waves that could come from the 2024 election.”

With experience guiding hundreds of private equity-backed companies across industries, Jim Pratt and Forsyth Advisors are well-positioned to help organizations chart their course through the seas of changing tariff policies.

By investing in diversification and contingency planning now, proactive supply chain leaders can help their enterprises stay buoyant and capitalize on opportunities, no matter which way the tariff tides turn.

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