Directly or indirectly, import tariffs have impacted just about everyone in one way or another. In this article, we will try to explain some of the basics regarding tariffs and how they impact what is commonly referred to as “free trade”.
What is a tariff?
A tariff is just another term for a tax. In the case of international trade, a tariff is a tax imposed on goods coming into a country from a specific foreign source. The tax, or tariff, is collected by the government and typically goes into the collecting country’s coffer, just like other types of taxes it may be collecting. The net effect of a tariff is to add more cost to the consumer or business entity that is purchasing the goods that are being taxed.
Are tariffs all bad?
Tariffs or other types of trade barriers are often used to protect fledgling industries or even developing economies in some countries. The intention is to make the domestically manufactured product cheaper than the imported alternative, thereby allowing the local industry to establish itself economically while the government shields it from international competition. In other instances, a government may use tariffs to protect an industry that is deemed important to its national security. Typically, this type of protective strategy is applied within defense industries.
How can Tariffs affect me, the small business owner, and what can I do about it?
The answer to this question depends on which side of the tariff issue your company is on. If you are a local company that is enjoying the reduced competition resulting from your government’s implementation of a tariff, then you need to make sure you have long term, aggressive cost reduction and efficiency improvement strategies in place to ensure that your business doesn’t become non-competitive if and when the tariffs are removed and your company begins to face international competition.
If, on the other hand, tariffs have increased the cost of materials you purchase from a foreign supplier, you may be confronted with the need to develop alternative sourcing strategies involving dual or multiple sources for a specific item. Switching costs, risks of an interrupted supply chain and long term implications are all issues the business owner will need to evaluate. A key component of any strategy will be the relationship the business owner has with the players in their supply chain.
How Can We Help?
At Eagles Air and Sea, we understand the importance of managing the logistics of a modern supply chain. Getting goods from one place to another efficiently and with a minimum of cost to both the supplier and buyer is key to any successful business strategy.
At Eagles Air and Sea, we have an extensive background in managing international trade between companies around the world, and our network of business partners are available to help you, the small business owner, find the best, most cost effective strategy for doing business in the current global economy.