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Tariffs are the biggest news across the global trade landscape today. But businesses can’t afford to ignore the additional indirect costs that arise from crafting new sourcing strategies.
The tariffs either proposed or imposed by the Trump Administration in recent weeks are having “a cascading effect over all tax types,” says Tony Gulotta, a principal and practice leader of national tax at Ryan LLC.
Many U.S. businesses that are importing goods for their own use, such as raw materials, components and factory equipment, face higher tariffs in those categories. But that also boosts the value of the equipment, resulting in higher use taxes and property taxes, as well as affecting depreciation schedules.
The passing along of increased tariffs to purchasers also triggers a higher sales tax, so that, say, an item with a 30% tariff selling into a state with a 10% sales sale means an overall 33% increase in the price to the consumer. “That’s the part you don’t see in the news,” Gulotta says.
The most punishing tariffs imposed by the second Trump Administration have been on China, but American producers have been looking to reduce reliance on that country for some time now. Yet the notion of a “China Plus One” sourcing strategy might already be out of date — especially with all of the options available elsewhere in Asia. Trade negotiations are underway between the U.S. and some 33 countries in that region, Gulotta noted.
The other option is reshoring — bringing manufacturing back to the U.S. But that involves a lot of capital costs as well, especially the additional expense of hiring American labor. In the case of one medical-device manufacturer, Gulotta says, the price of U.S. labor would be six times that of offshore locations. And that industry is limited by how much insurance companies are willing to reimburse it for production costs.
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