Trade Wars Are Not Temporary
In 2025, businesses face a stark reality: trade tensions are no longer temporary disruptions but structural features of the global economy. The ongoing friction between major trading blocs—US-China, EU-India, and several emerging regional conflicts—has cemented a new normal in international commerce. Companies need a robust trade war tariff strategy that addresses these challenges not as passing storms but as permanent features of the landscape.
Recent data shows that global tariffs have increased by an average of 7% since 2022, with some sectors experiencing spikes of up to 25%. For businesses with international supply chains, this isn’t just a matter of absorbing temporary costs—it’s about fundamentally rethinking how goods move across borders. The techniques for managing these challenges have evolved from reactive cost-cutting to sophisticated strategic planning.
This article outlines seven critical steps every business should take to effectively manage tariffs in today’s persistent trade war environment, helping you protect margins while maintaining competitive advantage.
Step 1: Map Your Tariff Exposure by Country and Product Line
The foundation of any effective tariff management approach is comprehensive visibility. Without knowing exactly where you’re vulnerable, attempts to mitigate tariff impacts will be haphazard at best.
Start by creating a detailed tariff exposure map that accounts for:
- All imported goods categorized by their Harmonized System (HS) codes
- Current applicable tariff rates by country of origin
- Volume and value of imports across different product categories
- Potential tariff escalation scenarios based on political projections
Case Study: A mid-sized electronics manufacturer discovered that 43% of their component imports fell under high-risk tariff categories when they conducted their first comprehensive mapping exercise. By identifying these pressure points, they were able to prioritize their mitigation efforts strategically rather than making across-the-board changes.
Beyond simply identifying current exposure, this mapping should become a dynamic tool that’s regularly updated as part of your business intelligence. Many companies find that visualization tools help make this data more actionable—heat maps showing high-tariff regions or product categories can quickly direct attention to where intervention is most needed.
Step 2: Reassess Country of Origin and Rules of Origin
Many businesses operate under misconceptions about what determines a product’s country of origin for customs purposes. It’s rarely as simple as “where it was assembled.”
Customs authorities apply complex rules of origin that consider:
- Substantial transformation tests
- Value-added thresholds
- Specific processing operations
- Regional content requirements
For example, under many trade agreements, a product must undergo a “substantial transformation” or have a minimum percentage of regional content to qualify for preferential treatment. These rules vary significantly between trade agreements and can be manipulated to your advantage with proper planning.
Review your suppliers’ country of origin documentation carefully. In a 2024 audit of major importers, customs authorities found that nearly 22% of CoO certificates contained errors or misclassifications that could result in additional duties or penalties.
Practical steps include:
- Verifying supplier CoO documentation through independent assessment
- Cross-checking against the specific origin rules in applicable trade agreements
- Implementing regular supplier education programs on proper origin determination
- Including origin verification rights in supplier agreements
Step 3: Leverage FTAs and Duty Drawbacks Where Possible
Free Trade Agreements (FTAs) remain powerful tools for tariff mitigation, even in the current environment. While new comprehensive agreements have slowed, existing FTAs still offer significant opportunities for duty reduction.
The USMCA (successor to NAFTA), RCEP in Asia, and the EU’s extensive network of agreements all provide preferential or zero-duty access to major markets—if you qualify and properly document compliance.
Beyond FTAs, consider:
Duty drawback programs allow for recovery of duties paid on imported materials when they’re subsequently exported in finished products. A textile manufacturer recovered over $1.2 million in duties through drawback claims on cotton imports later exported as finished garments.
Foreign Trade Zones (FTZs) or bonded warehouses permit deferring duty payments until goods leave the zone and enter domestic commerce. Some operations can be performed within these zones without triggering duties.
Temporary importation bonds for goods that will be re-exported after limited use or processing in the country.
While these programs require administrative investment, they can deliver substantial returns. A systematic approach to identifying and leveraging all available preference programs should be part of your overall tariff strategy.
Step 4: Consider Tariff Engineering and Repackaging
Tariff engineering, the practice of legally modifying products to achieve more favorable tariff classifications, has become increasingly sophisticated as trade tensions persist. This approach represents one of the most creative yet technically challenging strategies in the tariff management toolkit.
Consider this real example: When faced with a 25% tariff on imported electronic components, a consumer electronics company redesigned their product packaging so that certain components could be imported separately and reassembled domestically, resulting in an 18% reduction in overall duties paid. The company didn’t change the essential functionality of their product, they simply recognized that the Harmonized Tariff Schedule treated the components differently than the assembled whole.
Another striking case emerged in the footwear industry, where a manufacturer redesigned the soles of their athletic shoes to incorporate more textile material. This seemingly minor change altered the classification from “shoes with rubber/plastic outer soles” (with a 20% duty rate) to a different subcategory with only 8.5% duties. The modification cost pennies per pair but saved millions annually in tariffs.
Common tariff engineering approaches include:
- Breaking complex products into components that may classify differently
- Minor design modifications that cross classification boundaries
- Strategic timing of imports to take advantage of quota periods or temporary suspensions
- Adding or removing features that affect classification
- Adjusting material composition to fall below specific thresholds mentioned in tariff notes
- Changing the packaging or presentation of goods while maintaining functionality
The legal foundation for tariff engineering was established in the landmark 1891 U.S. Supreme Court case Merritt v. Welsh, which ruled that importers may design products specifically to achieve lower tariff rates as long as the changes are genuine and not merely artefacts to evade proper duties.
While tariff engineering must be done carefully to remain compliant with customs regulations, creative approaches within legal boundaries can yield significant savings. The key distinction lies between legitimate engineering (making actual changes to products) and misrepresentation (falsely declaring goods).
Companies should involve product design teams in tariff planning discussions, as seemingly minor design decisions can have major tariff implications. This collaboration requires educating designers about classification principles and creating feedback loops where customs specialists can review product changes before they’re finalized.
In today’s environment, the most successful practitioners view tariff engineering not as a one-time fix but as an ongoing design discipline that balances classification optimization against manufacturing practicality and market requirements.
Step 5: Monitor Classification, Regulation, and Political Risk
The tariff landscape is constantly shifting as governments adjust policies and classification systems evolve. What worked yesterday may not work tomorrow.
An effective monitoring system should track:
- Changes to HS codes and tariff schedules in key markets
- Special tariff programs like US Section 301 tariffs or EU retaliatory measures
- New trade remedy cases (antidumping, countervailing duties)
- Political developments signaling potential trade actions
One pharmaceutical company established a cross-functional “trade war task force” that meets monthly to review tariff developments and adjust strategy accordingly. When early signals pointed to potential tariffs on certain chemical inputs, they were able to secure alternative sourcing six months before tariffs were announced.
This monitoring function typically requires dedicated resources or external support specializing in trade compliance. The investment pays dividends through avoided duties and penalties, while also providing strategic foresight for business planning.
Step 6: Build a Flexible Sourcing and Inventory Strategy
Supply chain design has become inseparable from tariff management. The era of single-source, just-in-time inventory models is giving way to more resilient approaches that hedge against tariff risks.
Key elements of a tariff-resistant supply chain include:
- Geographic diversification of suppliers across multiple trading blocs
- Nearshoring initiatives to reduce cross-border friction
- Strategic inventory positioning to minimize tariff exposure
- Alternate routing and port selection
A furniture retailer facing 25% tariffs on Chinese-made products developed a dual-sourcing model with production split between Vietnam and Mexico. While unit costs increased slightly, the tariff savings more than compensated, and the reduced shipping times from Mexico improved their competitive position for U.S. market sales.
The most successful companies approach sourcing as a dynamic portfolio rather than static supplier relationships. Regular scenario planning for tariff changes should inform supplier development and qualification efforts well before trade tensions emerge in new regions.
Step 7: Align Tax, Legal, and Compliance Teams Proactively
Tariff decisions don’t exist in isolation—they ripple through organizational functions and create second-order effects that must be managed holistically.
When a medical device manufacturer shifted assembly operations to avoid tariffs on finished products, they inadvertently created new tax nexus issues in three countries and complicated their transfer pricing model. The eventual solution required collaboration between trade compliance, tax, legal, and finance teams to optimize the overall structure.
Critical areas for cross-functional alignment include:
- Transfer pricing policies that account for changing tariff costs
- Tax jurisdiction and permanent establishment considerations when shifting operations
- Intellectual property protection when diversifying manufacturing locations
- Contract terms with suppliers and customers that allocate tariff risks appropriately
Companies that excel at tariff management typically establish formal coordination mechanisms between these functions, ensuring that trade decisions account for all downstream implications.
Industry Focus: Who’s Impacted the Most?
While tariffs affect virtually all sectors engaged in international trade, some industries face particularly acute challenges:
Retail and E-commerce
Retailers operating on thin margins have been hit hard by tariff increases, with some categories seeing duty rates jump from 3% to 25% virtually overnight. Fast-fashion retailer H&M reported that tariff increases in 2023-2024 reduced gross margins by 2.3 percentage points, forcing significant repricing and sourcing changes.
Consumer Electronics
The complexity of electronics supply chains makes them uniquely vulnerable to tariff disputes. Classification challenges are common, as minor features can dramatically change how products are categorized. Apple’s ongoing battles over whether smartwatches should be classified as communication devices or watches illustrate how much money can be at stake in these determinations.
Agricultural Exporters
Food producers have often been collateral damage in trade wars, targeted for retaliatory tariffs because of their political sensitivity. When Country A imposed steel tariffs on Country B, Country B responded with 40% tariffs on agricultural imports from Country A, devastating farmers who had nothing to do with the original dispute.
Technology Companies with Hardware Components
Software-as-a-Service companies that include hardware components in their offerings face hybrid challenges. Their products may straddle the line between goods and services, creating complex tariff and tax situations that require careful navigation.
How Businesses Navigate Cross-Border Tax Complexity
Companies that successfully weather trade wars typically develop sophisticated approaches to managing their global structures. Trade conflicts don’t just impact customs duties—they create ripple effects through an organization’s entire tax and regulatory footprint.
Essential capabilities for effective cross-border management include:
- Global tax nexus tracking to understand where tax obligations arise as sourcing patterns shift. When a company diversifies procurement from China to Vietnam, Thailand, and Mexico, they’re not just changing duty payments—they’re potentially creating new permanent establishments and tax filing obligations in each jurisdiction.
- Multi-entity management systems that provide visibility across diverse corporate structures. Leading organizations maintain digital entity relationship maps that connect ownership structures, intercompany flows, and compliance requirements. This visibility becomes crucial when rapid responses to tariff changes require adjusting how goods and services move between affiliates.
- Transfer pricing frameworks that adapt to changing tariff environments. When tariffs increase costs in certain supply lanes, transfer pricing models must adjust accordingly to maintain arm’s length compliance while optimizing the company’s overall tax position.
- Strategic incorporation decisions when establishing new operations in response to trade pressures. The legal structure chosen for new manufacturing or distribution hubs can significantly impact both tariff treatment and broader tax efficiency.
- Consolidated reporting capabilities that provide real-time visibility into total landed costs across the global supply network. Companies need to analyze tariff impacts alongside logistics costs, tax implications, and operational expenses to make truly informed decisions.
- Scenario planning tools that model the financial impact of potential trade actions before they occur, allowing proactive rather than reactive adjustments to global structures.
Organizations must balance the immediate tariff benefits of restructuring against the broader tax and operational implications. This requires integrated planning that considers customs, corporate tax, VAT/GST, and regulatory perspectives simultaneously—a capability that distinguishes market leaders from those merely reacting to trade pressures.
Conclusion: Turning Tariff Management Into Competitive Advantage
As trade tensions become a permanent feature of the global economy, tariff management has evolved from a tactical response to a strategic discipline. Companies that develop sophisticated capabilities in this area don’t just survive trade wars—they turn them into opportunities to outperform less agile competitors.
The seven steps outlined in this article provide a framework for developing this strategic advantage:
- Map tariff exposure comprehensively
- Master rules of origin
- Leverage preference programs
- Consider tariff engineering
- Monitor regulatory changes
- Build flexible supply chains
- Align tax and legal strategies
By approaching tariffs systematically rather than reactively, businesses can transform what many see as an unavoidable cost into a source of resilience and competitive differentiation in increasingly complex global markets.
Those companies that invest in these capabilities now will be better positioned not just for current trade tensions, but for whatever shifts in the global trading system may come next. The age of frictionless globalization may be over, but sophisticated tariff management opens new paths to international success.
How Commenda Helps Navigate Tariff Complexities in Trade Wars
For businesses seeking to implement these strategies effectively, Commenda offers specialized solutions designed for the unique challenges of trade war tariff management:
Commenda’s tariff exposure mapping tools provide comprehensive visibility into your product-specific vulnerabilities across all markets, with real-time tracking of duties and potential savings opportunities. The platform maintains detailed records of classification decisions and supporting documentation, creating an audit trail that proves invaluable during customs audits or verification.
