Let’s play pretend. Imagine you’re the owner of an airline company. In order to get your wheels off the ground, you have to check if your aircrafts are properly fitted with the furnishings, supplies, and equipment necessary for safe, efficient travel. Sadly, upon inspection, you find your fleet is in no shape to fly—cabin seats need to be reupholstered with new fire-resistant fabric, cargo spaces have to be lined with titanium-based material, and even safety rafts and floatation devices need replacing. If you don’t address these issues, per FAA’s rules, you’re banned from the runway. And that can’t happen. You’ll lose millions!
Your team gets to work, sourcing specific material and safety items needed to meet federal regulations. Luckily, you manage to locate a few suppliers in China who are able to export textiles, titanium alloy, and floatation rafts, so you request samples. Following a thorough review of each selection, you make a final decision, submit your purchase orders, and eagerly await their U.S. arrival.
Now, at this point, you might be thinking you’re in the clear. But surprise! You’re wrong. That’s because you didn’t take into account the new Section 301 tariff increase. Turns out, the items you need—fabric, titanium, and rubber—are all products named on the Tranche 3 list of Chinese exports liable to a 25% rate in punitive tariffs. That’s 15 percentage points higher than its previous rate, which really throws a wrench into your budgeting plans. Here’s how:
Let’s say you own ten planes, and each aircraft seats 150 passengers, totaling 1,500 seats in all. If you order one yard of fabric per seat, plus a little extra for emergency inventory, you’re probably looking at 2,000 yards of fire-resistant fabric, priced at $11.99 a yard. Crunch the numbers, and the subtotal comes to $23,980. Now, if these goods carry a 17% tariff rate, plus the additional 10% punitive tariff rate, your original rate of 27% will now be subject to the new 25% increase, which brings your new total tariff rate to 42%. That means you’ll be paying a whopping $10,071.60 on top of the initial $23,980. All together, you’re paying $34,051.60 for your fabric order. Considering your business is fairly small, this price tag is nothing to sneeze at. So how do you recoup the costs?
Short answer: you pass it on to your customers. You start by charging for checked luggage, then carry-on luggage, and then food, beverages, and every other amenity possible. And while this may help chip away at your balance sheet, customers are none too pleased. They realize other airlines offer far less expensive fares for the same service, so they jump ship and leave your company in the lurch.
While this scenario is just make-believe, facts remain the same. Retailers, brands, and service-related businesses reliant upon Chinese imports will most certainly face massive costs. And it’s not the United States that’s going to pay; it’s American companies. Unfortunately, the only viable solution to keeping businesses afloat is to pass the buck onto consumers in the form of higher prices. If that’s the case, these companies are going to need a hand figuring out how to save time and money while avoiding overspending and customer dissatisfaction. Thank goodness Bamboo Rose can help.
With the Bamboo Rose tariff impact tool, users can more easily forecast, prepare for, and mitigate potential tariff effects before they’re even signed into law. The tool supports tariff engineering to provide alternative sourcing and supplier options based on material use and country of origin. Even better: our multi-enterprise platform offers a varied approach to sourcing, so retailers can see the cost differences in, say, steel versus copper, or silk versus cotton. The tariff impact tool also offers users product redesign options that may alter the item’s Harmonized Tariff System number, resulting in vastly decreased costs. Moreover, it will recommend similar material alternatives so users can shop around to see what works best for their needs.
Is your business prepared for increased tariffs? Protect yourself against risk and learn how Bamboo Rose can help. Read our white paper, “Mitigating Retail Risk with What-if Costing.”