War Games: Strategies for the 2025 Tariff Landscape

With the modernization of supply chains including digital processes for ordering, freight management and currency conversions, the United States has enjoyed unprecedented participation in the world economy. This modernization has reshaped how American businesses engage in global trade, creating more efficient and more competitive supplier networks. Advanced technology has transformed supply chain visibility into a real-time process which allows for a faster pivot in decision making and has expanded partnerships globally. Companies have moved from viewing their supply chain as a cost center and looking instead at strategic assets to drive growth.

However, the momentum of this global economy is now being challenged. U.S. tariff aggression and regulatory shifts are creating obstacles for supply chain leaders across industries. Businesses relying on cross border commerce need to adjust in order to adapt to ongoing uncertainty. There is an immediate need to adopt new strategies, but also the landscape is changing so quickly, companies need to have multiple risk management plans in place and be able to execute any of them at any time. That creates a lot of chaos in an area of business that relies heavily on processes and structure.

The Evolution:

The tariff relationships between the U.S., Canada, Mexico, and China have undergone many transitions in the last 30 years. The “NAFTA Era” from 1994-2020 eliminated most of the tariffs between the U.S., Canada and Mexico (North American Free Trade Agreement). This put the focus on cross border trade for automotive manufacturing as well as other industries and production flourished. Canada had 35% tariffs applied, but then had a “Most Favored Nation” clause for the U.S. that dropped it down to 4.1%. The story between Mexico and the U.S. during this time was similar with over $1.2 trillion in annual trilateral trade occurring between NAFTA partners. For imported Chinese goods the U.S. had maintained an average tariff of 3.8% until 2018 and China similarly had a 7.2% tariff for U.S. exports.

The beginning of the trade war: 

In 2018 there was a large shift by the U.S. with the Section 232 Trade Expansion Act imposing 25% on steel and 10% on aluminum for Canada, Mexico and the E.U. Canada retaliated by assessing $12.6 billion in tariffs on U.S. steel, aluminum and consumer goods. Mexico jumped into the fray targeting another $3B in U.S. agricultural products with tariffs of their own.  This escalated mid-2018 when the Trump administration launched Section 301 tariffs against China with 25% duties on over $34 billion in Chinese imported goods. China again retaliated with tariffs on $185B of U.S. exports, primarily on agriculture and energy products. In 2020 there was a deal that temporarily halted the rapid escalation but maintained elevated tariffs on Chinese goods. One of the things U.S. administrations have agreed on is to reduce the pressure of Chinese imports on U.S. manufacturing. President Biden maintained most of the Trump-era tariffs but targeted some specific industries like solar cells, electric vehicle batteries, steel & aluminum.

The shift from agreements like NAFTA and WTO to unilateral tariffs showcase the broader U.S. strategies to use economic weapons as leverage. In 2025 the chaos of the first quarter of the year signals a return to aggressive protectionism. For businesses, diversification of suppliers and other operational pivots remain critical to mitigate the risks.

The current tariff landscape:

Currently one of the most significant disruptors in supply chain planning is the ongoing trade war between the U.S. and some of our trading partner countries like Canada, Mexico and China. It’s important to note that the current situation is a period of transition, and not a settled policy. There is pending legislative action in front of congress for a permanent end to de minimis from both China and other countries. As world leaders respond to economic threats from the U.S., and the administration responds in kind, it’s hard to keep up. There have been temporary suspensions and reversals across the board, creating a lot of confusion for importers, carriers and even customs officials.

Changes to Standard Tariffs:

There have been a volley of tariffs lobbied across borders between the U.S., Canada, Mexico and China this year. They get threatened, implemented, reversed, and implemented again. As of March 7, 2025 the US has reversed 25% tariffs on goods under the US-Mexico-Canada Agreement (USMCA), but is maintaining an additional 20% tariff on all imports from China.

Things you didn’t learn in history class: Section 321 or “de minimis”

Additionally, the US has officially closed the de minimis program for Chinese made goods, which previously allowed lower value shipments to enter the country duty-free. Erroneously being called a “loophole”, the program was designed in 1938 to “avoid expense and inconvenience to the Government disproportionate to the amount of revenue that would otherwise be collected”. The name “de minimis” means “too trivial or minor to merit consideration”. Essentially the program was designed to save money for US customs processing on low value shipments that cost more in administrative resources than they’re worth.

In 2016 the de minimis amount was expanded to $800 as part of the Trade Enforcement Act. This allowed for an explosion of e-commerce shipments under the program, turning it from a little used provision into a major factor in cross border trade. During the pandemic when shipments were literally stuck in containers around the world, the de minimis packages were still making it through via air travel.

Companies like Temu and Shein brought this program to the forefront in 2023 and 2024 as they shipped millions of packages using this program and avoiding U.S. tariffs. It should be noted that American companies also ship millions of packages under this program. The count of shipments under Section 321 has averaged upwards of 4 million packages per day.

The program has been under the microscope for the last year as the sheer volume of packages increased and officials were starting to feel there was a missed revenue opportunity for the United States in these packages. It was also felt that it gave these large Chinese companies an unfair advantage over U.S. companies that were importing in bulk and paying tariffs on the shipments. On February 1, 2025 an executive order closed the entire de minimis exception, with a specific target on products manufactured in China. This was a broad order, and also encompassed de minimis entries from Canada and Mexico. This created immediate issues in implementation. The country simply didn’t have the infrastructure in place to inspect the millions of daily packages that were coming in.

In February 2025 there was an executive order prohibiting de minimis packages from Canada and Mexico as well but that order was placed on hold following negotiations. These were largely reversed on March 7, 2025. Currently shipments allowed under Section 321 for goods made in countries other than China remain in effect (as of the date of publication). There are many companies shipping from Mexico and Canada into the U.S. currently taking advantage of this program but it’s critical to note that the negotiations could fail at any time so companies need to have a backup plan.

For up to date information, check with the US International Trade Commission for updates prior to booking your shipments (https://www.usitc.gov/harmonized_tariff_information). 

Sales & Marketing Drive Revenue; Operations Drives Profits

For small to medium sized enterprises tariff changes are translating to tangible financial impacts. Companies must either absorb these costs and reduce profitability or they are forced to pass them on to their customers.

Traditionally, supply chain focus has been on cost optimization. So how do operators work with the volatility that is the current landscape? The whiplash effect of these tariff wars are exhausting for operators. Rapid policy implementation followed by modifications and reversals are leaving Ops teams with very few options for long-term planning. But that doesn’t mean you can’t come up with alternatives to implement and conserve your profitability.

In supply chain management, it’s critical to look at how rigid a decision is for future maneuverability. One-way decisions like having a single supplier becomes difficult to reverse course. Two-way decisions will allow for more flexibility. Often this has more up-front cost but the long term benefit balances that out. The benefit of a two-way supply chain structure is that it is reversible at any time allowing for quick pivots when needed.

How do you shift to a two-way supply chain?

• Test new suppliers with small order allocations before committing to larger volumes.
• Negotiate contracts with exit clauses and performance metrics.
• Create pilot programs for new fulfillment locations with defined evaluation criteria.
• Test carrier relationships and pricing from a variety of fulfillment locations and ship to a variety of zones.
• Implement phased approaches to major changes.
• Include all company stakeholders so that Sales, Ops, Finance, and Customer Service are all working towards the same goals.

Anticipatory Planning:

Rather than focus on a cost-only approach, the pivot now needs to be adaptability. Look for the long term, and avoid getting wrapped up in the chaos.

Companies that have relied on the de minimis program have already had to rapidly implement strategic changes. Shein for example, saw this coming a long time ago. In preparation, they had already begun diversifying their operations. They added U.S. fulfillment to reduce reliance on Section 321 shipments. They established new manufacturing facilities in other countries. They negotiated with new factories by offering high volume for lower up-front costs.

Operators can take a page from this playbook by looking at some overall changes.

• Contracting with 3PLs inside the United States for fulfillment and shipping products cross-border in bulk (and paying associated tariffs up front).
• Diversification of manufacturing to countries that still can use de minimis privileges.
• If finances allow it, switch to larger production volumes in exchange for lower pricing.
• Conserve cash by using “just-in-time” inventory production. This reduces cash flow by paying for products and duties in smaller quantities.

Companies are expanding manufacturing into Turkey, Mexico and Brazil and then shipping into the U.S. under the same Section 321 program. However there are other advantages to sourcing some additional manufacturing.

Manufacturing diversification. 

The pandemic taught us all what happens if we only have one source, one factory or one warehouse. If something gets closed or delayed for any reason, it impacts the entire supply chain. Finding additional manufacturing in other countries can help with redundancies. There are costs associated with this, you may have to pay for additional molds or tooling for your products. You may have to spend some time going back and forth with samples for color matching and quality. This is a long-term play, not a short-term pivot.

Another, hidden advantage to sourcing in this way is the negotiating power you can achieve. One of the reasons Chinese products are so cost effective to purchase is that the government has a rebate program for exported products. Chinese manufacturers receive a government rebate on shipments they produce then export. If you produced the same product and shipped it to a warehouse in China to be sent out, the price will be higher because the factory won’t qualify for the government rebate. These rebates give the factories room to negotiate on production pricing. There are other countries offering similar programs, which can give you negotiating power with factories in those areas. This won’t be enough to completely offset the new tariffs but it will certainly take some of the pain away.

Countries offering export rebates or incentives:

• China – China offers export tax rebates that range from 9% to 16%, depending on the product, making its rebate system one of the most extensive globally. Export Processing Zones (EPZs) offer additional perks, including streamlined customs procedures and corporate income tax reductions to 15% for qualifying enterprises.
• India – India has export incentives that are product specific. The RoDTEP program now covers 95% of tariff lines, providing exporters with rebates averaging 2–3% of export value, while the EPCG scheme reduces import duties on capital goods by 50%.
• Vietnam – The Vietnamese tax exemption program targets high-tech manufacturing, offering corporate tax holidays of 10–15% rates for electronics, automotive, and textile sectors in economic zones.
• Argentina – Argentina reduced export taxes on soybeans and eliminated tariffs on sugar and peanuts to alleviate drought-driven economic strain, aiming to boost agricultural exports by 12%. They also have subsidies for renewable energy exports.
• Brazil – Brazil has R & D incentives for green manufacturing and also the “Regional Economies” program that permanently eliminates export taxes on cotton and tobacco, supporting SMEs.
• Colombia – Colombia’s Free Trade Zones offer 20% corporate tax rates and VAT exemptions for manufacturers in textiles and automotive sectors.
• Mexico – Mexico’s IMMEX 4.0 program simplifies customs for export manufacturers with auto parts exporters receiving additional 5% tax credits.
• South Korea – South Korea’s program allocates $150 million in cash grants, covering up to 80% of investment costs for semiconductor and biotech firms and also has R & D tax credits for AI and smart logistics.
• Turkey – Turkey’s program is aggressive, with 7% subsidized loans and $615 million in sector-specific grants for textiles and automotive parts.
• EU – The EU has programs for VAT and duty waivers for exports that can help with production costs.

What about your fulfillment network?

How can your 3PL warehouse and logistics partners assist in the pressure you’re receiving on your supply chain and profitability?  Note we use the word “partner” not “vendor”. A fulfillment partner is an extension of  your team. They are the last person to touch your product before your customers. They are the first ones to touch it when it arrives from your manufacturer, making them a key element of quality control and inspection. They maintain your inventory in a safe, clean and secure environment, ensuring that your products are ready for sale. A 3PL also receives returns and warranty claims as they come back. Again, with their ability to inspect the returns, they see what is working for the customers, what isn’t and can even advise you on manufacturing defects they see repeatedly.

Save on tariffs if you have a product in a category that allows for duty-free storage at a bonded 3PL.

A little-known trick for deferring tariffs is optimizing your storage to meet demand fluctuations. The U.S. maintains 11 distinct classes of bonded warehouses, each designed to address specific trade requirements. The benefits can range from duty deferral to regulatory compliance and operational flexibility. For example Rolex and Apple use Class 3 facilities on high-value imports. They can avoid the duties until the retail distribution in the U.S. which preserves cash flow. Intel does the same with bonded warehouses and is able to defer $1.3B in liabilities across warehouses in Arizona.

Similarly, pharmaceutical companies leverage Class 3 bonded warehouses to store imported drugs pending FDA approval. In 2024 Merck reported $420M in deferred duties while awaiting clearance for oncology treatments. Bonded facilities for pharmaceuticals also enable temperature controlled storage which complies with some government standards without tax burdens.

Automakers rely on Class 6 bonded warehouses for auto parts storage. They enjoy duty deferral until parts are incorporated into vehicles for export.  The recent 2025 tariffs on Canadian aluminum and Mexican steel have created a larger need for bonded storage to maintain cross border supply chain flexibility and cash flow protections.

Key Bonded Warehouse Classes:

• Class 1 (Government). Stores merchandise under CBP custody including seized goods or items pending inspection.
• Class 2 (Private). Exclusive storage for goods owned by the company. For example Harley-Davidson has exclusive storage for their engine parts.
• Class 3 (Public, general import). Available to multiple importers for duty-deferred storage like electronics and pharmaceuticals.
• Class 4 (Bulk). Heavy cargo and liquid storage with open yards, tanks or enclosures for livestock. For example cattle imports avoid 4.4cent/kg tariffs until after processing.
• Class 5 (Grain storage). Designated grain bins or elevator sections that are separated from non-bonded areas. For example imported wheat can have deferred tariffs until it’s milled domestically.
• Class 6 (Manufacturing). These facilities rely on export of component assembly. For example Boeing’s 787 production is stored in a Class 6 facility.
• Class 7 (Metal Smelting and Refining). Here ores are processed into export-ready materials which reduces the tariffs through value added processing.
• Class 8 (Repacking and light processing). Warehouses for labeling, sorting or repacking without any manufacturing. Amazon uses Class 8 facilities in Mexico to relabel imported products and defer tariffs until sale.
• Class 9 (Duty-Free). For airport or cruise ship stores selling tax exempt goods for international travelers avoid duties as the products are never sold in the United States.
• Class 10 (In-flight merchandise) Storage for amenities sold aboard international flights including alcohol served in-flight to avoid duties as the products are used internationally and not sold within the U.S.
• Class 11 (General Order Storage). Government managed sites for shipments that have exceeded the 15-day clearance window by CBP (Customs and Border Protection). Often used by logistics operators,like DHL who holds 12,000 undocumented parcels monthly in New York warehouses which saves $6M in premature duty payments.

By checking the classification system and if you qualify, you can take advantage of significant savings and aligning storage strategies with cash flow. Bonded warehouses are one of the critical places where tariffs can still be mitigated making them an important part of the supply chain. Conduct a warehouse classification audit to identify duty deferral opportunities across your product portfolio.

Make sure your 3PL is a partner, not a vendor

• Values: Does the warehouse’s approach to service quality and customer unboxing experience match the standards of the brand?
  • Test, test, test! Send your team test orders to see how the warehouse packs them, how fast they arrive and in what condition.
• Risk Mitigation: What contingencies does the warehouse have for disruptions? This could be due to
  • Environmental (a coldchain facility for example needs to have backup generators to power the freezers or the product is lost when there is an electrical failure).
  • Economic (a huge spike in orders will require them to staff up to make their SLA’s and get the orders out on time. Similarly, a decline in orders will require a conversation on pricing and the economics of your relationship). Make sure your warehouse is well funded to weather economic challenges that could come their way.
  • Political (tariff changes could result in delays to inbounded inventory as CBP takes more time to inspect and assess each package and the corresponding HTS (Harmonized Tariff) codes to ensure they’re billing you correctly).
• Flexibility: Can they shift operations quickly to handle changes in needs, technology integrations or unexpected challenges?
• Industry specific expertise: Does your warehouse have experience in your specific vertical? Do they know how to manage first in, first out for products with expiration dates? Do they know how to pack an EDI B2B (Wholesale) order to satisfy vendor guide requirements?

How to improve your 3PL partnership

• Work together on creating contingency plans for a variety of scenarios and developing SOPs (Standard Operating Procedures) for each contingency for both parties; your team and theirs.
• Assess their tech stack and be informed on any changes they’re thinking of making there. A change to their WMS (Warehouse Management System) will impact you in terms of transition, usability and integrations so it’s critical for you to understand what they’re using or planning on using.
• Similarly, assess your tech stack and communicate with them about future needs for integration, order management, inventory management and sales channels that you’re negotiating with. If you’re adding EDI (Electronic Data Interchange) and the facility hasn’t previously worked with an EDI system, it’s going to require some time to get them up to speed.
• Review their experience handling similar products to yours. Look at category, product size, product weight and any special requirements like temperature or hazardous materials controls.
• Get a list of all their certifications to ensure they are compliant with your trading partners. For example sectors with high-value or regulated products like pharmaceuticals, luxury goods, electronics or automotive parts will require a bonded warehouse. Sectors that work in international trade or duty free will need a bonded class 9 warehouse so vendors can store duty-free goods without up-front duty payments.
• Communication. Set up effective communication channels with your warehouse. Make sure they know about changes you’re making to products, pricing or manufacturing. Make sure they see the sales projections and the marketing calendar for any promotions you’ll be running. The more they know the more they can be ready for your business fluctuations.

Leverage Technology in your Operations

Your tech stack is going to play a key role in your supply chain and whether it’s resilient enough to weather storms. A fragmented system with a lot of manual processes is going to significantly slow down your ability to react. Likewise, a poorly integrated system will create more work in managing the processes than it’s worth. Make sure you’re automating as much as you can in  your supply chain management systems.

Start with a technology audit

• Map every system in your current tech stack, identify redundancies and gaps.
• Map all the spreadsheets, lists and other data sources your team relies on for analytics and metrics.
• Review all the SOPs related to technology and identify redundant tasks
• Track all manual processes and assign a time value to them, extrapolate that into a financial cost of manual processes.
• Review integrations and see if you can reduce the number of connections that pass through other platforms. “Daisy chaining” your integrations reduces your control and increases the chance of breakage and mistakes.
• Audit for data quality. Make sure that the data flowing between systems is accurate and that you have checks and balances in place to find the ones that aren’t.
• Identify any functional overlap between systems.
• Assess your tech stack and find out if there are solutions that offer more functionality and can reduce multiple technology partners.
• Create a schedule to regularly review all systems for functionality, pricing and usability.

Ensure customs compliance for imported goods

Given the enhanced attention on cross-border shipments, it’s more important than ever to be keeping an eye on customs compliance. Start with a rules of origin analysis to make sure you’re correctly identifying the country for your imports. After that, it’s critical to have a proper classification of your tariff codes. These codes will dictate not only duty rates, but also eligibility for trade agreements and special storage considerations. Misclassification risks severe consequences, including customs delays averaging 3–7 days per shipment, fines up to 20% of the product value, and legal actions including seizure and destruction of your goods. An incorrect code can retroactively trigger a payment demand for underpaid duties. Using the right codes can help you leverage duty deferral programs and qualify for export rebates.

With 98% of global trade relying on HTS codes, companies using integrated tech stacks reduced the risk of manual tariff classification errors . Even more significant, historical compliance preserves Authorized Economic Operator (AEO) status, which streamlines customs procedures and avoids increased scrutiny, saving you time and money. As trade tensions escalate, there are a number of proactive steps you can take to make sure that you are using the correct tariff classification and that your customs paperwork is in order.

• • Analyze materials: Pay close attention to the materials and certifications used in production of your products. A slight change in materials could cause an HTS code shift.
  • Conduct a Rules of Origin analysis
    • Identify the applicable FTA (Free Trade Agreement) your product falls under. (For instance, the United States-Mexico-Canada Agreement (USMCA) or other FTAs relevant to your product).
      • Note: If you qualify under multiple FTA’s, make sure you certify your origins separately for each one.
    • Common types include:
      • Wholly Obtained: Goods entirely sourced or produced in one country.
      • Substantial Transformation: Requires significant manufacturing or processing, often measured by:
        • Tariff Shift: A change in HS classification due to production.
        • Regional Value Content (RVC): A percentage-based calculation of local content.
        • Process Rule: Specific manufacturing processes required
  • Obtain a Certificate of Origin (CO) from your manufacturer

• Automate HTS Code Assignments: Deploy AI-driven classification tools to dynamically update SKU tariff rates amid regulatory shifts. Make sure you take into account the proper Rules of Origin for each product when classifying your product, HS codes have country specific pricing applied.

• Document compliance. Maintain detailed records of production, sourcing, and calculations to substantiate claims of origin. This may include supplier certifications, invoices, and manufacturing records.

• Advanced Ruling request if needed: Consider requesting an advance ruling if HS code application or compliance is unclear.
• Technology Partners: Utilize tech partners adept at HTS classifications, document review for compliance and customs clearances.

Review your supply chain steps and processes

Shall we play a game? Well organized brands will engage in “war game” exercises, strategically planning for a range of potential disruptions proactively. This is how a company can truly build resilience into their supply chain.  These exercises result in scenarios A, B, C and more that can be pulled out and implemented when the associated disruption is detected. Many companies pulled out and implemented plans like this when the pandemic became an economic and logistical necessity.

For each scenario, quantify potential impacts, identify trigger points that would necessitate action, and develop specific response plans.

Checklist for Supply Chain Disruption Planning:

• Identify your supply chain’s most vulnerable components.
  • Model the cost of impact to each of those components.
  • Model the time to manage each impacted component.
• Document alternative sourcing options for critical materials.
  • Include manufacturing materials but also things like packaging, labels, bags, etc.
  • Evaluate country of origin impact for each product.
  • Evaluate whether changing the origin country will have a long-term benefit.
• Create contingency plans for key fulfillment locations.
  • Review multi-country locations as well as multi-site within each geography.
  • Model strategic inventory positioning to reduce movement.
  • Component level imports where possible with final assembly in tariff advantages locations.
  • Just-in-time inventory production.
  • Drop shipping arrangements with manufacturers.
• Model the financial impact of each tariff scenario.
  • Secure fixed pricing with suppliers. Lock in rates for a time frame.
  • Negotiate the shared tariff burden with your factories.
  • Financially model shifts to alternate manufacturing.
• Model the financial impact of each contingency plan.
  • Negotiate extended payment terms to preserve cash flow.
  • Implement regular price benchmarking (quarterly).
• Establish the trigger point for activating each contingency plan.
• Schedule quarterly reviews of disruption response strategies.
• Stress-test your contingency plans.

Embrace the Chaos – Turn it to Structure

The global trade landscape will continue evolving, but volatility doesn’t need to dictate your trajectory. By embracing operational agility, technology and strategic partnership, businesses can transform the tariff challenges into competitive advantages. The strategies outlined in this guide can provide actionable steps to mitigate risks and unlock margin protection.

As protectionist policies intensify, success will favor companies that treat trade compliance as a value-added lever rather than just a cost center. Contemporary global trade requires operational agility, technological integration, and strategic planning to navigate escalating tariff pressures. The closure of Section 321 de minimis privileges for Chinese goods, coupled with fluctuating USMCA tariffs, has irrevocably altered the plans for e-commerce supply chains. However, these challenges also present opportunities for brands willing to reengineer their logistics frameworks. Chaos can be turned into structure. Risk Management plans are part of the adaptability.

Begin today: Audit your HTS code accuracy, explore bonded warehouse eligibility, and schedule your first tariff war game. As economist Paul Krugman observes, “Productivity isn’t everything, but in the long run, it’s almost everything.” In global trade, preparation is the new productivity.