Carolina Palma (CP) and Rodolfo Pérez (RP) tax experts, foreign trade and supply chains, of the consulting firm EY, explain the difficulties that companies can face with the new and changing measures announced by the president of the United States, Donald Trump, also known as “intermittent tariffs.”
They say that contracts or models should not necessarily be changed at this time, but prepare. As a signature, what they pose is an integrated scheme, since it is a living and changing model where you must take advantage of integrating scenarios to take advantage of short -term opportunities and that you help to have anchor the medium and long term transformation that requires greater capital.
What should companies with their buyers in the United States do before the commercial changes that Donald Trump announces?
CP: The issue is uncertainty. We have a situation where the theme of tariffs has become a political letter rather than a technical issue, there is a lot of change in a short time and that is the biggest problem for companies.
Therefore, it is important to have tools that support them to navigate this uncertainty and continue their operations because trade follows, regardless of the tariffs and laws of each country.
RP: Scenarios can be modeled, even if they will not necessarily make a decision immediately, but allow them to have visibility, in case there was some change, about how the company could impact the business, the operation or the operation, which gives them agility and allows them to make informed decisions.
Beyond being carried away by uncertainty, it is necessary to think that, since the waters are turbulent, the entrepreneurs of the region must strengthen their alliances in economies that have certainty to become an option when it is implemented that some of the tariff measures are implemented, it is important to understand the characteristics of the demands of products of these potential clients or allies.
There are decisions that are made in advance of shipments, such as signing a contract, putting an amount to a business or establishing logistics. What should the businessman do?
CP: You do not necessarily change anything at this time, the most important thing and the number one step is to understand the changes, because there are impacts that are different according to the company, the area they provide, or the country.
There may be an agricultural company in the country, whose agricultural supplies come from China to the United States where they enter a distribution center or process them and then are imported to Guatemala to produce. This company could have an impact because it would face a higher cost with that supplier, since China is putting an additional 10 or 20%tariff in the United States. When the input goes from Mexico to the United States and then comes to Guatemala, although at the moment the start of the 25%tariff collection was postponed, it could be applied to the future and the effect would be the same.
What is the recommendation, in that sense?
The recommendation is to analyze its supply chain and all the scenarios, do not make decisions until possible impacts have, how much it will cost and what we can do about it. First you must analyze how much that cost will be; Second, analyze whether it has an available appeal as a contract that already establishes to maintain the price for two years or if they say that they should not take any cost.
When you have scenarios, what can be done?
RP: Beyond changing a clause in a contract, where there are obviously already agreements, it must be reviewed whether in the modeling of scenarios several of these coincide with which the impact will be on the supply of a raw material that comes from Mexico or China.
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There are elements that we can anticipate, as an exploration process: see if there is a localized capacity in one of the countries that do not have these tariff impacts; Start exploring quality, closeness, service level, because if there is an opportunity to meet part of the demand that perhaps Mexico or Canada stop doing so, you must see what alternatives there are to take advantage of a part of those potential demands.
If several scenarios coincide where what you have to do is relocate a supplier or demand, I can anticipate at the time the risk materializes. The advantage is that I can make approaches, evaluate them and the time that is activated I have an implementation route.
If it were a Guatemalan company that exports to the United States, what should?
The United States consumer will continue to generate demand, but it will look for alternate products at a better price and with good quality. That’s where a space is opened not only for Guatemala but for the region.
Four aspects can be evaluated:
- It is important to understand what are the characteristics of that demand, because it may be that I already make a product similar to the one they are demanding, but it has an element of added value, which does achieve and be able to generate a premium value in that sale. To take advantage of the opportunities, it should have begun last year and if it did not, the second best moment is now.
- Also understand, within the worldview of my business to visualize where there are vulnerable alternatives to fall in demand that arose by these gigantic countries and where there is a niche that I can take advantage of and enter to provide.
- Evaluate dispatch agility. In Guatemala we have a huge infrastructure challenge, then we must find alternatives to be able to agility that demand, because if I announce, but I do not arrive, it is worse and affects my margin.
- The relocation of suppliers to be able to supply, look for alternate products or raw materials, local suppliers that give me more agility and give me the advantage already competitive.
EY has initiatives in the part of great supplies which are short, medium and long term that customers or audience can use to evaluate those alternatives.
What other aspect should attention be paid?
CP: It may be that impacts arise where some measures have to be taken, but it is also important that we focus on the opportunity and this comes when we have supply chains or even products that suddenly, given the new circumstances, they are more competitive. In Central America we have an opportunity, at least at this time, because we are not in the focus of tariffs. Many companies that are looking to mitigate these costs of the new tariffs could obtain those products in Central America and achieve a growing demand or even establish themselves in some countries in the region to send from here to the United States.
RP: Although the engine or the lung of wealth generation comes a lot of private initiative, it is an opportunity for the public sector to replace its strategy, to be agile in strengthening the conditions to attract part of that investment and consolidate alliances that may give competitive advantages to the country.
What strategies do they propose?
RP: Among the short -term alternatives We can mention several:
- The increase in inventory. The easiest can be considered, when visualizing that a market is going to be unfit and there is an opportunity and the one that passes first in moments of scarcity hits twice.
- Some suppliers or buyers may be impacted by tariffs, so you must evaluate how we share that tariff load so that they benefit both and continue to reach the market.
- Consult with experts to seek incentives that we are not contemplating as government or tariff incentives.
- Tariff engineering options. Observe what elements can integrate changes in the tariff structure to meet the demand that can be generated.
In it medium and long termthey can be mentioned:
- Relocation of suppliers, which is not so easy but can be evaluated to see if instead of continuing to buy a foreign supplier you can work with a local one or if the foreigner comes and invests in a local plant in Guatemala.
- Reevaluate what the consumer mentions or perceives as quality and depending on the result analyzing the raw material from a local supplier.
- Diversify demand with new markets to export. If it is observed that it becomes very complex to supply the United States, but we see that they begin to ally with a country like El Salvador, which is beginning to have an increase in Friendship and in Nearshoring, you can seek alliances to replace part of that supply, and for the volume that does not have the ability to send the Savior, put a fronting to provide guatemalte.
- In the medium or long term, redesign its full supply chain. Know the scenarios and derived from this see if part of productive capacities is relocated, attract investment elements to be able to have a manufacturing plant, not only like those that are usually in Guatemala that are much of commodity, but of added value.
Exporters who fear an increase in US tariffs for certain products and mentioned that they analyze negotiating with buyers assume part of that cost. Can tariffs be paid by the exporter, under what conditions and what does it depend on?
CP: It depends on the contractual relationship of both parties, from the point of view of importation it is paid by the importing company, however, it is important to know the contracts between the importers and exporters to understand who the payment corresponds to.
What do they recommend about it?
RP: You don’t have to change the clauses at this time, but it is important to understand them. Although it is usually the importer who pays, sometimes in the contract there may be some clauses in which it was agreed that whoever places or sends the product is responsible, so it is important that they make this due diligence of the contracts. An additional alternative is to explore with its potential customers the possibility of sharing the tariff load to continue available in the market.
CP: In many of the contractual relations, the person in charge of paying tariffs is the importer, even many countries in their laws also establish it, but at the private level, that is, contractual, each company can agree on some different term. For example, we even have the Incoterms terms, where it is agreed, for example, if a sale of a product will include or not tariffs, import rights in the destination country, insurance, and others.
After analyzing the scenarios, it can be decided to place a clause about who pays the tariffs or even if the tariff load is distributed between seller and the other half by the buyer, or distributor or importer.
Other measures refer to the value of the product and this can be checked to mitigate the tariffs a bit since the end of accounts 10% 25% (tariff that is spoken today) is charged in percentage on the value. But this has to be legally based on the laws of each country.
It is an opportunity to seek efficiencies in costs. In the United States, the import value can be based on the first sale that I made and not on the last one, and it can be an opportunity that helps the supply chain, but those issues depend on each company.
*Carolina Palma, is the leader of the Global and Customs Trade Division for Central America, Panama and the Dominican Republic and Rodolfo Pérez, is a professional specialized in the digital transformation of the supply and operations chain, performing as a senior manager in Ey Central America, Panama and Dominican Republic