Although we recently got some relief from the closely watched trade wars, tariffs on U.S. imports are still in place. The conflict started nearly two years ago, when President Trump imposed tariffs on Chinese solar panels and washing machines. It escalated over time and, with the U.S. placing tariffs on $360 billion in Chinese goods, and China retaliating with tariffs on $110 billion in imports from the U.S. The idea was to narrow the $400 billion-plus trade deficit with China, increase protections for U.S. businesses and intellectual property, and encourage additional economic shifts that would benefit American businesses.

The threatened increase of tariffs was delayed, and now seems that it won’t be implemented at all, but the decrease that many were hoping for isn’t attached to this deal. Instead, it’s part of a “Phase 2” deal. Trump did say during signing that the List 4A tariffs would be reduced from 15% to 7.5%, but everything else is still up in the air.

So where does this leave manufacturers and distributors that have had to respond to tariffs, and will need to respond if and when they change again? The pause means many players will still be affected.

Many price changes for distributors and retailers are now being triggered from the cost side, as suppliers pass on the tariffs to buyers. Retailers and distributors must decide if or how much of those increases to pass along to customers. Retail-focused pricing systems aren’t well suited to manage this type of scenario; they’re more focused on market dynamics and competitive pricing. This means that much of the analysis and price changes are done outside the system.

Suppliers in some cases are using tariffs to increase prices beyond what’s actually necessary to make up for their increase in costs. I’ve seen cases where companies with 70% steel in their bills of materials (BOMs) try to increase the price of the entire SKU by the full amount of the tariff.

On the flip side, some suppliers are absorbing a portion of the increases, resulting in reduced profits. Otherwise, the consumer ends up paying in the form of higher prices, or switches to domestic products where the pricing is more equalized. In the end, tariffs become a form of taxation on the consumer, decreasing spending power and causing a drag on the overall economy, especially American industries that export heavily. 

Three key business capabilities are needed to compete effectively in this uncertain environment:

1. It’s critical that businesses understand net acquisition cost or cost of goods (COG) and how they relate to tariffs. Ideally, they should have an understanding of the BOM — what actually goes into the product, and how it’s impacted by tariffs on the cost side. Changes in the acquisition or COG should be able to initiate a mass price update, where impacted products can be quickly and easily updated.
2. The ideal way to visualize this is through a price waterfall, which illustrates the impact of tariffs, rebates and other elements that impact margin for any slice of the business. This should be embedded into the price-setting and negotiation process, and not be a standalone analysis.
3. In order for businesses to retain customer loyalty, they need a strategy in place with advanced analytics capability to recommend the optimal manner to pass cost changes on to customers (or not), based on their willingness to pay. At the same time, it’s crucial to have a fast and efficient way to update thousands or millions of price points with the click of a button.

Change is inevitable, but in a world that’s becoming increasingly dynamic and intertwined, it’s possible to ride the wave and respond with agility. The goal for businesses involved in the tariff debacle is to shorten the price-change process from months to hours or minutes, ideally using artificial intelligence and rules to respond to changing market conditions. If you’re in the weeks or months boat, think about the advantage your competitors have if they can act within minutes. This is the way of the world now. 

Gabriel Smith is chief evangelist with Pricefx.