Why Tariff Refunds Aren’t the Answer to Lowering the Cost of Goods

For many organizations, International Emergency Economic Powers Act (IEEPA) tariff refunds represent a significant and welcome return of capital. But supply chain and finance leaders should be careful not to mistake a refund for a long-term reduction in their costs.

The tariff landscape that importers are experiencing today is very different from when those duties were originally paid. While companies may be recovering IEEPA duties from prior entries, new tariffs under Section 301 of the Trade Act of 1974, along with continued enforcement, mean the cost of importing goods remains elevated.

Businesses need to move beyond simply asking, “How much are we getting back?” and plan for the long-term costs of imports moving forward.

The latest Section 301 actions show the challenge facing businesses. New tariffs related to forced-labor policies affect imports from dozens of major U.S. trading partners, further expanding the number of supply chains exposed to additional fees.

Certain product industries can feel these changes more than others. Furniture and kitchenware, for example, have historically included categories with relatively low normal duty rates. Bags and textiles, meanwhile, already carry comparatively high duties. Layering additional tariff actions onto those rates can change material costs.

That makes it important to treat refunds as a one-time event rather than automatically building them into assumptions about future margins.

For years, importers have worked to build reliable supplier relationships and establish predictable sourcing partners, which remain valuable. Higher volumes, long-term contracts and established suppliers can still create purchasing efficiencies.

But familiarity alone doesn’t always provide protection from tariff exposure. Recent trade actions cover a broad share of U.S. imports, meaning that companies should evaluate even mature supply chains instead of focusing only on countries or suppliers traditionally viewed as higher risk.

Domestic sourcing can eliminate many tariff concerns, but reshoring isn’t always economical. Labor, raw materials, production capacity and other costs may outweigh the tariff savings for some products. Supply chain leaders need to model the total cost of alternatives rather than make sourcing decisions based on tariff rates alone.

Companies should also make sure they understand which historical entries are actually included in the refund process.

U.S. Customs and Border Protection established new functionality for processing IEEPA refunds, but the amount of liquidated entries has introduced additional complexity. Importers with entries that fall outside earlier refund processes should work with qualified customs and legal consultants to determine whether additional action is required to preserve or pursue available refunds.

Reviews matter because companies focused primarily on future tariffs may overlook money tied to historical shipments. Similarly, importers should remain focused on compliance on current shipments.

In a volatile tariff environment, protecting margin increasingly depends on getting the fundamentals right before a shipment moves.

Importers should be able to verify how goods are classified, valued and declared, maintain documentation proving each decision, and understand who is the importer of record.

Particular caution is needed when evaluating delivered-duty-paid arrangements or foreign importers of record solely because the quoted landed price is significantly lower. An unusually low duty cost can indicate valuation or declaration practices that deserve more scrutiny. If an entry is challenged, the resulting delays, storage charges, penalties or disruption can quickly erase the initial savings.

There’s no reliable way to predict exactly what the tariff environment will look like even 12 or 24 months from now. Flexibility continues to be more valuable than attempting to build a sourcing strategy around any single tariff policy.

Companies should use this time to understand their true landed costs, audit customs practices, review suppliers and importer of record arrangements, while modeling alternative sourcing scenarios.

IEEPA refunds may provide meaningful relief. But the companies that benefit most will be those that treat the money as part of a much larger trade strategy — not as evidence that the cost pressures of the past several years have disappeared.

John Burhans is chief trade officer of Mercury.