In recent months, the global trade landscape has shifted dramatically with the introduction of tariffs from the U.S. and reciprocal tariffs from other nations such as China. These tariffs directly impact profitability, cash flow, and competitive positioning for businesses with cross-border supply chains.
For multinational companies, the new tariff regime also complicates long-established transfer pricing strategies. Historically, organizations structured operations to shift profits into lower-tax jurisdictions. Now, higher transfer prices that once reduced U.S. income tax liability may increase customs duty exposure, creating opposing financial pressures that complicate international tax strategy.
The complexity of global supply chains and the volatility of policy decisions mean that effective tariff mitigation requires more than isolated fixes. It demands a phased, integrated strategy that stabilizes immediate risks, addresses structural vulnerabilities, and, where necessary, redesigns supply chains for lasting resilience.
For many companies, the most useful first step is to address immediate tariff-driven cost pressures through tactical adjustments that deliver fast results without major operational disruption.
Transfer pricing offers an accessible lever. Under Section 1059A of the Internal Revenue Code, companies must align transfer pricing and customs valuation. Businesses previously positioned at the higher end of the arm’s length range to minimize U.S. taxes may benefit from adjusting toward the lower end to reduce customs values. This adjustment must be carefully documented to satisfy both tax and customs authorities. It is worth noting however, that moving to the lower end of this range would result in more profits in the U.S., which would need to be taken into account for income tax purposes.
Unbundling transactions presents another immediate opportunity provided this reflects the actual commercial arrangements and is supported by appropriate documentation. By separating dutiable product costs from non-dutiable elements such as intellectual property licensing, warranty services, and after-sales support, companies can lower the customs value of imports while preserving overall tax efficiency. This strategy can be particularly effective in IP-driven industries like technology, pharmaceuticals, and branded consumer products.
Revisiting intercompany contracts can also redistribute tariff burdens more equitably across the group. Adjusting pricing structures, risk allocation, and payment terms allows companies to share tariff costs between entities, provided the revised agreements reflect genuine economic substance and adhere to arm’s-length principles.
Finally, importers operating through multi-tiered supply chains should evaluate opportunities to apply the first sale for export valuation method. When available, this approach bases duties on the initial sales price in a multi-tier transaction, excluding subsequent markups. There is additional scrutiny, however. Importers must provide documentation demonstrating a bona fide sale between the manufacturer and the intermediary, that the goods were clearly destined for export to the U.S. at the time of first sale, and that the transaction was conducted at arm’s length. Although subject to heightened scrutiny today, this approach can yield substantial savings when properly documented and executed.
Once immediate risks are controlled, the next step companies should take is to adapt supply chain structures to minimize long-term tariff exposure. These structural changes often require more time to implement but can produce significant savings.
Optimizing product classification under the Harmonized Tariff Schedule (HTS) is a critical starting point. Many products can qualify under multiple classifications with different duty rates. A detailed review of product specifications and technical attributes can reveal alternative classifications that reduce duty liability without altering product design or disrupting operations.
Country-of-origin management has become equally important. With tariffs varying widely across jurisdictions, companies must apply substantial transformation rules carefully when determining origin. Restructuring production processes so that key transformative steps occur in favorable jurisdictions can legitimately shift origin and reduce duty exposure. However, authorities increasingly scrutinize these claims, requiring companies to create and document real economic substance, not superficial manufacturing changes.
Component importation and localized assembly provide another opportunity for companies to structurally adapt their supply chains. By importing parts separately and completing assembly in favorable jurisdictions such as the United States, Mexico, or Canada, companies can benefit from lower duty rates on components and, in some cases, qualify for special customs programs. Planning is crucial to meet regional value content thresholds and specific rules of origin.
Another powerful—but often underutilized—tool for managing tariff exposure is the strategic use of free trade zones (FTZs) and bonded warehouses. These customs-designated areas allow companies to defer, reduce, or even eliminate duties on imported goods. Merchandise admitted into an FTZ is not subject to U.S. Customs duties until it leaves the zone and enters U.S. commerce. This means companies can avoid duties altogether if goods are re-exported, or choose the most favorable duty rate between a component and finished product if manufacturing occurs within the zone. Bonded warehouses offer similar deferral benefits, allowing storage or processing of imported goods for up to five years without immediate duty payment. Used correctly, these programs can improve cash flow, lower inventory carrying costs, and reduce overall tariff liability—especially when integrated into a broader supply chain restructuring plan.
Where tactical and structural measures are insufficient, companies must consider comprehensive supply chain redesign. Strategic realignment enables businesses not only to mitigate tariffs but also to enhance operational agility and optimize global tax positioning.
Redesign begins with holistic modeling. Shifting production or distribution hubs affects far more than customs duties. It triggers permanent establishment risks, exit tax liabilities, employment tax obligations, and VAT registration requirements. These impacts must be analyzed together to identify the optimal balance between tariff savings, tax efficiency, and operational viability. For larger companies, this process may take years, but more nimble enterprises may be able to achieve this in several months. While the current environment remains volatile, recent U.S. administrations from both sides of the aisle have been relatively consistent in their treatment of imports from nations such as China, giving companies an incentive to shift production to other countries
Exit taxes are a particular area of hidden risk. For instance, winding down operations can trigger deemed disposition rules that impose a tax on unrealized gains. Failure to account for exit taxes, which vary by jurisdiction and entity type, can wipe out anticipated savings.
Employment costs and labor compliance add another layer of complexity. Moving operations across borders requires careful management of severance obligations, local labor law compliance, and re-staffing efforts, all of which carry financial and reputational risks if mishandled.
Near-shoring options have regained momentum as trade patterns shift. Manufacturing closer to end markets, or even re-shoring to the U.S., may offer opportunities to minimize tariff exposure while enhancing responsiveness. However, companies must carefully weigh labor cost differentials, infrastructure quality, supply chain reliability, and other factors before committing to near-shoring initiatives.
Any major operational shift must be accompanied by revisions to transfer pricing policies. New supply chain structures create different functional and risk profiles that must be reflected in intercompany pricing models to maintain arm’s-length compliance and withstand audit scrutiny.
Tariff mitigation is not a one-time exercise. Global trade and tax policies are evolving rapidly, and companies must build resilience into their structures to stay competitive over time.
Authorities around the world, and particularly in the United States, are stepping up scrutiny of supply chain arrangements that appear designed primarily to circumvent tariffs. Claims of substantial transformation or preferential origin that lack genuine economic substance may trigger audits and fines. Companies must document every restructuring effort thoroughly, demonstrating real value addition and business purpose beyond tax and duty savings.
For companies to be effective in these efforts, cross-functional coordination is essential. Tax, customs, supply chain, legal, and finance teams must work together to design, implement, and monitor restructuring strategies. Misalignment between these functions can create costly inefficiencies or compliance failures.
Scenario planning is another critical capability. Organizations should model the potential impact of future trade agreements, tariff increases, tax reforms, and geopolitical developments on their supply chain structures. Flexible, modular supply chains that can adjust quickly to policy shifts will likely outperform more rigid models in an increasingly volatile world.
Tariff mitigation must be integrated into a broader supply chain and tax strategy that balances short-term relief with long-term resilience.
Start by stabilizing immediate financial exposure through tactical pricing and transaction adjustments, then move on to evaluate structural adaptations that strengthen duty savings over time. Finally, where applicable, consider strategic supply chain redesigns that align operational needs with optimal tax outcomes. Throughout the process, it’s vital to remain vigilant against regulatory shifts and maintain the organizational agility required to respond to change.
A sophisticated, phased approach to managing global trade and tax exposure delivers sustainable competitive advantages: lower costs, greater supply chain resilience, and faster adaptation to regulatory and market changes.
That’s where Sapowith Tax Advisory comes in. As a specialty tax advisor with deep expertise in tariff mitigation, customs regulations, and international structuring, we help clients navigate complexity with confidence—ensuring every move is both compliant and strategically sound.
Contact us today to get help developing a customized global trade and tax strategy that protects your margins, enhances operational flexibility, and drives long-term growth.