Assessing The Impact Of Tariffs On Supply Chain Costs

I wanted to share the most complete data I'm aware of to gauge potential inflationary effects of proposed Mexico, Canada, and China tariffs. What I've done is merge in data on domestic production, total imports, trade margins [think retailer and wholesaler markups], transportation costs, taxes & duties less subsidies, and purchaser prices from the Bureau of Economic Analysis 2023 Supply Table (71-industries) and then merged in Canadian, Chinese, and Mexican import data from the Census Bureau. For simplicity, I'm assuming a 25% across the board tariff on all three countries (note, I know the proposed expansion of tariffs on Chinese goods was just 10%, so keep in mind). Thoughts: •In the 4th column of data, we see the percentage of imports for each commodity type Canada, China, and Mexico account for. For example, 68% of oil & gas imports come from these three countries (Canada leading the way), 62% of electrical equipment (NAICS 335), etc. •To arrive at the percentage increase in purchaser prices, I multiply the Imports column by the Canadian & Chinese & Mexican percentage of imports column and then multiply by 0.25 (for the 25% tariff). I take this product and divide it by the purchaser prices column to arrive at the tariff shock estimate (last column). Across all goods, this number is 1.9%; the same figure applies for manufactured goods alone. The number ranges as high as 5.1% for electrical equipment to < 1%. •One thing to note: I'm not accounting for any cost pass-through dynamics in the supply chain (e.g., Canadian crude oil becomes more expensive means Midwest refiners increase prices to pass along higher costs). •I'm also assuming the trade margins (which are very substantial, especially for categories like apparel where they are much larger than the value of domestic production + imports) don't change. I don't see this as realistic, as sellers need to protect gross margin rates. This assumption likely counterbalances any over-estimate from the 25% tariff assumption. Implication: You can't look at these data and say that the Canada, China, and Mexican tariffs being floated won't be inflationary as it pertains to goods. My analysis gives possibly the most complete picture I've yet seen. #supplychain #shipsandshipping #economics #markets #freight

If you're a tech, AI, or B2B SaaS founder and saw my post yesterday and thought, "That's for CPG founders. Tariffs don't affect me." You. Are. Wrong. EVERY founder must consider how the tariffs affect them. Unacceptable answers for tech and others: ❌ "We're a software company. It doesn't apply." → Tariffs affect your customers, cloud infrastructure, hardware costs, and global teams. If you haven't looked at second- and third-order effects, you're not looking hard enough. ❌ "None of our suppliers are international." → Even if you use US-based vendors, their cost base may not be. You're still affected, just one layer removed. ❌ "We don't sell a physical product." → Your customers might. Your infrastructure definitely relies on physical goods. ❌ "No one's raised it as an issue." → That doesn't mean it's not one. Investors want to see you've thought about the risks. ❌ "Everyone understands the tariffs and expects prices to go up." → Not everyone will understand, and even fewer can absorb the increase. You need a strategy to retain price-sensitive customers, justify increases, and model churn. Assuming acceptance is lazy. Investors want to see data. Acceptable Answers: INFRASTRUCTURE IMPACT: - We're hosted on [cloud provider] and expect increased costs tied to hardware tariffs. We're projecting an X% rise in cloud spend, affecting COGS by Y% and pricing by Z%. AI / MODEL TRAINING COSTS: - Our model training runs on [GPU/cloud vendor]. Chip tariffs have raised costs by X%. We've adjusted batch sizes and cadence and are exploring alternatives. CUSTOMER BUDGET SENSITIVITY: - We sell into manufacturing/CPG/logistics - all industries directly hit. Sales cycles are longer, so we added ROI tools and adjusted close rate timelines by X weeks. INTERNATIONAL TEAMS & VENDORS: - Our dev team is in [country], and retaliatory measures have increased costs and delayed payments. We're transitioning to a US-based contractor and added $X to the budget. HARDWARE-INTEGRATED PLATFORMS: - Our software is bundled with devices manufactured in [tariffed country]. Partners raised prices by X%, so we've unbundled pricing and are sourcing US alternatives. DOWNSTREAM SUPPLY CHAIN: - An integration partner uses tariffed components. We've reviewed their mitigation plan, vetted backup vendors, and modeled an X-week delay and Y% cost increase. PRICE ADJUSTMENT: - We've updated our pricing model due to higher infrastructure and ops costs. Rates are increasing X% for new contracts, and we're looking at alternative models. Customers will stay because we were priced low already/the product is sticky/we're a premium solution. - We're holding prices for existing users but reducing promos and restructuring free trials. We're modeling CAC impact and revised growth projections. These aren't the only acceptable answers, but all have details, specific data, or research-backed estimates. If you haven't done this work, do it before you pitch. And let me know if you need an FCFO.

Dollar Tree’s $200M tariff problem is a preview of what’s coming for all U.S. retailers and Dollar Tree responded with a masterclass in real-time supply chain strategy. Tariffs added $70 million in unexpected costs last quarter for Dollar Tree Stores. Over the full year, they expect the impact could hit $200 million. For any business, that’s a massive blow to profitability. But what stood out wasn’t the challenge, it was the response. To mitigate these pressures, Dollar Tree is activating a five-pronged strategy it has refined over the past several years. These levers include: → Negotiating with suppliers → Respec’ing, or modifying, products to lower the cost → Shifting country of origin → Dropping noneconomic items → Leveraging their expanded multi-price capabilities to pass along selective increases Dollar Tree used these levers to offset 90% of the initial 10% tariff announced in February and is actively applying the same strategy to subsequent tariff changes. The company’s approach is a good example of how agility is not optional, it’s existential for many companies. Especially in a world where policy risk, geopolitical shifts, and supply chain disruptions continue to arrive unannounced. At the heart of Dollar Tree’s strategy is its longstanding commitment to sourcing products at the lowest landed cost. While China remains an important part of its supply chain, the company is actively diversifying its sourcing footprint and is prepared to further shift origin points as tariff conditions evolve. Despite rising tariffs, global sourcing remains a foundational pillar of its business model, enabling Dollar Tree to consistently deliver value, convenience, and discovery to its customers regardless of the broader macroeconomic or policy landscape. Lesson: When the storm hits, it’s too late to build a boat. Build your playbook in calm waters.

The onslaught of tariff related news is fatiguing, as is all the incremental work that businesses are grappling with as they figure out how to handle the ramifications for costs, end customer impact, and potential reduction in demand for their exports. Endries International, Inc. is in throes of navigating what is proving to be one of the trickiest situations that we've ever encountered in our +50 years of business and I wanted to share a few practical takeaways that have emerged. 1] The best (and maybe only) buffer is inventory that is already in the US. But this will be short lived as most industries have spent the last two years working down their inventories that accumulated (and tied up undue working capital) coming out of the supply chain chaos of 2021/2022. 2] Unlike when the tariff focus was mainly imports from China (section 301), the situation today is much more comprehensive and has immediate impact on the entire supply chain, including resident domestic sources. Given that steel is the dominant material in our core product, the changes to section 232 mean there isn't any way to side step the cost-input inflation these tariffs are creating. 3] The domestic manufacturing base is running close to capacity and the increase in demand that the tariffs are intended to drive (and are driving) will quickly swamp US suppliers. Building incremental capacity takes time, working capital, and people, all of which are already in short supply. 4] Tariff front-running inflated shipping costs and lead times for imports from Asia (where an outsized chunk of the manufacturing base for our industry resides) in 2024 and those cost increases are not likely to retreat anytime soon... the relationship between supply, demand, and price is a common thread throughout all of this. 5] The size and scope of the new tariffs mean that most importers are not going to be able to absorb them into their COGS, which means they are going to be passed along. There are two obvious ways to do this: A) as a separate, tariff-specific line item, or B) rolling them into the price charged to the end customer. 6] "A" has advantages in that it is transparent, doesn't muddy traditional purchasing KPIs like PPV, and can be easily modified or removed concurrent with any change or cancellation of a tariff. That said, it should be noted that while the tariff is in place accumulated inventories will have this adder which drives up the cost of that inventory and the cash that it ties up in advance of it being sold... a big deal for distributors. When the tariff is removed, the tariff'd inventory needs to be consumed before the lower cost, non tariff'd inventory takes over. 7] "B" has a disadvantage in that it disconnects the increase from the source so that if/when the tariff is removed, the increases tend to linger. But for many insurmountable reasons, that will be how many sellers handle the additional costs they incur on imported material. 8] There is no silver bullet.

The HVAC manufacturing industry is facing a significant shift as new tariffs on imported materials and components take effect. With President Trump’s recent tariff policies targeting key trading partners, manufacturers must navigate rising costs, supply chain disruptions, and potential market shifts. Here’s what you need to know about how these tariffs will impact the industry and what steps businesses can take to adapt. What’s Happening? The U.S. government has implemented a 25% tariff on imports from Canada and Mexico and a 10% tariff on Chinese imports. These tariffs affect a broad range of products, including steel, aluminum, electronic components, and HVAC-related materials. For HVAC manufacturers, this means that the cost of raw materials and components will likely rise, leading to increased production costs and potential price hikes for end consumers. In addition, retaliatory tariffs from affected countries could further disrupt supply chains and business operations. Key Impacts on the HVAC Industry 1. Rising Material Costs • The HVAC industry relies heavily on imported steel and aluminum, key materials used in heat exchangers, ducts, and structural components. Higher import costs will increase manufacturing expenses.    • Electronic components, sensors, and refrigerant parts sourced from China may see price hikes, affecting HVAC equipment pricing across the board. 2. Supply Chain Disruptions • Tariffs may cause delays in obtaining raw materials, leading to longer production times and potential shortages.    • HVAC companies may need to explore alternative suppliers or shift towards domestic sourcing, which could take time and further increase costs. 3. Higher Prices for Contractors & Consumers • As manufacturing costs increase, HVAC companies may need to pass on costs to distributors and contractors, leading to higher equipment prices.    • Building owners, contractors, and service technicians may face higher project costs, potentially slowing down new installations and retrofits. 4. Market Adjustments & Competitive Shifts • Domestic HVAC manufacturers may gain an advantage if they rely less on imported materials.    • Companies with strong supplier diversification and efficient manufacturing processes will be better positioned to absorb cost increases. What Can HVAC Businesses Do? While the impact of tariffs is inevitable, businesses can take strategic steps to adapt to the changing landscape: ✔ Diversify Suppliers ✔ Optimize Inventory & Forecasting ✔ Explore Alternative Materials ✔ Increase Pricing Strategically ✔ Advocate for Policy Adjustments Final Thoughts The new tariffs present significant challenges for HVAC manufacturers, but with the right strategies, companies can adapt, stay competitive, and continue serving the market efficiently. How do you see these tariffs affecting your business? Are you making any adjustments to your supply chain or pricing strategies? Let’s discuss in the comments.