How to Keep Your Margins From Melting: Smart Strategies in a

High-Tariff Market

As spring rolls in, many businesses are waking up to a new challenge: rising tariffs that can quietly erode profit margins. If your business relies on imported components or finished goods, these policy shifts aren’t just headlines—they are directly impacting your bottom line.

At Executive Allies, a trusted Boise fractional CFO and advisory team, we specialize in helping businesses navigate financial strategy with confidence. Whether it’s shifting supply chains or optimizing operations, we’re here to keep your margins solid—even when external costs heat up.

What’s Happening With Tariffs?

If you have been spending the last few weeks soaking up the last few spring skiing days, you may have missed the headlines: Tariffs are coming, markets are going crazy, and the way we have been doing business for years may no longer be the best path forward.

Now, tariff is a word that has not been incredibly common over the last few years (or even decades), but it sure has been coming up a TON over the last few months.

For those who may be unfamiliar, a tariff is basically a tax that the government charges on stuff that is imported from another company. Tariffs have played a big role in U.S. economic policy since the start of the country. They were initially used to protect young American industries and generate government revenue—especially through the Tariff Act of 1789 and the high rates of the 19th century. However, over time, the U.S. shifted toward trade liberalization with agreements like NAFTA and the WTO. However, we are now seeing a huge resurgence in tariffs as a tool for economic strategy and political leverage.

Now that our brief history lesson and summary of "what's a tariff" is over, here’s the latest breakdown of the proposed U.S. tariffs by country (as of April 2025):

• China: 104% (!!)

• Vietnam: 46%

• South Korea: 25%

• Japan: 24%

• Taiwan: 32%

• European Union: 20%

Sources:

Investopedia – Liberation Day Tariffs
AP News – Highest U.S. Tariffs Since 1909

With the average tariff rate expected to reach 22.5%, this is one of the most significant cost shocks to hit global supply chains in over a century. It’s not a question of if this will impact your business—but how you’ll respond.

Real Margin Impact: A Quick Example

Let’s say your company imports a key component from China at $100/unit:

• Tariff Rate: 104%

• Tariff Cost: $104

• Total Landed Cost: $204

• Sales Price: $250

Gross Margin Before Tariffs: 60%
Gross Margin After Tariffs: 18.4%

The result of this impact puts pressure on everything—from pricing strategies to staffing and cash flow. But here’s the good news: there are proactive moves you can take right now to minimize the damage and set yourself up for long-term flexibility.

8 Strategies to Protect Your Margins

These are actionable, real-world steps you can implement in the next 30–60 days. We’ve broken down each with a clear explanation, plus the pros and cons of implementation.

1. Diversify Your Supply Chain

What it means: Shift sourcing from high-tariff countries to partners in lower-tariff or tariff-free zones—like Mexico (25%) or Colombia (10%).

Example:
A U.S.-based furniture importer transitioned its wood component sourcing from Vietnam (subject to 46% tariffs) to a supplier in Mexico, reducing landed costs by over 30% while keeping shipping times reasonable.

How to do it:

• Identify your highest-volume imported goods.

• Review current supplier locations and applicable tariff rates.

• Research alternative manufacturers in USMCA countries or other favorable regions.

• Request samples, verify certifications, and run cost comparisons.

• Gradually phase in new suppliers and renegotiate freight terms.

Pro: Significant cost reduction without changing your product.

Con: May require supplier vetting, logistics adjustments, and some initial disruption.

Why it matters: The USMCA agreement offers favorable trade terms with Mexico, and many companies are already making this move to stabilize costs and reduce lead times.

2. Tariff Engineering

What it means: Modify your product, packaging, or components to change how it's classified under the U.S. Harmonized Tariff Schedule (HTS), which can reduce or eliminate tariffs.

Example:
An electronics company saved hundreds of thousands annually by shipping its product unassembled, qualifying under a “parts” tariff code instead of “finished goods”—which carried a much higher rate.

How to do it:

• Review your product’s current HTS classification.

• Use the HTS Search Tool to explore related codes.

• Consult a customs broker to identify opportunities for legal reclassification.

• Make small design or packaging adjustments (e.g., ship cables separately, modify materials).

• Maintain full documentation to support compliance.

Pro: Keeps your existing supplier relationships intact while reducing costs.

Con: Requires precise documentation and legal clarity to avoid customs issues.

Why it matters: Many companies don’t realize that changing just one material input or shifting final assembly locations can alter your tariff classification.

3. Use Free Trade Zones (FTZs)

What it means: Import goods into a designated U.S. FTZ where tariffs are deferred, reduced, or eliminated depending on how products are used or exported.

Example:
An Idaho electronics company stores components in a Texas FTZ. They pay no duties on components that are re-exported and defer duties on the rest until items leave the zone—improving cash flow by 90+ days.

How to do it:

• Locate a nearby FTZ using the U.S. FTZ Board directory.

• Partner with a customs broker or logistics provider familiar with FTZs.

• Apply for FTZ status or access space in an existing zone.

• Track goods meticulously to meet compliance and reporting requirements.

Pro: Can offer substantial duty savings and improve cash flow.

Con: FTZs require setup, compliance, and good internal controls.

Why it matters: This is a strategic play for high-volume importers looking to optimize warehousing, production, and distribution.

4. Negotiate With Suppliers

 What it means: Work with current suppliers to share the cost burden or adjust terms to help offset the impact of tariffs.

Example:
A packaging supplier agreed to a temporary 7% discount on raw materials to help their client navigate a 25% tariff increase—preserving the partnership and providing critical short-term relief.

How to do it:

• Review your key suppliers and contracts.

• Calculate the impact of tariffs on each vendor relationship.

• Reach out proactively and explain the situation.

• Propose a short-term cost-sharing agreement, price freeze, or volume-based discount.

• Revisit pricing quarterly as needed.

Pro: Often a faster solution than switching suppliers.

Con: Not all suppliers have room to negotiate—or incentive to do so.

Why it matters: In today’s environment, transparency and collaboration with suppliers can unlock creative solutions beyond a simple price cut.

5. Reassess Pricing Strategy

What it means: Pass on part or all of the tariff-related cost increases to your customers with smart, transparent messaging.

Example:
A small manufacturer introduced a 3% “sourcing volatility fee” across SKUs and used customer education to communicate it. Most customers understood, especially after seeing competitors do the same.

How to do it:

• Calculate the exact increase in cost due to tariffs per product or service.

• Develop pricing models with multiple pass-through options (e.g., flat fees, tiered increases).

• Communicate proactively via email or invoices.

• Train sales staff to explain the change with empathy and transparency.

Pro: Helps recover lost margin quickly.

Con: Needs careful positioning to avoid alienating loyal customers.

Why it matters: If your brand is strong and your competitors face similar cost pressures, customers may understand and accept an increase—especially if it’s communicated well.

6. Drive Operational Efficiency

What it means: Cut internal waste, optimize workflows, and adopt technology to lower costs and preserve margins.

Example:
A food importer implemented inventory management software and reduced spoilage by 12%, recovering over $75,000 in annual margin erosion—more than offsetting new tariff-related costs.

How to do it:

• Conduct a quick process audit across purchasing, operations, and logistics.

• Identify bottlenecks, errors, or redundancies.

• Implement tech tools like process automation, inventory tracking, or vendor scorecards.

• Train staff to maximize efficiency improvements.

Pro: Helps across the board—not just in response to tariffs.

Con: Implementation time and potential upfront investment.

Why it matters: Trimming the fat elsewhere can restore margin health even when product costs increase. This might include process automation, vendor consolidation, or lean inventory tactics.

7. Apply for Tariff Exemptions

What it means: Petition for an exemption if your product has no domestic alternative or qualifies under specific exclusion programs.

Example:
A parts distributor in the renewable energy space secured an exemption for a solar panel component after demonstrating no comparable U.S. version existed—saving over $1 million in tariffs.

How to do it:

• Check if your product is on the USTR’s exclusion list or qualifies under Section 301 or 232 exemption rules.

• Gather product descriptions, technical documentation, and usage data.

• Prepare a strong argument showing how the tariff harms your business or customers.

• File the exemption with the U.S. Trade Representative or work with a trade attorney.

• Track expiration dates and resubmit as needed.

Pro: Avoids tariffs altogether—huge upside.

Con: Long approval timelines and complex documentation requirements.

Why it matters: For certain industries—like medical devices or specialized components—this can be a game-changer if you’re eligible.

8. Explore Onshoring or Nearshoring

What it means: Move manufacturing to the U.S. (onshoring) or a nearby country with favorable trade status (nearshoring) to reduce risk and increase supply chain control.

Example:
A pet products brand moved final assembly from China to Texas. While labor costs increased, they eliminated tariffs, reduced lead times by 45%, and boosted customer satisfaction with faster delivery. 

How to do it:

• Conduct a full landed cost comparison between your current and potential new locations.

• Evaluate infrastructure, labor availability, and tax incentives in target regions.

• Start small with one product line or component.

• Use contract manufacturers or shared facilities before investing in full production.

Pro: Tariff-free, potentially faster delivery, and stronger supply chain control.

Con: Labor and infrastructure costs are often higher, and transitions take time. You will also need to do research on where the components are sourced at the new onshore manufacturing company as they may still be subject to tariffs.

Why it matters: More companies are taking a long-term view on risk management—especially those in industries where delays or disruptions come with heavy penalties.

Side-by-Side Cost Analysis

Where Do You Start?

If all of this feels like a lot—it is. But you don’t have to tackle it alone.

At Executive Allies, we support with project-based analysis to help clients:

• Quantify their current exposure

• Evaluate sourcing alternatives

• Model gross and operating margin outcomes

Our team at Executive Allies works with growth-focused companies to assess risk, identify savings, and act fast. Whether you're looking to move suppliers, adjust pricing, or model onshoring, we’re ready to help.

If you're searching for a fractional CFO in Boise or a strategic partner who can roll up their sleeves and dig into the numbers, you've found your team.

👉 Contact us today to schedule a free consultation and explore how we can help protect your margins—before they melt any further.