Now that Trump has won the US presidency, the uncertainty of the election has diminished, and businesses across the country are looking ahead to 2025.
Along with the Federal Reserve’s rate cut cycle, a major trend that has all companies looking for change is the proposed tax plan that was proposed during the Trump campaign. Although details are unclear, it is said to include 20% tariffs across the board, with additional taxes for certain items and countries, such as China and Mexico.
Tariffs – taxes placed on imported goods – are often seen as a tool for governments to protect domestic industries and address trade imbalances. However, the negative effects of such measures can reach beyond mere trade negotiations. Whether you are a manufacturer, supplier, or service provider, these proposed costs can affect your operations, costs, and even your business strategy.
Here’s what businesses need to know about the proposed 2025 taxes – and how they could impact operations going forward.
What Are the Fees, and How Do They Work?
Before getting into the specifics of 2025, it is important to understand what the taxes are and how they work.
A tariff is a tax imposed on imported goods. The goal is often twofold: to protect domestic industries from foreign competition and to generate revenue for the government.
When prices go up, the cost of imports goes up. This raises the price of acquisition of these goods and can affect the price of products for consumers as well. For businesses that rely on importing materials, supplies, or finished goods from abroad, higher prices can mean higher production costs, which may have to be passed on to consumers or absorbed into the business line.
What Do We Know About the Proposed Tariffs?
The details of the tariff plan for 2025 are still being discussed. However, early reports suggest a 10-20% tariff on all imports from all US trading partners, with tariffs between 60% and 100% on Chinese goods.
The reason for these tariffs is simple: By applying tariffs to all imported goods, US manufacturers gain market momentum. US-made goods become more attractive in the domestic market because the price tag of some is increased by the tax. In the long run, this will encourage companies to manufacture their products domestically, leading to long-term economic growth.
However, in the short term, the proposed tariffs may disrupt business operations. Those who don’t think about how they get the products, materials, and supplies they depend on may have to deal with higher costs, as well as supply chain disruptions.
How Rates Can Affect Your Business
The potential impact may vary depending on your company’s reliance on imported goods and your ability to adapt to changes in the marketplace.
1. Increased Costs
For many businesses, the immediate result of higher prices is increased cost of goods. This particularly affects manufacturers and any business that relies on raw materials or components from overseas.
For example, if you are an electronics manufacturer and you rely on semiconductors from Chinese companies, a tax on these imports will increase your production costs. This can mean higher prices for the end consumer or lower profit margins for your business.
2. Supply Chain Disruption
Tariffs can also cause significant disruption to supply chains. With rising import costs, some suppliers may choose to delay shipments or even pass the cost of the tax directly to consumers. This supply chain disruption can lead to long product wait times, material shortages, and challenges in meeting customer needs.
If your business relies on fast delivery to keep costs down and production moving, changes in US tax policy may require you to reevaluate your supply chain strategy. Before we turn the page to 2025, it’s important to consider finding other suppliers, adjusting ordering patterns, or rethinking your production schedules to avoid delays.
3. Changes in Consumer Behavior
As businesses adjust to higher costs, the natural response may be to pass those costs on to consumers. This may result in higher prices for products and services, which may affect demand. In some cases, consumers may choose to delay purchases, switch to less expensive alternatives, or reduce discretionary spending.
For example, a business that imports luxury goods may find that higher prices push prices beyond what its customer base is willing to pay. Similarly, businesses that produce consumer-facing products may face difficulties if the cost of living rises and customers become more price sensitive.
4. Changing Strategies in Sourcing
As tariffs increase the price of imported goods, some businesses may change their revenue strategies. Rather than sourcing from countries with high tariffs, such as China, businesses may choose to source materials domestically or from countries with low tariffs. This change may require a complete overhaul of supply chain management, including renegotiating contracts, finding new suppliers, or even relocating parts of the supply chain.
For manufacturers, this may involve restructuring or scaling back some of their production processes – moving jobs closer to home or to neighboring countries that offer more favorable trade terms. This can help reduce the cost impact, but it may also require businesses to invest in new facilities, staff, and technology, which also comes at a cost.
Preparing Your Business for the Potential Impact of Taxes
Despite the lack of transparency in the 2025 tax information, there are steps businesses should take to ensure they are prepared:
- Measure Your Supply Chain: Identify the goods and materials your business imports and determine if any of these may be affected by prices. If so, start researching other suppliers and make contingency plans for possible price increases or delays.
- Consider Various Suppliers: If you rely heavily on imports from countries that may face high costs, diversifying your supplier base can help reduce some of the risks. Look for suppliers in regions that may be least affected by the proposed tariffs.
- Look at Sustainable Procurement Before 2025: Some companies are purchasing their 2025 inventory, materials, and other assets in advance to reduce the impact on their operating costs. If suppliers offer bulk order discounts, this strategy can also provide lower cost of goods. National Business Capital can support these types of inventory orders, even if there is a large lender in place, with our subordinated debt.
- Adjust Pricing Models: Be proactive about price adjustments. If prices are passed on to your business, you may need to raise prices to maintain profit margins. However, be aware of your customers’ price sensitivity and explore ways to reduce price increases without sacrificing quality or service.
- Stay Informed: As the political situation develops, keep a close eye on any announcements related to taxes. Government policy can change quickly, and understanding potential changes early can give you a strategic edge.
Prepare for 2025 with National Business Capital
National Business Capital is here to support your company’s growth and development. If your company will be affected by taxes in the new year, it is best to prepare your business in advance to minimize any disruption to your operations.
Cash flow may not support an order like this, but that’s where we come in. With a streamlined application process and expert guidance, you can ensure that your business remains competitive and well-equipped to navigate the evolving world of international trade.
Accelerated funding times enable faster ordering for your company, and our subprime credit solutions provide access to more capital than existing senior credit facilities. Business moves fast, but we have the skills and expertise to keep your company moving forward, no matter what the circumstances.
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