How Tariffs Will Impact Businesses in the Short and Long Term

Are your supply chains feeling the squeeze? You’re not alone. The recent wave of tariffs sweeping across the global market isn’t just headline news—it’s reshaping how we all do business.

Matt Grattan, Head of Sales and Partnerships at Zamp, and Margarita Bello, Vice President of Client Strategies and Solutions at izba, discuss how tariffs will impact e-commerce businesses in the short and long term.

What Are Tariffs?

A tariff is a tax or duty imposed by a government on goods being imported into a country. While export tariffs exist, they are rare. Tariffs are typically applied as a percentage of the goods' value or as a fixed amount per unit.

Customs authorities collect tariffs when goods cross the border.For example, if there’s a 10% tariff on a $100 imported product, the buyer pays an extra $10, bringing the cost to $110 before other fees.

“The current proposed tariffs are interesting because they’re currently being presented as more of a blanket across all products and will sit on top of existing product-specific tariffs.” - Matt Grattan

Understanding Landed Costs

For e-commerce merchants, understanding landed costs is essential. Landed costs refer to the total expense of acquiring and delivering a product to its final destination, which includes:

• Product costs
• Shipping and freight costs
• Handling fees
• Insurance
• Duties and tariffs

When all these costs are added up for an international shipment, the financial impact is significant.

Short and Long-Term Tariff Impacts on Businesses

Tariffs deliver an immediate financial shock to businesses, forcing rapid price adjustments and margin pressures that can destabilize even the most carefully planned operations. Beyond these short-term disruptions lies a more profound transformation, as companies reconfigure their supply chains, relocate production facilities, and develop entirely new business models.

Key impacts include:

• Potential layoffs: Tariffs may impact layoffs because companies want to maintain profitability. This all comes down to human cost. In what areas can companies reduce headcount to drive down business costs?
• Pullback of investments: With investments, companies in the US and abroad may halt international investment. The reason is that people tend to back away or stop until there is clarity and they understand the rules of the playing field they’re going into.
• Increased costs: The cost of goods sold will immediately affect what people are buying, how they are buying, and any components involved.
• Supply chain changes: Companies will likely realign their supply chains, shifting resources to lower-tariff or tariff-free regions. These changes must be strategic and well-planned.

Common Challenges When Adjusting Supply Chains

Restructuring supply chains in response to changing market conditions demands far more than simply finding new vendors. Companies must navigate complex logistical puzzles while maintaining quality standards and controlling costs. 

Cost Challenges

With tariffs, businesses incur an additional tax, whether absorbed by the company, suppliers, or passed on to consumers.

“This additional tax can have an impact on your supply train strategy, pricing strategy, and calculation of new tariff rates. Companies are going to rely on carriers like UPS or FedEx to apply the appropriate tariff rate as part of the landed cost.” - Matt Grattan

Your customer return rate may increase as consumers simply refuse packages, particularly for direct international shipments. There are options that you can leverage, including exposing your customers to an estimated landing cost amount for the product as part of the purchase experience. You’ll want to consider how to ensure your customers are informed of the true cost of an item when they are buying and checking out of your website.

Inter-Country Shipment Complexities

Inter-country shipments can be complex. The Trump Administration eliminated the international de minimis tariff exemption for shipments under $800 sent through the international postal network.

This significantly impacts consumers. In 2024, there were almost 1.4 billion de minimis shipments to the US—which amounts to almost four million per day. 

Warehousing Considerations

If you’re an international seller without a warehouse in the US, consider changing your approach. Moving your sourcing and products into the US can significantly benefit your business by:

• Reducing delivery times
• Lowering shipping costs
• Helping you remain competitive

Consider leveraging Amazon FBA, working with a US warehousing company, or partnering with a third-party logistics provider to quickly establish inventory in the US.

Limited Supplier Options

When adjusting your supply chain, you may encounter limited supplier options as many brands seek alternatives in different regions, putting you in direct competition with others.

Compliance Risks

Shifting suppliers can introduce compliance risks due to changes in regions and regulatory situations.

How Businesses Can Evolve Strategies in Response to Tariffs

Evolving your strategy will depend on your type of business and its size. Larger companies and enterprises have more levers to pull when dealing with tariffs. They tend to have:

• More diversified production locations
• Greater negotiating power with suppliers
• Extensive warehousing options for local storage
• Potential qualification for special government exemptions
• More diversified distribution strategies
• Complex pricing models that minimize business impact

“Their distribution strategies are more diversified, and the channels they sell through really allow them to weather the storm for tariffs. They also just have more intelligence on how they set pricing strategies. So they have complex models that allow them to determine what they can do with pricing where it won't really impact, you know, their business.” - Matt Grattan

Small businesses producing products in the US won't face direct impacts. However, small and mid-sized companies with international production—common among e-commerce merchants—don't have the luxury to absorb costs or weather the storm as easily.

How Can Tariffs Impact the Competitive Landscape

Tariffs don't just add costs to imports—they fundamentally rewire who wins and who loses in the marketplace, creating sudden shifts in competitive advantage that can transform industry landscapes overnight.

So what does this mean for the competitive landscape?

Increased Competition for Small Businesses

Tariffs can be anti-competitive for small and mid-size retailers, who have fewer options than larger retailers. This puts them in a much more difficult position.

“And I hope that as we start to look at this situation, we look at doing it in a way that minimizes the impact for these smaller and mid-sized companies. You could say, well, we want you to move all your production to the US. That’s easier said than done. That takes a lot of time, a lot of investment, and a lot of change that they just can't absorb today with their business.” - Matt Grattan

Small businesses are vital to economies worldwide, and a practical path forward must be created for them.

More Competition with Cost

When facing tariffs, cost-cutting should be a priority, as it impacts your supply chain and cost of goods sold. However, while reducing costs, you may face increased competition for resources like warehousing, as other companies are also looking to minimize expenses.

“Usually, two things impact any company with consumer goods. It’s the cost of goods sold, which is a big dollar hit, and the second one is shipping, warehousing, and freight.” - Margarita Bello

How Do Tariffs Influence Financial Strategy

Companies will examine their entire supply chain to identify cost-reduction opportunities, including:

• Product production
• Order-to-cash processes
• Support requirements
• Raw materials
• Vendor relationships
• Shipping and freight costs

As a business, you face tough decisions: Do you pass costs to consumers, offset them with price reductions, or absorb the extra costs? Smaller companies with lower profit margins may struggle to absorb these costs themselves.

The Role of Automation and Advanced Tax Software in E-Commerce Strategies

Automation and technology are crucial for ensuring accuracy, efficiency, and cost reduction in tax compliance. Companies with nexus exposure in the US, whether economic or physical, have a fiduciary responsibility to collect and remit sales tax in applicable states.

Businesses may reevaluate their current solutions, especially if using one provider as a software vendor and another as a tax service provider, which can be expensive. Looking for a single provider to handle all tax-related services may be more cost-effective.

Transaction platforms may also incorporate sales tax into their offerings. This means sales tax would be an option within the platform that supports all transactions and order-to-cash scenarios. It’s a value-added feature that can reduce customer costs by supporting e-commerce, recurring billing, etc.

Tariffs’ Impact Sales Tax Compliance

The impact on sales tax compliance will emerge through different channels as tariffs are enacted. It's important to note that sales taxes go to states, while tariffs go to the federal government. If e-commerce slows due to a recession, state revenue streams may be negatively affected.

As a result, states might:

• Increase sales tax rates to compensate
• Rebalance rates
• Increase audits to make up for shortfalls

Noncompliance is a significant revenue source for states, especially since the 2018 Supreme Court decision in South Dakota v. Wayfair and its economic nexus provisions.

Advice for Businesses Impacted by Tariffs

When it comes to tariffs, there are a lot of things you can do right and wrong for your business. Here’s what you should do to weather the storm and protect your business.

Let the Dust Settle

Don't make major changes immediately—let the tariff situation stabilize, as it continues to change frequently. Prepare for best-case and worst-case scenarios and make informed decisions about absorbing or passing on additional costs.

“Because when you think about volume and margins, you're thinking about this full equation of the customer experience. All of these things have to be part of your discovery in terms of what your strategy is or a shift in strategy is to support these changes.” - Matt Grattan

Tariff Reengineering

Review all your components and products to understand their origins, as they could be affected by tariffs. Explore reclassification options to identify lower tariff alternatives.

Price and Cost Sensitivity Analysis

Analyze how tariffs will impact your business and assess the flexibility of potentially passing costs to clients, considering whether your brand and the market can support such changes.

Save Money Elsewhere

One of the best things you can do is find ways to save money. For example, you can negotiate flexible contracts with your suppliers and review your third-party logistics to identify any cost-saving sources.

Reconfigure Your Supply Chain

Reconfiguring your supply chain is one of the last things you should do. This involves evaluating the diversity of your suppliers and understanding where the market is, so you can shift suppliers and sourcing to domestic or lower-tariff regions.

Wrapping Up

Tariffs will significantly impact businesses if implemented worldwide, with small businesses feeling the additional costs most acutely if they import goods into the US. Fortunately, you can take steps to protect your business from tariffs and maintain compliance.

Need Help With Sales Tax Compliance?

Zamp isn’t just another sales tax compliance solution; we’re shaking up the industry by putting our customers first. We’ve been named a Major Player in the Small, Mid, and Enterprise SUT markets in IDC’s 2024 IDC MarketScape for Worldwide SaaS and Cloud-enabled Tax Automation Software, along with being featured in the top ten best sales tax software companies by taxtech500.

We help businesses outsource their sales tax from start to finish. Our platform manages the complete sales tax lifecycle by offering:

• Hands-off onboarding: We set up everything for you and ensure it’s done right.
• Full sales tax compliance service: We offer nexus tracking, registrations, roof-top accurate calculations, product taxability research, mapping, reporting, and filing. All this is included in our pricing model — one fee for everything.
• Proactive account support: We are always looking for any changes in sales tax requirements, and our team is happy to answer any questions you may have.

See how you can save time and stay sales tax compliant with Zamp. Book a call below!