Impact of Tariffs on Business Performance: Strategies for Coping with Trade Wars, Guías, Proyectos, Investigaciones de Economía Mundial

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TARIFFS AND BUSINESS PERFORMANCE

Eladio Muñoz

Since the beginning of Trump's presidential term, a great deal of business news has emerged shedding light on the effects of tariffs and trade wars. The recent Trump tariffs have attracted analysis and speculations regarding large industries and financial markets. The tariffs targeted agricultural goods such as dairy and liqueurs; hence, EU nations who are major exporters of the good into the US suffer major implications (Swanson, 2019 par. 3). Besides, the tar increase the cost of import or exports. A tariff may hinder business operations. Hence, all employees in big, SMEs and small businesses are face risk of losing their jobs, and unemployment index increases (Anderson, 2019). The risk face employees in both the country imposing the tariff and the victim, since the tariff hinder supply capability and the purchasing power.iffs put employees in affected sectors at risk of losing their job. Notably, tariffs For instance, trade experts expect Parmesan cheese consumption in the United States to decrease by 80% or 90% (Gifford, 2019 par. 8). However, they must maintain their profitability and revenues in the US market despite the tariffs. Businesses must understand that tariffs are inevitable seismic events in the international markets, usually motivated by politics (Fetzer and Schwarz, 2019 par. 5). Since both the importer and exporter are affected by tariffs, each should device a business strategy that addresses the pricing, inventory management, tuning of profit margins. Tuning costs entails identifying the costs that the business can absorb and cover and the optimum expenditure that would result in an ideal price. The process is part of strategic management, and business owners may utilize cost-volume-profit calculators to identify optimum metrics for sustainable business (Lulaj and Iseni, 2018 p.100). Besides, since the trade war through tariffs primarily affects prices of imports and exports (Carvalho, Azevedo and Massuquetti, 2019 p.3); a business may evaluate its pricing strategy using the CVP. For instance, a cheese company may identify the value-price index for their cheese before varying the price for their products. In some cases, tariffs might not affect the product as expected or

European dairy company is expected to enhance efficient inventory management strategies. Through this strategy, the business can still efficiently meet its customers needs, while in the same light mitigating wastages from overstocking, and consequently ensuring that their goods are moving to the markets efficiently ensuring that the company maintains its steady revenue from operation in an increased tariff economy. Correspondingly, companies are advised to significantly cut their overhead expenses in the light of increased tariffs; this is in the light of maintaining profitability. In doing the above, the European dairy company can consider look into their general, administrative, and operational expenses, and in thisi light account for the expenses (Swanson, 2019). This comes in handy in controlling the amount of expenditure that the company utilizes vis a vis the revenue obtained from operations. Subsequently, it helps the organization in controlling the price of the cheese in the light of meeting the cost expectations of consumers, while in the same light attracting more customers into buying the commodity. By so doing, the company will be able to mete out the threat posed by increased trade tariffs, while meeting its targeted revenue, hence profitability. Often, an increase in tariffs consequently mean that there is a consequent increase in the cost of associated goods of production. In this manner, the cost of production for most industries goes up acclimatized by increased tariff, hence the explanation behind the overall increase in cost of goods. In the light of ensuring a smooth revenue, and consequent profitability, organizations are expected to renegotiate the terms with suppliers by asking for lock-in rates (Lulaj, and Iseni, 2018). Locking-in the price with suppliers for the European dairy with its suppliers will have the effect of getting favorable prices for the goods of production purchased, which lower the costs of production, hence maintaining the revenue stream and profitability.

Apt communication with customers is also a fundamental aspect in retaining an organization’s revenue stream and profitability (Civitello, 2018). In the case of the European dairy organization, there is a need to explain an increase in the price of their commodities. This is in the light of explaining to them that the increased tariffs have affected their production costs, and in this light, the need to increase the price by the specified amount. Communication will have the effect of retaining loyal customers despite an increase in the prices of cheese that the organization is selling (Civitello, 2018). The above is borne out of the fact that even customers understand the nature of the economy acclimatized by an increase in tariffs. Increased tariffs, especially in the case of the United States, to external businesses can be considered as a trade war. Mainly, this is done with the view of promoting local businesses, and in an ouster for international or multinational corporations (Civitello, 2018). Economists argue that when a trade war happens, the government could also insinuate that they no longer need the services of international or multinational businesses within their country (Carvello, Azevedo, and Massuquetti, 2019). As a result, this could be a wake up call for such businesses to diversify into other markets that are more welcoming, with lower trade tariffs. In this regard, the European dairy organization could consider moving its operational base from the United States to another countries economy. Out of this move, the business will not be affected from the increased trade tariffs, as a result minimizing the risk of looses arising from increased trade tariffs. Moving into an economy with lower tariffs can foresee a growth in their revenues, hence profitability.

Them), S. (2019). How to Prepare to Manage Tariffs for Your Business. [online] Business News Daily. Available at: https://www.businessnewsdaily.com/10931-small-business- tariff-impact.html [Accessed 13 Dec. 2019].