8 strategies GE is using to mitigate tariff cost
GE was blindsided when President Donald Trump's tariffs on Chinese imports started to hit items in its supply chain. The Trump administration has released three lists of Section 301 tariffs, and all three affect GE. Before these went into place, GE's CEO estimated they could cost the company between $300 million and $400 million, according to Reuters. By the time they reached acceptance, GE had already missed its operations cost target by millions.
The Impact of Section 301 Tariffs
The scale of the impact on the company's supply chain is detailed in the following data:
| Tariff List | Number of Parts Affected | Number of Suppliers Affected |
|---|---|---|
| List 1 | More than 1,000 | More than 60 |
| List 2 | More than 400 | More than 50 |
| List 3 | More than 3,800 | More than 200 |
Tariffs are still hitting GE's bottom line, according to executives on GE's March earnings call. But, over time the company has found ways to lower the costs associated with tariffs. To reach this point, the company has taken a number of different routes.
Detailed Mitigation Strategies
Here is a look at eight strategies that were highlighted by Rich Wrightington, executive director of sourcing at GE Appliances.
- Reclassification: All products have a specific classification that places them in a certain tariff bucket. One way to avoid paying the tariffs on a particular item is reclassifying it as something that doesn't incur these tariff costs.
- Engineering changes: What changes can you make to your product to avoid tariffs? This requires finding parts that are not on the tariff list to replace parts that are on the list. This can be a big undertaking from the engineering teams who have to rework the product design.
- Buy ahead: It's no secret this is the strategy many companies used as tariffs went into place since the pull-forward effect has been evident at U.S. ports for months. But it's more complicated than it might sound, as it brought a lot of accounting challenges.
- Tariff share: If a company is large enough, it can potentially use its buying power to negotiate with the supplier and ask the supplier to help pay the tariff cost. GE approached its suppliers with an offer: "If you want to keep doing business with us, you're going to have to share [the tariff cost]."
- Location moves: If a supplier has factories in multiple locations then it is sometimes possible to move to a location outside of China that can produce an identical design.
- New supplier: There are opportunities to find new suppliers. Eastern Europe and Southeast Asia are certainly great places to look for these opportunities.
- Insourcing: GE has looked for opportunities to do some things itself that were previously outsourced. This includes the assembly of items that it can do in its own factories.
- First sale: Tariffs only apply to the cost of a good. Companies that use a broker to buy from Asia might be overpaying. If your broker is buying a part for $80 and they're selling it to you for $100 then you only have to pay duty on $80.
