Strategies for Tariff Relief: How Georgia Companies Can Avoid Trade War Paralysis

With the wild fluctuations in trade policy (and markets) over the last week, it might be tempting for Georgia companies to stay flat-footed until the dust settles on the latest tariff twists and turns. 

Indeed, some companies with broad international exposure are finding themselves paralyzed.

“We don’t even know what to do as far as prices. We didn’t know what to charge our customers,” said Felipe Arroyave, president of specialty contact lens distributor Spectrum International. “Our vendors overseas are telling us, ‘Hey, let’s just wait to see what happens in the next 90 days.’”

But trade experts in Atlanta say there are moves to make even while things are still in flux that can reduce cost immediately while also driving future resiliency (and savings) at this unprecedented moment. 

“There was nothing I hadn’t seen until now,” said Damon Pike, principal and technical practice leader for customs and international trade at BDO, who has advised companies for more than 35 years. “Now we are in uncharted territory.” 

Relief strategies, Mr. Pike said during a presentation on the Trump administration’s “America First Trade Policy” at Miller & Martin PLLC, fall into two buckets: operational and tax. 

Consider moving (or rethinking) production

Operational moves are mostly about the physical sourcing of goods, either front-loading imports after getting wind of a tariff hike, as many companies did in March, or shifting a product’s country of origin. That can happen by moving, reconfiguring, or reclassifying production. 

The standard for U.S. Customs is to select the place where “substantial transformation” takes place, and failing to understand what this really means can be costly, said Mr. Pike. He gave the example of an auto air filter company listing China as its origin country, namely because final assembly occurred there. 

But the most expensive (and essential) component by far was from Japan. Mr. Pike’s team successfully argued that a “new and different article of commerce” was not produced through the China operation, helping the company recover about $1 million in duties and save on future shipments as China was hit with heightened tariffs during Mr. Trump’s first trade war. 

“It’s not just that the factory is in China, so that’s the country of origin,” Mr. Pike said. 

It works the opposite way too: In 2018, the first Trump administration hit China with Section 301 tariffs on some $500 billion in goods (across four lists) after the U.S. Trade Representative’s office found that Chinese companies had harmed U.S. producers. In response, many firms shifted to places like Vietnam, Malaysia and Mexico. 

But in many cases, those didn’t meet the threshold of “substantial transformation,” and the U.S., where a rare bipartisan consensus has emerged on combating China, has since closed loopholes Chinese firms were exploiting to dodge tariffs. 

Besides, making plans to move a factory now isn’t tenable with so much still up in the air, Mr. Pike said. 

“The problem with making sourcing decisions, where you’re going to locate factories, is that it’s all on hold right now, because nobody knows what’s going to happen,” he said. 

Implement trade-focused tax strategies

Tax planning is equally if not more important, Mr. Pike added, noting that about half of world trade takes place as intra-company transactions. 

Transfer-pricing, the price that related entities (like parent and subsidiary companies) charge each other for goods and services provided across borders, has traditionally been calibrated to shift the most profit to the jurisdiction with the lowest tax burden. 

But that strategy may not work in an environment where tariffs are much higher than income taxes, a point Mr. Pike said has finally caught on.

“Customs duties and income taxes work in opposite directions. The values that you declare for imported merchandise are considered the inventory basis for income tax purposes,” Mr. Pike explained. “You want your values for customs as low as possible so you pay less duties, but you want your inventory basis as high as possible so you get a bigger deduction and pay less in income taxes. That’s the constant tension between tax and customs, and if you look at one or the other in a vacuum, you’re going to wind up shooting yourself in the foot.”

Companies should also look into a few under-used programs, including duty drawback, where importers that either re-export a product or have to destroy it due to unmet specifications are entitled to recover a portion of duties paid into customs.

“There’s millions and millions of dollars out there that go unclaimed every year, and we just found out last week that duty drawback will be allowed for reciprocal tariffs, unlike the Section 232 national security tariffs. So that’s very good news for importers as well,” he said. “It’s almost like a new revenue stream, because once companies discover that they have the ability to claim drawback, they sort of set up a program, and it just keeps going on and on, like the gift that keeps on giving.”

He added that companies should look into the “first-sale rule” to reduce the customs value of imports and other strategies, including the use of foreign trade zones. 

Utilize a Foreign Trade Zone

FTZs, as they’re known, operate outside U.S. customs even though they’re physically located American soil. Goods or parts can be brought in, and light manufacturing can be done within the FTZ, with the tariff on the components delayed until the part or product is removed from the bonded warehouse. 

“FTZ benefits are especially helpful in a high-tariff environment because payment of the tariff is deferred until goods move from a warehouse into the U.S. market and are eliminated completely on good that leave the warehouse for export markets,” said Julie Brown, CEO of Georgia Foreign Trade Zones, which operates FTZ #26 in the state. “In ‘normal’ times, an additional benefit of the FTZ program is related to lowering tariff rates on inputs used in manufacturing.  It’s important to understand that in an environment such as this, participating in the FTZ program may give businesses an advantage over competitors that do not have the same flexibility or certainty.”

She noted that the federal designation was authorized 40 years ago with the goal of helping U.S. companies compete with overseas rivals. 

“The program is designed to provide U.S. businesses with flexibility and incentivize more employment here at home rather than overseas. For decades, it has worked as intended,” she said. 

Ms. Brown said 43 Georgia companies supporting 14,442 jobs in the state — from Yamaha Motor Manufacturing in Newnan to Kubota in Gainesville and Southwire in Villa Rica — have saved an average of $1 million after joining the zone. See the list and the service area

Since trade volatility has heated up, Ms. Brown has seen a marked increase in inquiries. Eligible companies can get set up in as little as a few months. 

“Businesses across Georgia—from manufacturers to logistics firms—are looking for ways to stay agile,” Ms. Brown said. “FTZs are on their radar because they offer cost control and operational flexibility, especially when global trade conditions are less predictable.”

What’s at stake

But what about companies not yet present in the U.S. market, or those who have nowhere to hide from the tariffs?

Even if one concedes tariffs could eventually achieve the end goal of driving local manufacturing in the U.S., it would take companies time to find and buy land, obtain approvals, allocate capital and train workers, said Thomas Smith, a professor of finance at Emory University’s Goizueta Business School. 

“So the idea of bringing manufacturing back to the United States, although that is incredibly attractive on paper, it is very impractical, at least in the short run,” Dr. Smith said in a press call organized by the nonprofit Tariffs Cost US last week.

For Mr. Arroyave, who has raised prices twice already and has seen inputs from Canada stuck in customs for weeks, all the uncertainty means shelving an otherwise ambitious growth plan for 2025. 

“It’s just damaging the entire supply chain for the products that  we make inside of the United States,” Mr. Arroyave said on the same call. “And if this starts affecting our profits, which already have, we need to start firing people, or we need to stop hiring people. We support 30 families.”