Businesses are currently facing a “tariff tsunami,” not to mention global economic uncertainty as the ripple effect of President Trump’s tariffs impact and reverberate through the supply chain worldwide, according to Forbes.
Those tariffs are forcing retailers and manufacturers to rethink supply chain strategies and develop new ways to get their products to consumers without massive price hikes, delays, and disruptions.
To keep costs down for their customers and lower their own tariff bills, some companies are turning to a business-to-business-to-consumer (B2B2C) model—also known as “tariff hacking”—as a way to handle orders, CNBC reported. To meet the demand, other companies are emerging to handle the logistics and work-arounds.
For items sold direct-to-consumer on a company’s website, some businesses are employing a “middleman company” as a merchant of record, routing the product or transaction through them as a U.S. entity. That middleman buys the product, paying the U.S. tariff based on the wholesale price, and ships it to consumers on behalf of the retailer, CNBC explained.
“This not new. It’s been going on forever,” James Mohs, associate professor of accounting, finance, and taxation at the University of New Haven, told Fast Company. “Simple example: Let’s say you are a Chinese company and you have a 50% tariff coming into the U.S. and you have a subsidiary in Vietnam that has a 10% tariff. You ship it to them, and they ship it to the U.S. with a 10% tariff, and they save 40%. If you can reduce your tariff from 50% to 10%, it keeps the price of the goods relatively lower.”
Some experts warn that “tariff hacking” is a temporary fix that won’t hold in the future.
“Right now, it’s a short-term solution,” Mohs said. “Hard to say if it’s a long-term solution because this tariff war is in such a state of flux right now. . . . [It’s unclear] whether the U.S. government will set the tariff based on the original country of origin or [continue] to allow the subsidiary to act as an intermediary.”