Why tariffs hit cash twice
A tariff raises your landed cost - and it ties up more cash. You pay the duty up front, often before you have sold the goods, so the same shipment now costs more and sits longer as working capital. For businesses that relied on low-value imports, the elimination of the de minimis exemption (the old $800 duty-free threshold) means even small parcels now carry duty and brokerage.
Quantify the margin impact
Before you react, put a number on it. Take a representative product and recompute gross margin with the duty in landed cost. A simplified example on a $100 item:
| Per unit | Before tariff | With 20% tariff |
|---|---|---|
| Selling price | $100 | $100 |
| Landed cost | $60 | $72 |
| Gross margin | 40% | 28% |
A 20% tariff on a product that is 60% cost erases roughly a third of the gross margin. Run this across your real product mix - the blended impact is what matters, and it is usually smaller than the worst single SKU.
Levers to protect margin
- Targeted pricing or surcharges on the most-affected products, rather than an across-the-board increase.
- Supplier diversification toward lower-tariff countries or domestic sources where the math works.
- Classification review - confirm your products are under the correct HTS codes; misclassification can overstate duty.
- Inventory timing - balance buying ahead of increases against the cash cost of holding more stock.
Watch your working capital
Tariffs are a margin story and a cash story. The companies that get caught out are usually the ones that modeled the margin hit but not the extra cash tied up paying duties up front.
- Update landed cost in your cash-flow forecast so the duty timing is visible.
- Run a rolling 13-week cash view through any period of heavier importing.
- Renegotiate supplier and customer terms to offset the longer cash cycle.
- Build a scenario plan for further tariff moves so the next change is a decision, not a scramble.
For informational purposes only, not tax, legal, or trade advice. Tariff rates and rules change frequently and depend on product and origin - confirm specifics with a customs or trade professional.