Felix Faerber, shareholder at the law firm of Baker Donelson, discusses how manufacturers are coping with endless tariffs, high interest rates and other unpredictabilities.
The regulatory implications of the latest round of tariffs are extensive, Faerber says. They’re causing manufacturers to take a closer look at contractual arrangements with suppliers and customers, as well as the particular Harmonized Tariff Schedule codes that apply to their various products and components.
Mere awareness, however, isn’t the end solution to coping with new tariffs. Faerber says an increasing number of manufacturers are seeking renegotiation of contracts to reflect rising costs that weren’t anticipated at the outset. They can’t fall back on “force majeure” clauses, which don’t apply to regulatory changes, so they need to find ways to pass along at least a portion of the higher cost.
“We’ve seen a lot more awareness of potential incidents that can happen,” he says. Some manufacturers are also anticipating changes in such factors as currency exchange rates. Contracts that contain such provisions are relatively rare at the moment, Faerber says, “but that’s going to become more of a norm going forward.”
Can manufacturers simply accept that volatility and disruption are now permanent elements of the trade landscape? The bottom-line impact on their operations makes that unlikely. What they are contemplating, Faerber says, is bringing some offshore production back to the U.S., where higher labor costs might be offset by the absence of tariffs as part of landed-cost calculations.
That, however, is a long-term play. In the meantime, Faerber says, manufacturers need to be aware of more immediate options, such as contract adjustment and passing along at least some of the higher cost of production.