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SJ Summit Preview: Harold M. Grunfeld on Tariff-Proof Sourcing Models

Harold M. Grunfeld has been helping clients navigate the complexities of international trade for over four decades, and he’s never experienced an environment with as much turmoil and uncertainty as what we’re seeing today.

The founding partner of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP counsels clients on trade compliance, and has helped them navigate plenty of challenging circumstances throughout the years (think: garment quotas). And while there are various strategies through which to manage duty increases, the turmoil that’s resulted from today’s persistent uncertainty has pressurized the system and complicated everything.

Grunfeld will talk trade, tariffs and compliance at Sourcing Summit New York on Oct. 17. We touched base with him in late September to get a preview of what he plans to share—as best as anyone can plan these days.

Sourcing Journal: What’s the biggest concern or complaint companies are calling you with where trade is concerned?

Harold Grunfeld: The levels of uncertainty. Companies really need to be able to plan beyond a two- and three-month window. Leaving aside the significant hardships of additional duties, companies need to look at their supply chains and evaluate them in a realistic fashion.

On the one hand, you have China, which is a stable source of supply, perhaps no longer at the lowest prices but a stable source of supply for large quantities, and the time, effort, energy and cost of moving to other countries is significant. It becomes a very complicated question that has no transparency from the government.

SJ: How are you helping your clients navigate these tariff headwinds?

HG: We’re looking at each of our clients’ individual businesses and to the extent that there are valuation opportunities, [such as] first sale or assuring that discounts they receive from their vendors are properly structured so that they also are non-dutiable. If you structure your discounts wrong and receive them in a manner that is post-exportation, you lose that benefit—you may get the discount but you may lose the duty benefit with it. That becomes an issue.

We’ve looked at the various trade agreements throughout the world with clients, examining whether it’s realistic for them to make the move and whether it’s cost-effective. There is a very complicated calculus that really exists for companies trying to make these decisions.

SJ: Are there ways to build a tariff-proof sourcing strategy?

HG: I think you can certainly build a tariff-proof model by going to various countries where they are their most favored nations and where you would have a duty rate that is fixed for the product. To the extent that you’re going to countries that have a trade agreement, you have to be sure you can meet those requirements. To the extent that regulators can always change the rules with regard to those types of situations, you’re never completely assured forever, but you’re assured for reasonable periods of time.

The China issues have been brewing for a very, very long time, and whether the president is right or wrong, this has been telegraphed for some period of time. So I don’t foresee that you would have significant issues arising out of a lot of the other Asian countries. On the other hand, there are threats being made by the administration now against Europe. Whether it be cars or whether it at some point includes apparel is an answer that no one can really give you.

SJ: Are you expecting the uncertainty around trade to last?

HG: I’ll give you a non-answer: It’ll last until it doesn’t last any longer.

You have two world leaders who each should be incentivized for various reasons that may be diverse to coming to a resolution. Irrespective of who has the upper hand, there is no question China is being injured by this. There is no question that at some point in the next several quarters, consumers are going to really be injured by this. There’s only so long that retail can say, “We’re not going to absorb any of these duty increases” to their suppliers before their suppliers either stop doing business, go out of business or refuse to deal with them. You can’t take a 25 percent add-on to the cost of goods and at some point not pass it along to the consumer.

Hear Grunfeld speak on the Sourcing Summit New York panel, “Is it Possible to Build a Tariff-Proof Sourcing Model?” Visit our event page for more info and to buy tickets.

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