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ARTICLE
9 top tariff mitigation strategies for manufacturing CFOs
For many manufacturers, the Trump administration’s tariff policies have created new costs and supply chain complications. Active tariffs under Section 232, Section 301 and Section 338 are raising the cost of many imports by 10-50% . How should your business adapt to succeed in this environment? Keep reading to learn key tariff mitigation strategies that CFOs and COOs can use to protect profitability even in the face of tariff pressures. 9 top tariff mitigation strategies manufacturers should know While there is no silver bullet, manufacturing CFOs and COOs do have options to offset tariff costs. If you understand your tariff exposure and supply chain, you can consider mitigation strategies like alternative sourcing, pricing pass-throughs, optimized inventory management, operational efficiency improvements and tax incentives. Deploying a combination of these strategies will help protect your overall profitability even after accounting for tariff expenses: 1. Map your supply chain Start by mapping out your current supply chain. Identify the sources of your raw materials, components and finished goods, while also reviewing HTS codes for all imports. Understanding where your products originate will help you evaluate potential tariff impacts. 2. Diversify your supplier base Based on your supply chain mapping, consider if you could reduce tariff exposure by diversifying your materials suppliers. Nearly all U.S. trading partners remain covered by tariffs, but not all countries are subject to the same tariff rate. Section 301 tariffs, for example, range from 10% to 12.5% depending on the country. In this example, switching from a supplier tariffed at 12.5% to one tariffed at 10% would reduce your tariff payments by 20%. 3. Evaluate domestic or near-shore sourcing In certain cases, tariff costs may mean that domestic sourcing is now a more viable option. Materials or goods sourced domestically aren’t tariffed, so you may be able to find more competitive pricing than in years past. Companies that have moved production overseas may also want to explore whether reshoring could make sense, although this approach typically only works when combined with heavy automation to offset high domestic labor costs. 4. Reassess your costing and quoting strategies For much of 2025, manufacturers simply ate tariff costs rather than risk angering consumers by passing those costs along. But that’s not a viable long-term solution. If you haven’t yet, explore changing your prices to reflect your higher costs, as well as how to implement those increases over time to soften the impact on consumers. 5. Optimize inventory and purchasing strategies Adopting a more agile, flexible approach to inventory management can help you avoid unnecessary costs. Taking this approach involves understanding exactly what your customers want, focusing on jobs that boost profitability (typically those that are either high volume or high value) and exploring more flexible contracts with suppliers to avoid over-purchasing materials you don’t need. 6. Review your supplier and customer agreements Tariffs are affecting both your suppliers and businesses that buy your products. You may be stuck with your existing contracts, but when negotiating a new one, explore how you can share the burden of tariff costs rather than leaving your business to eat most of them on its own. 7. Improve operational efficiency Improving operational efficiency can lower operating costs or increase production to offset tariff expenses. Manufacturers are increasingly leaning on technology like AI to deliver operational gains, with packaging automation, machine monitoring systems and process control technologies all delivering notable ROI in this area. This does involve making a meaningful upfront investment. However, certain tax incentives can notably lower that burden. 8. Use tax incentives to offset tariff costs A smart tax strategy can help significantly offset your overall tariff burden. CFOs should dig into the details on how to handle accounting for tariffs from a tax perspective , as well as consider how specific manufacturing tax incentives could reduce your non-tariff tax exposure or help cover the cost of investments in efficiency, molds, dies and automation. Key tax incentives to explore include: Bonus depreciation and qualified production property to immediately deduct the full cost of certain qualified real property investments. Section 179D expensing to deduct the cost of certain energy efficiency facility upgrades. R&D tax benefits to deduct or receive tax credits for research, experimentation and development costs. Tariffs can also increase your credit eligibility here. 9. Pursue tariff refunds when applicable In early 2026, the Supreme Court overturned the administration’s IEEPA tariffs and ordered that roughly $166 billion in tariff collections be refunded. If your business paid IEEPA tariffs, you may be eligible to have that money returned . The process can be complex, but if you were burdened by significant IEEPA tariff costs, you stand to gain a significant reimbursement. Why tariff management matters for manufacturers today Manufacturers face a host of pressures on profitability, including high costs for raw materials and labor, competition from emerging markets, economic uncertainty and a technological revolution that is shaking up traditional business models. Tariffs only add to that pressure, which makes managing them essential to surviving (and thriving) in today’s business environment. This is doubly the case because tariff policy continues to be volatile, which means you’ll get burned if you don’t have a process in place to help you adapt to those policy shifts. Also consider that successful tariff management means learning to run your business more efficiently and effectively. By acting now, you’re investing in long-term performance gains that will stick around even if the current tariffs are eventually phased out. In other words, implementing an effective tariff management strategy will bolster your profit margins both now and in the future. How tariff mitigation helps CFOs improve profit margins No single tariff mitigation strategy will likely offset all your tariff costs. However, by employing a combination of supply chain adjustments, efficiencies, tax incentives and pricing pass-throughs, you can significantly reduce the hit to your profit margins. Consider that tariff mitigation strategies help you to: Counterbalance tariff costs by finding new cost savings or opportunities to do more profitable jobs. Operate more efficiently, with tariffs serving as the necessary push to adopt automation or more efficient processes. Better understand your supply chain and customers so you can adapt to meet today’s business demands. Avoid wasting valuable tax opportunities by claiming deductions or credits you may already be entitled to, or that apply to necessary expenses. Protect your margins by helping negate rising costs in areas like healthcare, labor and materials to set you up for a strong balance sheet five years from now. Tariffs are frustrating. But they are also an opportunity to rethink your business and make structural changes to put it on more solid, sustainable ground. Read more Tariff update: New Section 301 tariffs, Section 232 and more Tariff refunds for manufacturers: What to do next How do tariffs affect taxes for manufacturing businesses?
ARTICLE
Tax treatment for tariffs: How U.S. manufacturing companies should treat tariff costs and IEEPA refund uncertainty under U.S. tax rules
Tariffs are now a seemingly permanent cost consideration for U.S. manufacturing companies sourcing capital equipment and raw materials globally. This means business leaders need to better understand the rules, especially as certain tariff refunds have created additional complications. Misclassification when accounting for tariffs can affect taxable income, timing of deductions and missed opportunities. Keep reading to learn more about how tariffs affect your business from a tax perspective. Tariff costs depend on the nature of the goods From a federal income tax perspective, the proper treatment for tariff costs largely depends upon the nature of the goods on which the tariffs are being charged. That is, in most cases, the treatment of the tariff will follow the tax treatment of the underlying asset or good that is being imported into the United States. Tariffs on capital equipment, raw materials and R&D supplies all have different tax treatments. How tariffs affect capital equipment When a tariff is incurred related to the import of machinery and equipment, the tariff is generally treated as part of the asset’s acquisition costs. The tariff is capitalized into the tax basis of the asset, along with purchase price, freight and installation costs. Once capitalized, the tariff cost would be recovered through the same depreciation methodology as the underlying asset. Most machinery and equipment is depreciated via MACRS over five or seven years. In addition, taxpayers can accelerate the depreciation and cost recovery with tools like 100% bonus depreciation and Section 179 expensing, subject to current law limitations and phase-down schedules. How tariffs affect raw materials and inventory Tariffs assessed on imported raw materials are generally treated as inventoriable costs. That is, the tariff is capitalized into the cost of inventory, along with the purchase price of the raw materials and related inbound freight. The tariff is part of the cost of goods sold and is deducted when the underlying inventory is sold. Some manufacturers expecting tariffs to be levied on their raw materials for the foreseeable future may want to consider the last-in-first-out (LIFO) method of accounting for their inventories: LIFO accounting can be advantageous when costs are rising. But other requirements exist with LIFO, such as book-tax conformity and a requirement to stay on LIFO for at least five tax years. Companies considering LIFO should examine their internal cost accounting systems, for both book and tax purposes, to make sure that the system appropriately captures tariffs. If not, a change in accounting method should be considered prior to adopting LIFO. How tariffs affect R&D supplies Like capital equipment and raw materials, the cost of tariffs on R&D supplies follows the treatment of the cost of the underlying asset or good. As such, if the underlying supplies are materials used in the conduct of research, the tariffs would follow the same treatment. The Tax Cuts and Jobs Act of 2017 (TCJA) differentiated the treatment of domestic and foreign research expenditures for tax years beginning after December 31, 2017. Effective for tax years 2018 and thereafter, the TCJA required research costs to be capitalized and recovered over the applicable period. The recovery period for domestic research expenses was set at five years, with foreign research expenses to be amortized over 15 years. The One Big Beautiful Bill Act (OBBB) gave manufacturers relief for the tax treatment of their domestic research expenditures : For tax years beginning after December 31, 2024, domestic research expenditures are once again deductible as they are paid or incurred. Moreover, a transition rule exists whereby taxpayers can ‘catch up’ their unamortized research expenditures from tax years 2022 through 2024; and small taxpayers are allowed to amend prior years’ returns to deduct the research expenditures otherwise capitalized on the originally filed tax return. For manufacturers using imported supplies in the conduct of research, such as prototype materials, molds or dies and automation supplies, the tariffs will follow the treatment of research supplies or materials. For tax years 2025 and beyond, most manufacturers will choose to deduct their research expenditures, and thereby the related tariff levied on those supplies and materials, as they are paid or incurred. Tariffs may offer a hidden tax benefit for R&D activities Given that the tariff amount follows the treatment of the underlying property, a manufacturer’s inquiry might turn to whether those costs can also qualify for the R&D tax credit . If a manufacturer imports chemicals, prototype materials, or other non-depreciable property that qualify as supplies under Section 41, the tariff embedded in their acquisition cost should generally be included in the amount paid or incurred for those supplies. The tax code focuses on the “amount paid or incurred” for supplies used in the conduct of research. Because the tariff is part of the acquisition cost of the imported supply, the tariff should generally be included in that “amount paid or incurred,” assuming the underlying item is a qualifying research credit supply and is used in the conduct of qualified research. For expensive prototype materials or molds/dies used in the conduct of domestic research, the tariffs levied on those supplies can significantly increase the amount of qualified research expenditures and thereby the tax credit. This rewards companies more when they are increasing their R&D costs. Supreme Court ruling creates ambiguity on accounting for tariff refunds On February 20, 2026, the U.S. Supreme Court ruled in a 6-3 decision that the International Emergency Economic Powers Act (IEEPA) does not give authority to the President to impose tariffs . The majority opinion did not address tariff refunds and the dissenting opinion noted the process is likely to be a “mess.” Significant uncertainty exists, independent of the proper tax treatment of any potential refunds. Only the importer of record is eligible for the refund, but many suppliers passed those costs onto their customers. As a result, many manufacturers will need to look into whether the ruling affects their rights and obligations under contracts with vendors and customers. That is, even if a manufacturer isn’t the importer of record, they may still seek or be legally obligated to a refund from their vendor. It is also important to note that the Supreme Court ruling was limited to tariffs assessed under IEEPA, not section 232 or 301 tariffs . Established tax principles provide a framework for tariff refund scenarios Although some uncertainty remains regarding refund administration and timing, established tax principles provide a framework for addressing several common tariff-refund scenarios. The appropriate treatment generally depends on how the original tariff was treated, whether the related property remains on hand, and when the taxpayer’s right to the refund becomes fixed under its accounting method. Raw materials already sold: A refunded tariff is generally included in taxable income under the tax benefit rule to the extent the earlier inventory or cost-of-goods-sold treatment reduced tax. The inclusion generally occurs when the right to the refund becomes fixed under the taxpayer’s accounting method. Self-employment tax: Some tariff refunds may be taxable for federal income tax purposes without being included in net earnings from self-employment. Raw materials still in inventory: If the goods that generated the refund remain on hand when the refund right becomes fixed, the refund generally reduces the cost or value of inventory rather than creating current taxable income, provided the adjustment is properly treated as an inventory cost adjustment. Capital equipment: A tariff refund tied to capital equipment is generally treated as a basis adjustment under IRC Section 1016 and Treasury Regulation Section 1.1016-3, rather than as a simple tax-benefit-rule recovery. If the asset remains owned and has a remaining adjusted basis, the taxpayer generally reduces the basis and adjusts depreciation prospectively over the remaining recovery period. If bonus depreciation or Section 179 expensing was claimed, the basis decrease may reduce otherwise allowable depreciation in the year the decrease is taken into account. If the asset is fully recovered or was disposed of before the refund right became fixed, the recovery generally is reflected through basis and gain-or-loss mechanics. Taxpayers should coordinate the implementation with their fixed asset specialists. R&D tax credit supplies: If a refunded tariff was included in the cost of supplies used in qualified research, the taxpayer may need to revisit its Section 41 qualified research expense calculation. If the original credit year remains open, the taxpayer generally should recompute the credit by reducing qualified research expenses for the refunded tariff. If the year is closed, the issue is better analyzed under the general credit-recovery rule of IRC Section 111(b), which may increase tax in the refund year to the extent the earlier research credit reduced tax. This approach is similar to the treatment the IRS has applied to Employee Retention Tax Credit recoveries. Read more Tariff refunds for manufacturers: What to do next R&D tax credits can lower your tax bill. Do you qualify? Tariff update: New Section 301 tariffs, Section 232 and more
ARTICLE
Tariff update for manufacturers: What’s the state of tariffs in mid-2026?
For the past year and a half, tariffs have roiled supply chains and forced manufacturers to adjust their business models. But tariff rules are changing: Section 122 tariffs recently ended, but have been replaced by Section 301 tariffs, while Section 232 tariffs also remain in effect. What are the key tariff rules you should know, and how should your business adapt to navigate new tariff changes? Keep reading to learn more. Section 122 tariffs have now ended Section 122, which was a global 10% tariff , has ended as of July 24. These tariffs were imposed by the Trump administration after the Supreme Court ruled the administration’s earlier IEEPA tariffs were illegal. The Trump administration used Section 122 tariffs as a temporary, 150-day bridge to keep tariffs in place while it worked to implement more permanent tariffs under Section 301 (which have now taken effect). Several lawsuits are challenging the legality of the Section 122 tariffs. Should Section 122 tariffs eventually be ruled illegal, businesses could be eligible for refunds on tariff fees. However, until a court rules on Section 122, there is no current pathway for refunds available (which is not the case for the overturned IEEPA tariffs ). New Section 301 tariffs have replaced Section 122 Section 122 tariffs have now been replaced by Section 301 tariffs at a current rate of 10-12.5%. The U.S. government can impose Section 301 tariffs in response to unfair trading practices, as identified during an investigation by the Office of the United States Trade Representative (USTR). Section 301 allows the administration to put tariffs in place indefinitely and at any chosen tariff rate. The Court of International Trade (CIT) has ruled that Section 301 tariffs are legal. The statute gives the U.S. Trade Representative (USTR) authority to take action that is “appropriate and feasible,” which is the mechanism being used to implement different tariff rates. Section 301 tariffs apply to specific countries (or economies in the case of the European Union) that have been investigated and found guilty of one or multiple of these investigations conducted by USTR. Current Section 301 tariffs fall under a forced labor investigation The Section 301 tariff process involves the USTR conducting an investigation into specific trading practices it deems unfair. Currently, Section 301 tariffs are being imposed as part of a forced labor investigation. This investigation has different tariff rates based on three separate tiers, which range from 10-12.5%. The three tiers are: 10%, not inclusive of MFN (most favored nation, which are also known as the general tariff rates) 10% or 12.5%, inclusive of MFN 12.5%, not inclusive of MFN More Section 301 investigations are ongoing, with more tariffs expected soon More tariffs could soon be imposed as a result of additional ongoing Section 301 tariff investigations. Active USTR investigations include industrial excess capacity, pharmaceutical pricing, U.S. tech discrimination, digital service taxes, ocean pollution and trade in seafood, rice and other products. Expect to see a new Section 301 tariff emerge from the industrial excess capacity investigation soon. The administration has also indicated that the excess capacity tariff may stack on top of the Section 301 forced labor tariff on countries the USTR has found guilty of both. USMCA-compliant goods and anything tariffed under Section 232 are exempt from Section 301 The Section 301 forced labor tariff does exclude USMCA-compliant goods, as well as goods tariffed under Section 232. This means that Section 301 tariffs will not stack on top of Section 232 tariffs. Section 232 also supersedes Section 301, so if you have a good that is on a Section 232 list, Section 301 would not apply. For example, a steel bar that is subject to the Section 232 steel tariff would not also have a Section 301 tariff applied. Additional Section 301 exemptions may also apply There are also several additional exemptions from the Section 301 tariffs. To avoid accidentally paying tariffs that you may be exempt from, you need to know: The HTS code for each good you’re importing Which tariff lists those HTS codes are included on The country of origin to determine the tariff rate being paid The administration has the right to make changes and change tariff rates, so once you know which list your goods are on, make sure you pay close attention to any announcements on changes to that list. Additionally, depending on future trade deals that are ratified with the U.S., a country could move from one tier to another tier. For example, a country currently at 12.5% plus MFN could ratify a trade deal with the U.S. to move to a lower tariff rate of 10% inclusive of MFN, or to a different tariff rate entirely. Section 232 tariffs remain active Section 232 tariffs have also been upheld by the CIT and emerge from an investigation process similar to that used for Section 301 tariffs. Section 232 tariffs have been placed on products such as steel, aluminum, automobiles, lumber and more. The tariffs under Section 232 range from 10%-50%, depending on the product. There are additional Section 232 tariffs under investigation in the following categories: industrial machinery and robotics, semiconductors, pharmaceuticals, critical minerals, anthracite coal, commercial aircraft, polysilicon, unmanned aircraft systems, wind turbines and personal protective equipment. Expect new Section 232 tariffs on industrial machinery and robotics The administration has signaled it plans to announce two new Section 232 tariffs on industrial machinery and robotics. As of September 2, 2025, all countries were included in the investigations for these tariffs. The investigations focused on potential national security threats related to imports of robotics and industrial machinery, including several different types of machining centers, equipment, and tool changers. The government may incentivize machine builders to invest in the U.S., with Section 232 tariffs as a component of that domestic machine tool strategy. USMCA negotiations are ongoing, with the U.S. seeking significant changes Six years after the United States-Mexico-Canada Agreement (USMCA) entered into force, the agreement reached a critical milestone. July 1, 2026, marked the start of the required three-party review process among the United States, Canada and Mexico. While Canada and Mexico have advocated for a 16-year extension of the agreement, the United States has pushed for continued periodic reviews and broader renegotiation discussions. Current expectations are that negotiations will continue throughout the remainder of 2026 and likely extend into 2027 before a final agreement is reached. As part of these discussions, the United States is seeking significant changes to the USMCA rules of origin requirements, including a proposal that qualifying products contain at least 50% U.S. content. The administration is also emphasizing stronger North American supply chain sourcing and reducing reliance on Chinese-origin components. Watch for new Section 338 tariffs on Canadian imports Complicating the USMCA negotiations is the news that the administration may impose new Section 338 tariffs on Canada . Announced on July 20, 2026, the tariffs are scheduled to take effect on August 19, 2026, unless modified, suspended or withdrawn prior to implementation. Section 338 of the Tariff Act of 1930 gives the President authority to impose tariffs in response to discriminatory actions against U.S. commerce. The proposed measures would affect approximately $20 billion in Canadian shipments to the United States, representing roughly 5% of Canadian imports into the U.S. The tariffs specifically target products in the alcohol, dairy and automotive sectors, with cheese identified as a key dairy product affected. Notably, products that qualify for preferential treatment under USMCA would not be exempt from Section 338 measures, creating uncertainty for manufacturers and importers that have relied on USMCA to freely move goods throughout North America. Next steps: Adapting your business to meet tariff challenges Tariffs will continue to pose challenges for manufacturers for the foreseeable future. To adapt to this environment, you need to understand how tariffs impact your business , both in terms of your financial forecasts and your global supply chain. The first step here is knowing the HTS codes for everything you import and then reviewing those codes frequently to understand the current tariff rates. This can give you a baseline financial awareness of your tariff costs. You may also benefit from working with a third-party advisor to gain additional insight on how tariffs affect your operations, financials and markets. An advisor can also help you explore creative solutions to thrive even in this complex, fast-changing moment. Read more Tariff refunds for manufacturers: What to do next Manufacturing trends: What 456 leaders say about the industry AI disruption is coming for manufacturing. How should your firm adapt?
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