How New Trade Policies Could Reshape Trade Compliance and “Country of Origin” Strategies
With the upcoming changes in Washington D.C., the trade industry is on the brink of transformation. For businesses, these shifts signal the potential for increased tariffs, tighter regulations, and a heightened focus on “Country of Origin” (COO). If you’re a company dependent on international supply chains, particularly with ties to China, it’s worth examining how these potential adjustments could impact compliance requirements, costs, and even your bottom line. Here’s what companies should be thinking about as these policy discussions unfold…
Rising Tariffs and the Push for Diversification
The possibility of significant tariff increases on Chinese imports is front and center in current trade policy discussions. Proposed tariffs could rise by as much as 40-60%, which would heavily impact the cost of imported products from China. To put it in perspective, a product manufactured in China could see a 40% rise in price – costs that would likely be passed straight to consumers.
Tech companies like Apple, for instance, have already been proactive about these potential changes, diversifying their supply chains by ramping up manufacturing and assembly in India. Final assembly in a country like India can mean lower tariffs, helping to offset costs. It’s a strategy that other businesses might consider – especially if a dependency on one foreign supplier could leave them vulnerable to costly tariff hikes.
This shift isn’t exclusive to the tech industry. Companies in other industries are also adjusting their sourcing strategies. As reported by CNN, Steve Madden plans to reduce its production in China by 40-45% over the next year. The company doesn’t plan to bring production to the US. Instead, Steve Madden is diversifying its supply chain by shifting sourcing to countries like Mexico, Brazil, and Vietnam. These changes reflect how businesses are taking steps to adapt to rising costs and maintain competitive pricing in response to the likeliness of a major rise in tariffs.
Why “Country of Origin” Matters More Than Ever
“Country of Origin” isn’t just a label on a product; it’s a very important factor in trade compliance. Determining COO has major implications for tariffs, eligibility for government contracts, and even brand reputation. According to the Trade Agreements Act (TAA), products must either be wholly made in the US or undergo a “substantial transformation” in a designated country to qualify as US-made. This substantial transformation rule requires that a product’s form, function, or character changes significantly. This creates a completely new product classification.
For companies, this means re-evaluating supply chains to ensure that products meet these requirements. This might involve moving certain manufacturing or assembly stages to the US or countries with strong trade agreements, helping to avoid compliance issues and tariff penalties.
Stricter Standards on the Horizon
Beyond tariffs, a new administration might also bring more rigorous regulatory enforcement. Over the past few years, policies have expanded the powers of the Committee on Foreign Investment in the United States (CFIUS), with a sharp focus on foreign investments, particularly those tied to China. Expect more scrutiny and possibly steeper penalties for non-compliance, especially for companies whose supply chains involve “countries of concern.”
This stricter enforcement will require companies to conduct thorough compliance checks, ensuring their COO labeling is accurate and their operations don’t rely on restricted suppliers. The stakes are high here and getting it wrong could mean serious financial and/or legal repercussions.
Why Local Manufacturing and Supply Chain Diversification Matter
In response to these risks, many companies are looking to diversify their supply chains. By reducing dependency on a single country, particularly China, companies can better handle risks associated with geopolitical tensions and abrupt policy changes. We’re seeing a rise in strategies like “nearshoring” (moving operations closer to the US) and “reshoring” (bringing operations back to the US) to enhance supply chain resilience.
Local manufacturing can also help beyond avoiding tariffs. Establishing operations in the US or nearby countries like Mexico simplifies logistics and COO compliance. However, while nearshoring or reshoring may come with upfront costs, the long-term benefits, reduced regulatory hurdles, and tariff protections are worth considering.
Export Controls and Sanctions
With an anticipated continuation and possible intensification of export controls, companies working in sensitive technology sectors like semiconductors, AI, and quantum computing will need to stay alert to changing regulations. Recent policies, as outlined in International Trade in a Second Trump Presidency, focus on limiting China’s access to US technology, especially in areas critical to national security. These restrictions may push companies to localize production or concentrate R&D efforts within the US or allied nations to maintain compliance.
For globally operated businesses, this shift means rethinking supply chains to ensure that sensitive operations and intellectual property remain within secure and compliant jurisdictions.
Legislative Support for New Trade Restrictions
With the likelihood of a Republican-led Congress, there may be legislative backing for bills that tighten trade restrictions with China. Proposals like the Countering Communist China Act (CCCA), which was introduced in February 2024, would restrict US investments in Chinese tech companies and impose stricter trade rules on Chinese imports. As this trend toward reduced reliance on China gains traction, businesses may need to rethink where they’re sourcing materials and assembling products.
With these possible changes on the horizon, trade compliance and COO are set to become even more central to business strategy. Taking calculated steps now, companies can better navigate these major changes and set themselves up for resilience in an increasingly complex global trade environment.
If your organization needs to hire trade compliance experts or bring in part-time consultants to help navigate these new challenges, Gateway Recruiting is here to assist. With a deep understanding of the industry and access to top talent, we’re ready to help you build the team you need to stay ahead. Contact Info@GatewayRecruiting.com today to learn more.
