Almost half of supply chain leaders plan to pass on tariff costs to customers

Despite recent U.S. trade negotiations with China and the U.K., the uncertainty around tariffs remains a driving force in supply chain decision-making. Supply chain leaders are preparing for impending tariffs in variety of ways, however, almost half (45%) anticipate passing on costs to their customers as the primary strategy, according to “How Supply Chains Are Responding to New U.S. Tariffs and Policies”, new research conducted in March and April by analyst firm Gartner, Inc.

A different Gartner survey of Chief Supply Chain Officers (CSCOs) released in March, the 2025 Tariff Volatility Survey, found that most CSCOs have an “all-or-nothing” approach to tariff pass-through, with the majority either passing on 20% or less of costs (35%) or between 80% and 100% of costs (31%).

Responding To Tariffs

Gartner's research on supply chain response to tariffs found that the other initiatives organizations are pursuing to mitigate new tariff impacts – beyond passing costs to customers – include renegotiating supplier contracts (47%); exploring collaboration opportunities with suppliers (43%); addressing country of origin, valuation and other trade management tactics (40%); and pulling inventory forward (23%).

Additional tariff mitigation options include adjusting supply locations (39%) or production locations (26%) outside the U.S., and moving production (15%) or supply (15%) to the U.S. Only 7% of survey respondents plan to absorb the costs and 4% plan on exiting the U.S. market.

Citing the CSCO survey, Wade L. McDaniel, VP Distinguished Advisor, Gartner Supply Chain, says, “Survey results indicate that almost half of the CSCO community (across industries) believe they can regionalize 25% of their supply chain capacity within 12 months. This is a solid indication that supply chains are becoming more agile and responsive.”

“Supply chain leaders have many potential levers to pull from in mitigating new costs related to tariffs,” adds Vicky Forman, Senior Director Analyst in Gartner's Supply Chain practice. “While supply chain leaders have multiple initiatives underway to potentially lessen the impacts, many of these actions have yet to be completed.” The research shows that more than 50% of tariff-mitigation initiatives are beyond the planning stage, but most are not completed.

Facing Risks Beyond Cost

While increased cost is seen as the top risk associated with new tariffs by 92% of respondents to the Gartner survey, they also have concerns about slowing customer demand (75%), overall decrease in consumer demand (49%), and retaliatory measures impacting international customer demand (45%).

On the other hand, however, 27% of respondents believe the new U.S. tariff policies can provide them with potential competitive advantages if they adapt faster than the competition, diversify their manufacturing footprints, engage with third party manufacturers with global footprints, or utilize the existing U.S. manufacturing base.

5 Ways to Mitigate Tariff Impacts

“For business leaders, understanding the dynamics of import tariffs and identifying practical, effective supply chain changes to mitigate the impact of tariffs are critical right now,” asserts Jackson Wood, Director of Industry Strategy, Global Trade Intelligence for Descartes, offering five strategies to consider, other than passing costs on to customers:

1. Tariff Engineering: Wood recommends tariff engineering as one of the most effective methods for reducing import tariffs, where businesses modify products to fit into classifications with lower tariff rates. This requires a deep understanding of Harmonized Tariff Schedule (HTS) codes and collaboration with engineering and legal teams to ensure compliance.

“For example, a company importing apparel could alter fiber composition or assembly location, shifting the product to a lower tariff category,” Wood explains. “This not only reduces customs duties but also enhances competitive pricing.”

2. Free Trade Agreements (FTAs): Review existing FTAs and consider sourcing products from countries with more favorable bilateral or multilateral trade agreements, Wood suggests.

“FTAs help companies import raw materials and components at a lower cost, reducing overall production costs,” he adds. “This leads to increased profitability for businesses — and the cost advantages can also be passed on to consumers in the form of lower prices for goods and services.”

3. Duty Drawback: The U.S. Duty Drawback program allows companies to reclaim up to 99% of import tariffs paid on goods that are later exported.

“For businesses involved in re-exporting goods or using imported components in export-bound products, this strategy offers substantial cost savings,” Wood reveals. “Collaborating with experienced customs brokers or duty drawback and recovery specialists can streamline processes and maximize recovery potential.”

4. Foreign Trade Zones (FTZs): “Establishing operations in FTZs enables companies to defer, reduce or eliminate tariffs, which can boost cash flow and savings,” Wood says. “Goods entering an FTZ are not subject to tariffs until they leave the zone and enter the commerce of the U.S. for domestic consumption. If goods are re-exported, trade tariffs may be avoided altogether.”

Wood adds that FTZs offer additional benefits, including lower inventory costs and improved cash flow, making them a strategic choice for companies importing high-value goods or components.

5. First Sale Rule: “Use of the First Sale Rule allows U.S. importers to reduce the dutiable value of goods by using the price paid in the first sale of a multi-tiered transaction as the basis for customs valuation, as opposed to the final sale price paid by the importer,” Wood concludes. “Instead of paying tariffs based on the final transaction price (i.e., middleman-to-importer), the importer can declare the manufacturer-to-middleman price, which is usually lower.”