KANSAS CITY, MO. — Tariffs are nothing new to US businesses, in fact, they have been a contributing factor to business since 1789. But the recent chaos brought on by the Trump administration is something US business are not used to handling. Knowing this, the American Pet Products Association (APPA) hosted a webinar on May 14, discussing these tariffs and sharing strategies that companies can implement to stay afloat. 

According to a survey during the webinar, 29% of pet industry businesses have not taken any specific action yet, 21% have changed or diversified their suppliers, 16% have delayed or reduced inventory purchasing, 14% have passed the costs onto their consumers and 9% have absorbed costs internally.

Various pet products are expected to be impacted by tariffs, but a majority (37%) of webinar attendees are mostly concerned that tariffs will impact pet food and treat products. Additionally, 12% are concerned tariffs will impact wellness and supplement products. 

A long time coming

The first major law passed by US Congress that dealt with tariffs was the Tariff Act of 1789, signed by President George Washington on July 4. This act placed a 5% tax on all imports into the United States with the intention of protecting domestic manufacturing and raising revenue for the federal government. 

Tariffs have long since evolved, shifting from revenue generation to restricting foreign materials and industries from gaining foothold in the United States. Additionally, World War II influenced trade and tariff policies, with the European Union levying tariffs on US imported goods to help it recover from the war, shared Dan Swartz, principal of Crowe LLP. 

Tariffs have been a long-established trade policy, as has President Donald Trump’s attitude on them. The main concern stems from the United States’ significant trade deficit, which has risen from $109 billion in 1988 (representing 2.0% of the GDP) to $918.4 billion in 2024 (representing 3.1% of the GDP). Trump’s tariffs aim to help address this, as well as promote reciprocity in trade with other countries and protect US workers and industries. No matter the good intentions, the constant back and forth with tariffs, on and off and then back on again, has resulted in chaos.

According to Swartz, the White House has scheduled negotiations with several countries on tariffs, including Australia, Cambodia, Canada, India, Indonesia, Israel, Italy, Japan, Lesotho, Mexico, South Korea, Switzerland, Vietnam, the European Union, the Philippines and the United Kingdom. 

Strategies to implement

With all this chaos swirling around US trade, experts agree it’s important companies remain calm and thoroughly investigate all their possible options. Rebecca Rizzuti, owner of Progressive Trade Consulting, LLC, recommends that companies address their foundation, which involves understanding the products being imported and the requirements needed for the process. This all begins with properly classifying products. 

The US Customs and Border Protection (CBP) is set to release updates to the Harmonized Tariff Schedule of the United States (HTSUS), which is used to classify goods of trade. The HTSUS assigns a 10-digit code to each product that ultimately determines a product’s tariff rates.

“There is opportunity, even in today’s environment, to make sure that you’re doing things appropriately and still reduce some of that classification or tariff exposure,” she explained. “In other cases, we want to make sure that you’re classifying these correctly to make sure that you are being charged the appropriate tariff. There are some exemptions or exclusions that have been associated based on tariff classifications. So, it’s going to be critical that you understand that and are claiming those appropriately.”

Assessing a product’s supply chain is also key. For example, if a company is bringing in goods (raw materials, ingredients, etc.) from China, they could be subject to several tariffs, some of which are stackable. By understanding the supply chain, companies can seek out alternative countries to source from and move manufacturing to another country. 

“We are cautioning everybody that things are changing so quickly and so frequently… you may want to wait a little bit and investigate some of your options and then wait to see some of these trade deals announced by the president,” said Rebecca Rizzuti, Progressive Trade Consulting, LLC.

“Once you just understand those two things, it may prompt you to start having discussions about changing your sourcing locations or if you want to make an adjustment and move production to another country that has a lesser impact,” Rizzuti said. “We are cautioning everybody that things are changing so quickly and so frequently… I want you to make a decision based on knowing that some of those things might change and you don’t want to make a rash decision and then find out that the country you’re moving to doesn’t have the best trade deal. In this case, you may want to wait a little bit and investigate some of your options and then wait to see some of these trade deals announced by the president.”

Other strategies include: 

• Adjusting order quantities and product mix. Certain products may be subject to more tariffs than others, therefore, companies have an opportunity to bring in products that would be hit with less tariffs. 
• Negotiating with vendors, which can help offset some of these costs. According to Rizzuti, vendors are starting to offer discounts to help prevent loss to their businesses. 
• Leveraging bonded warehouses, which are secure storage facilities in which imported goods can be kept without immediate payment of duty. If freight rates are low now, it may be beneficial for companies to ship their products out of the country now (i.e. China) and hold them in a bonded warehouse until they’re needed.
• Taking advantage of periodic monthly statement (PMS) with the US CBP, which can help companies optimize their cash flow. This is a payment solution that allows importers to consolidate their duties, taxes and customs fees on a monthly basis. 

Proceed with caution

As companies continue to seek out ways to mitigate these tariffs, some unsavory methods have emerged, from manipulating a product’s classification to its country of origin. These methods are not permissible by law and carry hefty penalties. 

“If the importer violates customs laws and regulations, they can receive penalties and the penalties can be pretty severe,” said Dan Swartz, Crowe LLP.

“Something that importers do have to be very mindful of is that the legal obligation is on them to declare the accurate and correct tariff classification, rates of duty and value at the time of entry,” Swartz explained. “If the importer violates customs laws and regulations, they can receive penalties, and the penalties can be pretty severe… They can be looking at a penalty up to four times the loss of revenue, meaning the loss of duty to the government. Or even in cases where there was no loss in revenue but there was a violation, you can be looking at 40% of the declared value of the goods as your penalties. So, it is a pretty onerous environment to play in.”

According to Swartz, a lot of businesses are playing with the valuation of their products, aiming to bring the tariffs on them down. 

“Companies have been reaching out to foreign vendors and asking them to modify values on commercial invoices so that you’re using one invoice with customs purposes and then remitting a different amount back to the foreign vendor,” he shared. “This is a big no-no with customs and will most certainly land you in hot water.”

Another method revolves around the strategic movement of products in order to try and change the established country of origin. For example, some businesses are manufacturing their product in one country with higher tariffs to the United States (i.e. China) and will then ship the product to another country that has lower tariffs to the United States (i.e. Germany) to do “finishing” work or even just store it in a warehouse. The product will then be shipped to the United States from this second country, in which the business will try and claim it as the country of origin. 

According to Rizzuit, this unscrupulous method makes it critical for businesses to understand the difference between country of export and country of origin. Under Customs Form 7501, the country of export is defined as “The country of which the merchandise was last part of the commerce and from which the merchandise was shipped to the United States without contingency of diversion,” whereas country of origin is described as the last country in which product underwent “substantial” transformation.

“One thing we have been stressing to our customers is that country of export (meaning where you are moving your goods from) versus country of origin,” Rizzuti shared. “They do not mean the same thing, so businesses need to be really careful… If a business does most of a product’s manufacturing in one location and then moves it to another country, usually with less tariff exposure, and does some finishing work, final packaging, things like that will most likely not be enough to change a country of origin.”

Ultimately, the importer is the one that bears responsibility for their products and compliance with customs regulations, not the vendor.

“If a solution is being presented now that was not presented all these years or months or weeks that you have been sourcing your goods, it is worth the pause to think about what it is you’re being offered,” she said. “As the importer, you are responsible and it will not be acceptable to say, ‘I was told by my vendor’ or ‘this is the information that I received.’ As the importer, it is your responsibility to do your due diligence, which means you need to understand the laws and regulations for the country that you are importing to.”

Read the latest updates on tariff issues impacting the pet food industry.