Companies Looking Closely at Drawback to Reduce Tariff Exposure, KPMG Says

Drawback seems to be an area of growing interest for companies worried about the new tariffs, said Doug Zuvich, a partner in KPMG's Trade and Customs Services group, during an Aug. 20 webinar hosted by KPMG. "What's really important about this, whether you manufacture or you're just distributing, exporting the products, you can get your refunds back even if it's not the same products that you export. It could be domestic products," he said. "So some companies are using this strategically, and where they have multiple decentralized businesses, they're actually looking at which of the businesses are exporting similar-type products and which are importing, and they're actually strategically matching them up. Other companies that we know of are looking at acquisitions and ways to take advantage of this because it's a significant way to get ahead of these duties."

There's still a good chance that the proposed list of tariffs on an estimated $200 billion worth of Chinese imports will take effect in some form, said Alex Kazan, Eurasia Group's chief strategy officer. "We're about 60 percent and that's by October," he said. Whether those tariffs will be at 10 percent or 25 percent or some other amount is hard to predict, he said. "Unfortunately, I think it's tough to have a high conviction around this."

There's little reason to think general tensions around trade will relent anytime soon, Kazan said. There are "a lot of reasons to think the broader trend toward higher trade tensions stays in place," he said. "We will have periods that feel like relief where we have breakthroughs on specific issues, maybe fewer tariffs in one area are applied, but the general trend is toward higher trade tensions and a more protectionist U.S. in the near and medium term," Kazan said.

Many factors should be considered when deciding how a company should adjust to the current trade environment, said William Lovallo, a partner in KPMG's Deal Advisory practice. "The truth of the matter is when somebody's got nearly $900 million tied up in a factory, you're not going to make a decision to pull out of China overnight over tariffs," he said. "You've got to look at the whole supply chain, you've got to look at where your revenue is going to come from and you've got to develop a set of strategic principles."