What is Tariff Sharing?

As tariffs drive up landed costs, many manufacturers are looking for new strategies to keep their landed prices lower. Shifting production, reclassifying products, and consolidating shipments are common approaches, but some companies are trying something less conventional, which is tariff sharing. 

This strategy involves asking suppliers to cover a portion of the tariff cost to help maintain overall pricing targets. While it’s a creative workaround, tariff sharing only works in specific situations, especially when the supplier has enough margin built into the product to absorb the extra burden.

What is Tariff Sharing?

Tariff sharing is a strategy where a company asks its supplier to help cover a portion of the import tariffs in order to reduce the buyer’s landed cost. Rather than increasing the product price or absorbing the full tariff amount, the buyer negotiates with the supplier to take on part of that cost, which can be done in a few ways, such as offering a credit or a discount that’s applied to invoices. 

In practice, this means the supplier is effectively paying a share of the tariff, even though the duty itself is charged to the importer. For example, if a 25% tariff applies, the buyer may ask the supplier to absorb 10% while the buyer pays the remaining 15%. Tariff sharing is a cost-sharing agreement based on negotiation, and it only works when the supplier has enough margin to make it viable.

Why Are Manufacturers Using Tariff Sharing?

Tariffs can significantly increase the total landed cost of a product, especially when importing from countries like China to the USA. For manufacturers trying to stay competitive, absorbing the full tariff often isn’t sustainable. This is why companies turn to tariff sharing by asking suppliers to help chip in and pay for part of the tariffs. 

This strategy can be useful when it’s not feasible to move production or reclassify the HTS Code. Instead of changing the supply chain entirely, companies negotiate with existing suppliers to ease the immediate financial pressure. It’s a way to maintain customer pricing, preserve margins, or keep retail costs stable, without resorting to more drastic changes. While it’s not always easy to secure, tariff sharing gives companies a short-term tool to manage the ongoing impact of tariffs.

When Tariff Sharing Works and When It Doesn’t

Tariff sharing can be a useful tool, but only under the right conditions. It generally works when the supplier has healthy margins built into the product. In this case, the supplier may be willing to pay for part of the tariffs, which essentially lowers their profit margins. It can also work when the buyer has strong leverage, such as high order volumes, strategic importance, or a long history with the supplier.

However, tariff sharing tends to fall apart when the supplier is already quoting aggressively. If the supplier is working on thin margins, there may be no room left to absorb additional costs. It’s also difficult to negotiate in situations where the supplier is facing their own cost increases, such as rising raw material or labor prices.

For custom products and low-volume orders, suppliers may be less inclined to participate. Ultimately, tariff sharing is not a guaranteed fix. It depends on both parties being transparent about costs and finding a middle ground that keeps the project viable for everyone involved.

Conclusion: Tariff Sharing

Tariff sharing is one of several strategies manufacturers are exploring to keep landed costs under control when tariffs are being introduced. While it can offer short-term relief, it’s only viable when the supplier has enough profit margin to absorb part of the burden. If your supplier is already operating on thin margins, asking them to split tariff costs may not be realistic.

Still, for companies with strong supplier relationships and consistent volume, it can be worth the conversation, especially when other options like relocating production or redesigning the product aren’t immediately possible. Just keep in mind that tariff sharing isn’t a long-term solution; it’s a negotiated workaround that depends on transparency, trust, and mutual benefit.