What if the Supreme Court rules $BILLIONS in Tariffs must be RETURNED? Utter Chaos???

In this episode of "The Savvy Supplier," we delve into the potential chaos that could ensue if the Supreme Court rules that Billions in tariffs must be returned. Join Al Frank and Boyd Evert as they explore the complexities of tariff refunds, the ripple effects on inventory costs, and the looming threat of lawsuits. Discover why documenting every step and understanding risk exposure is crucial for suppliers navigating these turbulent times. Tune in to gain insights and strategies to safeguard your business in an uncertain economic landscape.

Call to Action: For a free Tariffs Risk Analysis, contact HRG at HRG-audit.com to identify risk exposure, assess financial impacts, and implement mitigation strategies.

Hashtags: #Tariffs #SupremeCourt #SupplyChain #BusinessStrategy

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"Wiser Decisions, Fewer Deductions"

Transcript

• Al Frank: Welcome into the Savvy Supplier, where we save you time and money. I'm Al Frank. Boyd Evert the CEO of HRG is here and Boyd, this is quite a time we're living in. If the Supreme Court sides with a federal appeals court ruling that said it was illegal for President Trump to impose certain tariffs under the International Emergency Economic Powers Act, the U.S. government could be forced to refund billions of dollars to businesses. And if that happens, Take us through how you think that would play out.
• Boyd Evert: I think in short, it would be a hot mess. ⁓ The problem with tariffs is not as ⁓ it, there's not a single player paying for those, right? And a lot of times in retailing, you'll have a partnership where maybe the supplier bears some of the costs and the retailer bears some of the costs. ⁓ So what's going to happen is you're going to have the, the invent, the cost of inventory is going to dramatically change. Okay. What do I mean by that is
• Boyd Evert: is you're selling product into a retailer and then you have to pass on a price increase gradually if you're doing FIFO first in first out, the cost of inventory is gonna increase. Now, when you're doing price increases, typically the retailer says, want you to use the order date, so pass that on. But if you're doing a price decrease, they want it to date it.
• Boyd Evert: immediately. So you buy the cost of that inventory down, right? And so what what could happen is you could have suppliers buying down the cost of inventory in excess of what that actual cost is. What do I mean by that? Is that a lot of retailers will say, we don't recognize average cost of inventory. So when you buy down when you pass on a price increase, that's the price.
• Boyd Evert: that we're going to put into our system. And as product comes in, yes, we're going to make some profit off of the goods that we bought at the lower cost and we're selling at the higher retail. But we've seen this time and time again, where you have ⁓ sometimes it's referred to as a yo-yo cost where the cost is going up and down. ⁓ So then you end up having, let's say the average cost of inventory ⁓ goes up by $10. ⁓ Right. But now let me back up.
• Boyd Evert: So let's just say, for example, that you pass on a price increase due to tariffs two months ago. And then next month, we learn that ⁓ these are not legal and they've got to rewind that. So then the retailer is going to say, we want you to buy down the cost of our inventory based on that higher cost that you ⁓ passed along in the tariff.
• Boyd Evert: The supplier is going to say, yeah, but there was a lot of items in inventory that you bought before we negotiated this price increase. And typically what happens in the post audit sectors? Well, we don't, we don't recognize, you know, average cost of inventory. The system cost says we paid $10 more than we should have. So we want all of this. And so let's just say you have 5,000 items that were bought at the lower retail. I'm sorry. 5,000 items that bought at the lower.
• Boyd Evert: cost ⁓ and are still in inventory, you are paying to buy that cost down an additional $10. And so you can see, ⁓ and this is the easiest scenario, ⁓ it only gets more complex. And so you can see how confusing it is. So there's gonna be a lot of confusion around the current business, but when the auditors come along and they start sifting through this, they are going to pass ⁓ on
• Boyd Evert: an additional cost to you that have nothing to do with the average cost of inventory. I know that's perfectly confusing, ⁓ Al, but ⁓ that's the best I can do.
• Al Frank: Well, it makes me think that there could be about a zillion lawsuits that are filed.
• Boyd Evert: Yes, ⁓ absolutely. There's going to be ⁓ several lawsuits. I think also there's going to be ⁓ the fear of antagonizing your largest customers, right? And I'll let the viewers decide or listeners decide ⁓ to whom I refer. But ⁓ no one wants to sue their largest customer. And so the leverage there is this is how we do it. Right. It's not we're not going to talk fairness. This is what is in our master
• Boyd Evert: service agreement or master vendor agreement. So these are the terms you need to honor even though the math just says that's nonsense.
• Al Frank: There's so much at stake here and hard to figure out exactly ⁓ what the Supreme Court might even be ruling on. ⁓ Back in February, President Trump invoked the Emergency Economic Powers Act because of illegal immigration and drug trafficking, and he imposed tariffs on Canada, Mexico and China under that. Do think that those will be the only tariffs that will be affected? Or could the court rule that only Congress has the power of the purse? And so ⁓ all of the tariffs...
• Al Frank: might be overturned.
• Boyd Evert: good question. The terms of the law to which that lawsuit refers says that you can pass on embargoes, right? So you can stop
• Boyd Evert: purchases, can stop shipments of those goods. And I think the argument will be, if you can do that, you can pass on tariffs. there's so many sides to this. I don't know which way this is going to come out, honestly.
• Al Frank: It's kind of interesting if the Supreme Court overturns the emergency tariffs, chaos from that. But if the Supreme Court does not overturn them, might there still be chaos?
• Boyd Evert: ⁓ Absolutely, because I think what we're seeing is people are sitting on some price increases. ⁓ Some of them are being quietly passed on. Others, ⁓ they're trying to work out what that cost is going to be and then negotiate implementing those price increases. ⁓ But price increases in the retailing sector is extremely difficult and extremely painful. So let me just walk you through at a very high level.
• Boyd Evert: The supplier will approach the retailer, look, we've got additional costs due to tariffs, we need to pass these along. The retailers, well, we're not aligned to take that price increase. And so they'll go back and forth. In some cases, the retailer will delay the implementation of those costs. Well, I've had some clients say, well, can't we just push that onto them? Well, you can, you can say this is the cost. ⁓ And if you send us purchase orders for the lower costs, we will not ship. Well, if you do that, now you're going to
• Boyd Evert: incur fines and penalties for failing to ship against the PO, even though the PO doesn't have the correct cost. ⁓ The retailer is going to say, you're going to have, you're going to, we're going to have items ⁓ that are going to be out of stock. So you're going to have to pay fees for that, for not shipping in full. So passing on a price increase is a very painful and often a very slow process, especially in categories that normally don't have those.
• Boyd Evert: type of price increases. And so that's my other concern is you're to be dealing with categories that typically don't have a lot of movement in the cost of goods, particularly those that are encountering price increases. you're going to have people at both desks, at the supplier and at the retailer, working on doing things that they normally don't do in that business.
• Al Frank: Talk about uncertainty.  What is the savvy move for suppliers right now given all that uncertainty?
• Boyd Evert: ⁓ As in retailing, ⁓ or I'm sorry, as in real estate, it's document, document, document. ⁓ You want to make sure that you're documenting everything and you're over communicating. ⁓ I can't say that enough because I think ⁓ the downstream effects of this could be huge. ⁓ We're looking at ⁓ claims on a routine basis that are one, two, three, sometimes four years old. So ⁓ we could see these tariffs.
• Boyd Evert: You could technically have a post audit claim for tariffs in 2027, 28, or even 29 for this current year, depending upon the retailer. So you want to save those documents because oftentimes people move around within the company or worse, they leave and then you lose all of that correspondence. And then you're at the complete mercy of the auditor auditing on behalf of the retail.
• Al Frank: That's great, great advice. I'm also thinking about HRG's Tariffs Risk Analysis and why every retail supplier might need that right now, right?
• Boyd Evert: Absolutely. ⁓ Information is power. Knowledge is power, right? And I think that we can help suppliers understand the implications on those out years, right? We can certainly work with you on the implications in the current year, but really the bigger risk to my mind is what is going to happen in ⁓ the coming months and years ⁓ as this all shakes out.
• Al Frank: Three things in particular that we are looking at with that to give insight to suppliers about three things regarding tariffs. ⁓ Identifying risk exposure, assessing financial impacts of tariffs, and suggesting mitigation strategies. Seems like all three of those really, seems like all three of those thread together and are really important for suppliers right now.
• Boyd Evert: Good point.
• Boyd Evert: Absolutely, you're right. ⁓ Risk comes in all shapes or forms, but those three categories, ⁓ those three I think sum it up the best. If you can get a handle on those three items, I think you're going to be in a much better place to make better decisions.
• Al Frank: So to get your free tariffs risk analysis, you can contact HRG at HRG-audit.com. ⁓ HRG will help you identify your risk exposure, assess those potential financial impacts of tariffs and help you implement mitigation strategies that will save you time and money. ⁓ HRG, wiser decisions, fewer deductions. See you next time on the Savvy Supplier.