Talking Tariffs and Compliance
Today we have another Radical Compliance podcast interview, this time talking about the compliance implications of the Trump Administration’s proposed tariffs regime — although the more you consider tariffs and President Trump’s erratic approach to them, the more you realize that their implications will spill far beyond the compliance function.
To help me unpack all these issues, I caught up with Matt McConkey, partner at the law firm Mayer Brown. McConkey has worked for years on national security and international trade issues and represented numerous companies in international trade disputes; and he’s been keeping an eye on the torrent of tariff news coming from the Administration ever since Trump announced “liberation day” on April 2. We spoke in late April.
As always, you can hear a recording of our full conversation at the top of this page; and I have a few more of my own observations below.
McConkey
First, we should all pause to appreciate the tectonic shift that Trump is trying to impose on Corporate America and the world. It’s not just that Trump wants to impose tariffs per se; tariffs aren’t a new concept and plenty of companies have at least some sense of how to handle them. It’s the system of tariffs that Trump wants to impose — one based on tariff rates that fluctuate at the whim of the president — that could drive profound changes to corporate operations.
That is, large global corporations have already had to comply with tariffs for years — but overall, tariff rates were low, steady, and uniformly applied from one country to the next. If you imported widgets from overseas to be components in the product you manufactured in the United States, you might pay a tariff of 5 percent, and it was always going to be 5 percent no matter where those widgets came from.
Trump wants to cast all that aside in favor of different tariff rates for different goods and different countries, and those rates might fluctuate over time. He wants to create a regime of tariff differentials — and that is new, even for global companies that have been paying tariffs for years.
Tariffs, Compliance Tactics, and Business Strategy
So when people ask, “Who should be responsible for tariff compliance?” that strikes me as not even the right question to ask. At best, figuring out how to manage tariff compliance right now is just a short-term stalling tactic, while senior management and the board try to figure out the far deeper strategic challenges that Trump’s tariffs will impose.
For example, say you historically sourced your widgets from Thailand and brought them to a U.S. location for final assembly before sales and distribution throughout the Western Hemisphere. Now those widgets will be taxed at 36 percent.
Sure, you can try a short-term shift to sourcing those widgets from some other country with a lower tariff rate. That would require robust processes to document the country of origin, and possibly site visits or other audits of your suppliers to confirm that, yes, they really do have facilities in Country X to make the widgets rather than just sourcing the widgets from some other country themselves. Compliance and procurement teams will need to work together to develop those tariff compliance muscles.
But really, isn’t the weak point your U.S. location receiving those goods? Perhaps the board and management should reshuffle your whole upstream and downstream distribution chain so the widgets just go directly from Thailand to distribution centers in Canada and Latin America and avoid the Trump tariffs entirely.
I spend so much time dissecting this hypothetical because, of course, this is not a hypothetical. It’s what jewelry manufacturer Pandora announced today: that the company is accelerating plans to send its Thailand-sourced goods directly to Canada and Latin America, rather than bring them through a central distribution hub in Baltimore.
We’re going to see more of that in the future. Corporations will need to work through tariff compliance at the tactical level, developing tools and procedures to endure whatever cuckoo system Trump declares on any given day; but they’ll also need to work through tariff risk at the strategic level.
That could mean relocating manufacturing to U.S. locations, of course; that’s what Trump wants to achieve. But it could also mean restructuring your supply and distribution chains, altering your customer base, revising your pricing structures and financial projections, and so much more.
Lots of those strategic questions will be above the compliance officer’s pay grade, but the consequences for your compliance program — new regulations to digest, new third parties to vet, new policies and controls to adopt, and so forth — could reverberate in your enterprise for years. See the big picture here.
Meanwhile, the Little Picture
OK, enough of the grand visionary stuff. McConkey and I also talked about mundane compliance challenges too.
First, one question to ask is whether U.S. Customs and Border Protection (CBP), the agency in charge of tariffs compliance, has the resources and capability to handle the compliance burdens to come. It looks like CBP never did suffer any of the job cuts that Elon Musk and his DOGE gang forced upon so many other agencies, but CBP will still be entering a new world of tariff compliance just like the rest of us. So prepare for confusion and uncertainty.
Second, one implication of Trump’s tariffs is that the success of your supply chain will depend more on your ability to generate paperwork and documentation rather than efficiency, innovation, or price. You’ll need strong contract management and documentation capabilities, so that you can peer down your supply chain as necessary to confirm the country of origin for your supplies. You’ll need to document your own supply-chain due diligence in case CBP does inspect your goods or audit your business.
Third, the Trump Administration has already talked about using the False Claims Act to prosecute companies that avoid tariffs, under the theory that you’re depriving the federal government of tax revenue. That application of the False Claims Act is rare, but not unheard of — so you do need to take tariff compliance seriously, to avoid potentially costly litigation and compliance program undertakings.
Plus, remember that the False Claims Act allows whistleblowers to bring lawsuits on behalf of the government. So you’ll need strong internal reporting and investigation protocols too, to encourage employees to raise concerns about supply-chain fraud (yes, that’s going to be a thing now) internally. Then you can engage in all the voluntary self-disclosure, cooperation, and remediation that corporate compliance programs have been doing for years in other contexts.
Some things never change.