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Part 2 of today's make-good double — after we missed last week's issue, you get two. Part 1 (out this morning at 9) was the offense: move your origin, kill the durable duty. This is the defense — don't freeze the cash the move needs to beat a tax that's expiring anyway.
The instinct heading into July 24 is to load up — get the containers in before whatever happens to the tariff stack happens. It feels like beating the deadline.
Look at what you're actually locking in, and half the pre-buys running right now are hedging the wrong layer.
The tariff stack has two layers, and they call for opposite responses. There's a temporary layer — the flat 15% Section 122 surcharge, scheduled by statute to expire July 24 — and a durable one, the China-specific Section 301 that survives every ruling. A panicked pre-buy blurs them into a single PO.
If you're pulling inventory forward to beat the 15%, run the clock. That surcharge is three weeks from a legislated expiration. Freezing four to six months of cash to dodge a tax that may simply switch off is the definition of an expensive hedge: the carry is certain and immediate — roughly 1% a month at today's rates — while the thing you're hedging is temporary and may vanish before the inventory even sells through. It's the one bet you lose in both outcomes. If the surcharge expires, you froze cash for nothing. If it's extended, you still paid carry to front-run a flat tax that hits every competitor equally.
The durable layer is a different story — but it has a better answer than a bigger PO. The Section 301 load is welded to Chinese origin. You don't beat welded-on duty by stockpiling more of the dutied good; you beat it by changing where the good comes from. Re-sourcing removes the duty permanently and frees the cash a pre-buy would have frozen. One hedge ties up capital to delay a cost. The other spends a fraction of that capital to eliminate it.
That's the whole case for pairing the two moves. The pre-buy is the capital-intensive hedge against a durable duty — defensible only up to its breakeven, and useless against the temporary one. Re-sourcing is the capital-efficient hedge — it costs a qualification cycle, not a frozen quarter of cash, and the savings don't expire.
The Translation: Before you cut a July pre-buy, ask which layer you're hedging. If it's the 15% that expires July 24, you're freezing cash to beat a tax that's already leaving — don't. If it's the durable China 301, the answer isn't more inventory at 1%-a-month carry; it's a different origin, which removes the duty and hands the cash back. The capital-efficient hedge isn't a bigger order. It's a different supplier.
The Brief
The temporary layer expires July 24. Section 122's 15% is statutorily capped and origin-blind. Pre-buying to beat it freezes cash against a tax scheduled to switch off — the worst hedge on the board.
The durable layer answers to origin, not volume. Section 301 is welded to Chinese origin. Stockpiling more Chinese goods delays the duty; re-sourcing eliminates it. Only one frees your cash.
Cash is the constraint this quarter. With money near 1% a month to hold and receivables already stretched, the capital you free by not over-pre-buying is the capital that funds the re-sourcing transition. The two moves pay for each other.
Quick Win
Split your planned July pre-buys into two piles by what they hedge. Pile one: SKUs you're stocking up to beat the 15% surcharge — pause those, the layer expires July 24 and the carry doesn't. Pile two: SKUs you're stocking up to beat durable China 301 — for each, price the pre-buy carry (extra units × unit cost × your monthly cost of capital × months of coverage) against the cost of qualifying a non-China supplier for the same SKU. Where re-sourcing is cheaper than a year of carry, the PO was never the right tool.
Loading the warehouse before July 24 feels like getting ahead of the chaos. But half of what's being pre-bought is a hedge against a tax that's leaving, financed at the most expensive money in years. The operators who come out of this quarter ahead aren't the ones with the fullest warehouses — they're the ones who spent the cash on the hedge that lasts instead of freezing it against the one that doesn't.
Have any questions? Grab a 15-minute slot here: book a time here.
See you Friday.
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— Dan
