Circular Economy Regulation & Public Policy

How Circularity Can Reduce Geopolitical Risk, Tariff Pain

Existing expertise in reverse logistics and emerging supply chain technologies can inform solutions that benefit both the environment and enterprise value.

Brand Provided | By Tensie Whelan | Published 1 week ago | About a 3 minute read

Image: Madewell's recommerce partnership with ThredUp came to life in a pop-up store in Brooklyn in 2021; the partnership continues online at madewellforever.thredup.com. | ThredUp

The Trump Administration’s on-again-off-again tariffs have thrown the world’s markets into tumult. Companies with global supply chains are especially affected, as they were during the pandemic, both by high levels of uncertainty and significant cost implications. Even before the tariffs, geopolitical and market shocks were creating outsized costs and risks for corporate procurement.

There is a solution: Extending the useful life of materials by repurposing products and components into new products – in other words, circularity.

Tariffs are not the only reason to invest in the reverse logistics necessary to increase circularity of supply chains (or to partner with a reverse logistics company). Our research at NYU Stern Center for Sustainable Business has found a number of value drivers associated with circularity — including operational efficiency through lower input and waste-disposal costs, less supply chain risk, product innovation, and sales and marketing benefits. More and more industries are leaning into a closed-loop supply chain model.

Renault, for example, is currently putting 30 percent circular materials (including recycled used car components, materials from other industries and production offcuts) into new cars — designing its cars to be fully recoverable, with a goal of reaching 33 percent recycled materials by 2030. If US car manufacturers were reusing 30 percent of car components, those parts would not be subject to 25 percent tariffs!

Uncovering hidden value

The ROI of Sustainability, Part 2: Sources of Financial Value and Effectively Communicating Analyses

Join us Thurs, July 24, for Part 2 of our Masterclass on the ROI of Sustainability! Leaders from Natura, NYU Stern Center for Sustainable Business, Point B and Valutus will dive into ROI techniques you can apply right away, real-world examples that bring said techniques to life, and time-tested ways to communicate the ROI results of sustainability.

Tell me more!

We assessed the return on investment for another automotive company that was required in Europe to be responsible for the end-of-life disposal of its vehicles (prior to tariffs). It was installing 2.5 percent of used car components into new cars, recycling 10 percent and paying to dispose of the rest. This practice netted $100M annually due to reduced costs for virgin parts, reduced energy and water costs for manufacturing, etc. Yet, the company did not realize it was benefiting financially — because it viewed the process as a compliance issue and did not track the avoided costs.

For the medical device industry, we worked with one company to assist with their assessment of a medical device refurbishment program and determined that a half-million-dollar investment would result in financial returns of $3.5M annually through a combination of reduced costs and sales. With most medical devices sourced from overseas, avoidance of tariffs will add even more upside benefit for the hospitals and patients.

Apparel companies are working with platforms such as eBay Pre-Loved Apparel and ThredUp to resell products purchased by customers. This allows brands to make money on a single garment more than once and potentially reduce their dependence on the sale of new garments — which are often manufactured and imported from countries with tariffs. We assessed the financial returns of take-back programs, where customers were given a coupon to return their gently used clothing for resale. One company, which handled the program’s fulfillment themselves, netted $1.8M annually; the other, which partnered with ThredUp, netted $1.9M annually — through a combination of increased sales, new customers with no acquisition costs and earned-media benefits.

Even before the new tariffs, global supply chains have been suffering from a variety of shocks ranging from extreme weather to political upheaval and commodity pricing increases. Circularity provides exciting opportunities to innovate new products, reduce input and waste-disposal costs, and lessen exposure to tariffs and other risks — increasing supply chain resilience.

Developing reverse logistics is not an overnight endeavor, but there is sufficient expertise in different industries — as well as AI, internet of things and other relevant technologies — to move quickly and design solutions that both protect the environment and improve enterprise value.