Over the past six months, it is unlikely you’ve been able to avoid hearing terms like “trade war” or “tariff increases.” While the North American Free Trade Agreement (NAFTA) negotiations and 301 tariffs with China have dominated 2018 news cycles, what is significantly more challenging is figuring exactly how these changes are impacting (or will soon impact) your own supply chain spend.
The renegotiation of NAFTA is a developing story, and one that all U.S. companies that trade with our border neighbors should be paying close attention to. It is the trade disputes with China, however, that have caused more immediate pain for U.S. importers. The steel and aluminum proclamation earlier this year, and more recently the 301 tariffs, have caught some importers flat-footed and scrambling to understand the financial impact and what options are at their disposal to mitigate further damage as the dispute continues to escalate.
90-Day Recap of U.S.-China Tariffs:
- Proclamation # 9705: On March 8, 2018 the U.S. announced that an additional 25% duty be added to the existing duty rate of all raw steel and aluminum imports – applicable to all countries and went into effect May 1, 2018.
- 301 Tariffs, Round 1: In response to counter tariffs by China on products like soy and pork, the U.S. implemented a 25% tariff increase on 818 HTS codes for products imported from mainland China. This represented roughly $34B in trade of mostly finished, manufactured goods and went into effect July 6, 2018.
- 301 Tariffs, Round 2: The U.S. added another 243 HTS codes to the list of Chinese products that are subjected to a 25% duty increase. This represented roughly $16B in Chinese trade and went into effect Aug 23, 2018.
- 301 Tariffs, Round 3: The largest tariff increases to date by the U.S., targeting nearly $200B in trade from China. This round was originally proposed as an additional 10% duty but has since been bumped to 25% and will be applied to roughly 6,000 HTS codes right across the board from consumer goods to electronics, textiles etc. No confirmed roll-out date yet, but the public comment period ended September 6th, clearing the path for an effective date to be announced. Likely implementation is mid-September to early October, 2018.
Knowing the financial impact of these changes is an important first step for all U.S. importers of product from mainland China. But more importantly, here are six strategies you can take now to effectively manage your product, minimize your personal risk, and make sound business decisions during uncertain times:
1. Initiate: Complete a high-level overview of your existing Harmonized Tariff Schedule (HTS) database, confirming which product lines are/will be impacted, and when.
2. Budget: Apply your unit costs for each product code and the annualized import volume of those products in order to forecast the full financial impact of the tariff changes. This is particularly important as you budget for Q4 2018 and 2019.
3. Refine: Conduct an in-depth audit of your HTS database to determine 1) the accuracy of your classifications and 2) whether or not there is legitimate cause to shift any product code(s) to a classification that reduces your duty outlay. Many companies haven’t audited their HTS database in years, despite the Customs database being adjusted regularly.
4. Evaluate: Seek out alternative options to source similar products from non-impacted regions. This may mean selecting a new supplier entirely OR using your global supply chain to allow for a shift in your country of origin (within the legal parameters established by Customs).
5. Appeal: Consider filing a Product Exclusion request with the U.S. Trade Department to have the additional duty waived on the grounds that your product is irreparably harmed by these tariff changes. The application period for Round 2 of the 301 tariffs ends on Oct 9, 2018.
6. Prepare: If the lead time allows, work with your freight forwarder to expedite an import of high value products that are listed for Round 3 tariff increases. Begin preparing your inventory levels for any subsequent waves of tariff increases that may still be announced before the end of 2018.
As a licensed freight forwarder, NVOCC, Indirect Air Carrier, and U.S. Customs Broker, our eShipping team proactively educates and advises clients on trade-related matters currently affecting their business as well as unforeseen variables that could impact future business. Should you have questions regarding how the tariff changes may impact you, contact firstname.lastname@example.org or 816.505.5040 for a commitment-free Impact Assessment Report.
Keegan Coats, Logistics Engineer, eShipping LLC.
eShipping is an all-modes transportation management company and US Customs Broker based in Parkville, MO. Visit us online at www.eShipping.biz.