Taking On Tariffs

On July 6, U.S. customs agents began collecting duties on more than 800 Chinese goods worth $34 billion, affecting those who import electronics, vehicle parts and accessories, chemicals, and more. A second phase of the tariffs, which must go through public review first, would levy 10 percent tariffs on an additional 280 items. China has promised to go tit-for-tat by slating $34 billion in U.S. exports for 25 percent duties, including soybeans, lobsters, sport utility vehicles and whiskey.

These tariffs come on the heels of steel and aluminum duties announced earlier this year, with many manufacturers still trying to decipher the potential impact to their organizations. Businesses have filed more than 20,000 exemption requests for steel and aluminum tariffs so far, but the U.S. government had processed fewer than 100 of them as of the end of June. As the world’s two biggest economies gear up for this latest round of tariffs, they could be just the tip of the iceberg. President Trump has threatened to unleash up to $400 billion in additional duties if China retaliates, and increased inspections on both sides could make it harder to move goods across the border.

Staying ahead in a changing environment

For U.S. importers and exporters, these tariffs are one more economic hit amid rising overall costs. U.S. business logistics costs clocked in at 7.7 percent of nominal GDP in 2017, up from 7.6 percent in 2016, as rising fuel costs and shrinking capacity put pressure on supply chain budgets. Beyond the financial impact, the current trade environment is forcing businesses to spend time and resources to ensure customs compliance – or else risk additional fines and penalties.

As Chinese tariffs go into effect, here are two steps businesses can take right away to stay compliant and minimize the financial impact.

  • Review harmonized tariff classifications. Now is the ideal time to review your list of imported goods to make sure items are classified correctly. As a best practice, businesses should review their classifications twice a year (and more often if their commodities fall into frequently updated categories). With the U.S. government scrutinizing every shipment, you could be subject to penalties if you inadvertently miss an item slated for tariffs. On the other hand, some businesses may be pleasantly surprised to find that items they thought were subject to tariffs actually aren’t. Unsure about a particular item? Request a ruling from the U.S. government. A centralized supply chain platform makes it easier to review all classifications in one spot, while an experienced customs broker can help ensure accuracy.
  • Apply for an exemption. The U.S. government recently announced that it will be accepting exemption requests for items included in the latest round of Chinese tariffs. Although there’s not an official form available yet, you can start gathering information now to make your case. Typically, the government will ask to review details on the type of product, the quantity imported, and tariff and customs-related documentation. Your supply chain partner can help you gather the appropriate materials to submit your request. Be warned, however, that exemption relief will likely take a while. For steel and aluminum tariffs, the government estimated 90 days for a response, but applications are taking longer than that to process.

Long-term considerations

While new and impending tariffs have many businesses concerned, be careful about knee-jerk reactions that could have longer-term implications. The economic effects of tariffs are significant for some industries, but the overall scope is still relatively small, considering that the U.S. trades nearly $5 trillion in goods annually, as AGL CEO Jon Slangerup recently told Journal of Commerce.

As trade tensions continue to brew, businesses will need to remain vigilant about customs compliance while also evaluating potential adjustments to their supply chains. The right partner can help you source new factories or materials, manage importing and exporting requirements, and make sure your supply chain stays competitive in an uncertain environment.