It’s not often that global trade news repeatedly makes it into the headlines, but that’s been the case this year as the U.S. and China impose tit-for-tat tariffs on each other, NAFTA gets renegotiated, and the uncertainty around Brexit continues (among many other trade-related developments). What impact are these changes having on importers and exporters? What actions should companies take in response to these tariff changes and associated risks? Those are some of the questions I addressed with Ben Bidwell, Director of U.S. Customs at C.H. Robinson, in a recent episode of Talking Logistics.
A busy year in trade and tariffs
To begin our discussion, I asked Ben what he sees as the biggest trade developments this year. “It began in February with the section 201 safeguard tariffs on solar cells and modules and residential washing machines,” Ben said. “In the scheme of things, their impact was relatively minor. Then in March you had the section 232 tariffs on steel and aluminum. Those had a wider impact, especially as the full effect started in June, so that’s when people really started to pay attention.
“The big one was the section 301 unfair trade practices tariffs on goods coming from China,” Ben added. “These were rolled out in three lists starting July 6th and greatly widened the scope of products covered. We are now at $250 billion worth of goods that the U.S. imports annually that are subject to these tariffs. While the first two lists were at 25 percent, the third list of covered goods was only 10 percent. What everyone is waiting for is January 1, 2019 when that last list goes to 25 percent. That’s when we’re going to see an even stronger impact of these tariffs.”
What is the impact?
These new tariffs are having implications for supply chains, import and export strategies, finances and even politics. I asked Ben what the impact has been for their customers. “It’s forcing companies to take a good hard look at their compliance programs and import strategies,” says Ben. “Things as basic as tariff classifications are again in the spotlight. But one thing that may not be talked about enough is bond sufficiency. A lot of importers have never had to deal with bonding issues because their effective duty rate was so low. Most could make do with the $50,000 minimum. With the increased tariffs on a wide range of goods, that may not be sufficient for many importers. Companies should look at this now because once you get an insufficiency letter from customs, you don’t have much time [to remedy the issue].”
Make sure Product Classification Codes are correct
There was an article recently in the Wall Street Journal stating that “fudging” tariff classification codes was rising in line with tariff increases. Ben says, “There are risks with that. First and foremost, tariff classifications must be correct. If you had been importing under a code that was incorrect, there is no problem changing it. But there is history to consider. A change may require you to go back and pay adjusted duties on the five previous years of imports. Customs has sophisticated technology and dedicated employees focused on tariffs and product classification, so you’re not likely to fool them. The risk [of trying to get around the rules] is not worth it.”
Besides tariffs, there are other risks importers and exporters must consider. “There are changes associated with USMCA [the renegotiated NAFTA agreement] that companies must take into consideration, such as changes related to trade facilitation and regional value content,” says Ben. “But my biggest concern is comments from the [Trump] administration about a possible list four of the section 301 tariffs. This could potentially be on $267 billion of additional goods we import from China. That could be an absolute game changer.”
How should companies prepare?
As usual, the big question is what should companies do to prepare themselves to deal with the changing landscape of tariffs and risks? What questions should they ask themselves to assess their preparedness and how could a logistics services partner potentially help in these matters? I encourage you to watch the full episode for Ben’s insights and advice on these questions and more. Then post a question or comment and keep the conversation going!