Trade and Tariffs: Preparing for the Year Ahead

We have a saying here in New England when it comes to the weather: just wait a minute because it will surely change. The same can be said about global trade and tariffs, especially over the past year. While the US-China trade war and Brexit remain in the headlines, it’s an ever-changing landscape. What have been the biggest changes over the past 12 months? Where are we today with regards to trade relations between the US and China, the US and EU, and Brexit? How should companies respond to these developments and risks in the months and year ahead? Those are the main questions I discussed with Ben Bidwell, Director of U.S. Customs at C.H. Robinson, during a recent episode of Talking Logistics.

A year of turmoil in trade

All year long you haven’t been able to read a newspaper, online newsletter or other news source without hearing about ominous developments in global trade and tariffs. So, I began our discussion by asking Ben to summarize what has happened in this area over the past 12 months.

Ben notes that lists 1-3 of the Section 301 tariffs on Chinese goods are currently at 25%, but that a bump to 30% scheduled for October 15 was postponed due to some positive developments in trade talks between the US and China. In addition, list 4a and 4b tariffs of 15%, with go-live dates of Sept. 15 and Dec. 15, respectively, will raise the percentage of Chinese imports affected by these additional Section 301 tariffs to approximately 95%.

Regarding trade with the EU, Ben says that the World Trade Organization (WTO) found that the EU had provided illegal subsidies to EU aircraft manufacturers and authorized $7.5 billion worth of tariffs on US imports from the EU. In response, on October 18, the US imposed tariffs of 10% on imports of new aircraft from France, Germany, Spain and the UK, as well as a 25% tariff on certain other products such as wine, whiskey and dairy products. As of yet, there haven’t been any retaliatory tariffs on US products, but discussions continue between US and EU leaders.

Of course, we can’t discuss world trade without addressing Brexit, which as of this writing was pushed out again to January 31, 2020. Ben notes that as part of the ongoing debate over a deal or no-deal Brexit, is a scheduled election on December 12 which should provide some insights on where this might be heading.

“You have several stumbling blocks,” says Ben. “One is how to handle the border situation between Northern Ireland and the Republic, which has been a big point of contention. Second, is how to handle the issue of residency and work visas. And then there is the issue of major ports such as Rotterdam, which is the largest in the EU and right across from Britain. It will mean a great deal of change in how shipments and customs will be handled. There are also significant implications for software and the systems used to move goods across borders. Those changes can be difficult and take time to put into place.”

How should companies respond?

With all of this turmoil in trade, the question is how should companies respond? Ben points out that while there are some commonalities in how companies should address the various trade blocs, it depends on factors such as quantities, shipping patterns, supply chains, and sourcing. He says, “It’s about finding a tailored solution for your company– if there is one. Foreign trade zones may work well for certain commodities from a duty deferment standpoint. But FTZs don’t work well for products like aircraft or produce, plus they can take 4-6 months to set up.”

Ben notes other options include changing sourcing locations, which may not be an option for certain food stuffs, or using duty draw-backs, which may be more viable now with the significant tariffs. He says you should also consider covering the cost of the tariffs since they aren’t going away anytime soon. You likewise have to consider your bond sufficiency, which could go up significantly, because if it is deemed insufficient, your goods are stuck.

Ben also suggests companies consider the exclusion possibilities available under the lists 1-3 tariffs with China since the numbers are so large. But he recommends you speak with trade experts and customs brokers before you settle on your strategies to deal with any of these issues. He also says to stay close to the changing situation because, “everything can change with a tweet.”

Ben had many more suggestions and advice on how companies should proceed during these difficult times, so I encourage you to watch the full video for all of his insights and advice. Then keep the conversation going by posting your own plans and experiences.