Tariffs Update: What’s New and What’s Next

Though initially announced at 10 percent, the latest round of tariffs hit Chinese imported goods (US Actions: Section 301 Tariffs) at 15 percent on September 1. This was in addition to any existing or base duty rate that applied to the product prior to Section 301.

The September 1 list includes a wide range of electronics, such as televisions, flash memory devices, smart watches and speakers, and Bluetooth headphones. Power tools, cotton sweaters, bed linens, multifunction printers, and many types of footwear are also included.

Twenty-five products associated with health, safety, national security, and certain other factors were dropped from the final list. Tariffs on other products will be delayed until December 15, giving the holidays a break on items like cell phones, laptop computers, video game consoles, certain toys, and computer monitors.

A 5-percent hike in October

Situated between the September 1 and December 15 levies is a proposed increase that could go into effect on October 15, two weeks later than previously announced due to the 70th anniversary of the founding of the People’s Republic of China. This would raise tariffs from 25 percent to 30 percent on consumer goods such as building products, vacuum cleaners, lighting and plumbing fixtures, handbags, luggage, and vinyl flooring and non-consumer goods such as semiconductors, printed circuit boards, and chemicals.

The Trump administration is accepting public comments about this proposal through September 20. If the 30 percent tariffs go into effect, similar increases could be implemented across the board.

Exclusions, refunds, and more

“While the 25 percent tariffs have brought stress to importers for more than a year, some are finding relief via product-specific exclusions and refunds for tariffs already paid,” says Laufer’s National Director of Business Development, Customs Brokerage, Ashley Coxey. “These exclusions are available whether importers have applied for them or not, but they aren’t available on products hit by List 4 quite yet. Over 3000 exclusions have already been granted for products impacted by Section 301, and over 2000 are still under review.”

The exclusion submission window for List 3 closes on September 30. For additional guidelines and important dates to meet, importers should follow the instructions on the Tariff Actions page at the USTR website: https://ustr.gov/issue-areas/enforcement/section-301-investigations/search.

With so much information to work through, the experts at Laufer can help you navigate the complex process of looking up granted exclusions, applying for new exclusions, and handling entry corrections and refunds (if applicable).

More ideas that can help you handle the pressure that tariffs are putting on your business:

 Determine how the tariffs affect your cash flow, line of credit, vendor payment schedule, payroll, and more.

 Confirm your credit status with your broker, forwarder, and overseas vendors.

 If you haven’t already, set up an Automated Clearinghouse (ACH) account with Customs and the ability to pay through Periodic Monthly Statement (PMS), which gives you an up-to-45-day float.

Importers must find new production resources

In response to the high tariffs threatening the fundamental relationship between suppliers and buyers in China, importers might consider shifting sourcing to a country whose products aren’t subject to high tariffs. However, such a move presents enormous challenges.

•  Importers and original equipment manufacturers (OEMs) that move production to another country face sharp differences in factory types, shipping patterns, and labor environments.

As a result, manufacturing times are certain to increase as producers attempt to duplicate the resources they’ve enjoyed in China for the last 40 years. There is no guarantee that producers will find equivalent sources of raw materials, production capacity, or trained workers. The only guarantee seems to be the inevitable delays, higher costs, and confusion during this period of adjustment.

•  Another variable—and a genuine cause for concern—is the state of the chosen country’s infrastructure.

Few low-cost locations have the extensive network of ports and roads that make moving product into and out of China so easy. “Laufer recently sent a team to Vietnam to research its ability to produce furniture for export,” says Laufer’s Vice President, Sales and Marketing, Michael Van Hagen. “What they found was a warehouse separated from the container loading point by half a mile of dirt-and-gravel road. Multiply that problem to the scale necessary to accommodate full production—and compare it with the high-quality facilities that have existed in China for years.”

• In addition to anticipating and working through production and infrastructure challenges, importers must prepare for the regulatory, financial, and administrative issues that arise from a shift in sourcing. The checklist includes preparing a new bond, ensuring adequate cash flow to cover the higher cost of goods, and implementing quality checks.

Importers should understand that a single-source or dominant-source supply chain—like many who rely exclusively on China have—is no longer sustainable because it is fraught with risk in the foreseeable political environment. A better strategy would be to remain in China to maintain those relationships and the predictable supply it offers, and at the same time supplement that with sourcing from other countries. The changes may take two to three years to perfect, but it allows importers and exporters to be nimble in the future as politics and economics inevitably change.

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