President Donald Trump recently announced his plans to implement a universal 10% levy and country-specific duties, which has sparked significant interest and concern among importers and shippers. While the individual rates for each country and the baseline charge have garnered attention, it is essential to understand the intricacies of the executive order signed by Trump to implement these new actions.
Jonathan Todd, vice chair of the transportation and logistics practice group at law firm Benesch Friedlander Coplan & Aronoff, emphasized the importance of understanding product flows, tariff codes, origin countries, and net duty burdens in response to these changes. With that in mind, here are five critical clauses in the order and how shippers can navigate them effectively.
1. Shippers have a short window to frontload goods:
The 10% baseline tariff is set to take effect shortly, with country-specific rates following soon after. Importers have a limited time to rush in goods ahead of implementation. However, products loaded onto a vessel and shipped on the final mode of transit before the new tariffs take effect will not be subject to the increased charge. It is crucial for companies to secure documentation detailing when shipments were loaded onto vessels to avoid paying tariffs.
2. China tariffs are likely to compound:
China is set to face a 34% tariff as part of country-specific duties. It is uncertain how these tariffs will interact with previously enacted duties, but it is expected that the tariffs will stack, resulting in cumulative effects. Shippers dealing with Chinese imports need to monitor the evolving tariff landscape and adapt their strategies accordingly.
3. The door is open for lower tariffs for Canada, Mexico:
Canada and Mexico are exempt from the new tariffs, with a 25% tariff remaining for goods not compliant with the United States-Mexico-Canada Agreement. There is a provision in place for the tariff rate to drop to 12% if Trump terminates or suspends his previous actions. Negotiations may lead to a reduction in tariffs for these countries, but some level of tariff is likely to remain.
4. Tariffs only apply to non-U.S. content:
Companies can reduce tariff costs if their imports include components originating from the U.S. If 20% or more of a product’s content is domestically sourced, the tariff rate will only apply to the remaining foreign-produced parts. Certifying goods requires a thorough bill of materials analysis and cooperation from suppliers throughout the supply chain.
5. The de minimis exemption is on the ropes:
Trump eliminated the de minimis exemption for goods from China and Hong Kong, with potential removal for shipments from other tariffed countries. This exemption allows for duty-free treatment for imports under $800, and its elimination could impact smaller businesses that rely on it to avoid tariffs. Shippers should prepare for changes in duty exemptions and adjust their operations accordingly.
In conclusion, the implementation of new tariffs and trade policies requires shippers to stay informed, adapt quickly, and collaborate with stakeholders to navigate these changes effectively. By understanding the complexities of the executive order and its implications, shippers can mitigate risks and optimize their supply chain operations in a rapidly changing trade environment.
