Tariff War: How to protect your business?

Wednesday, August 14th, 2019

By Vanessa Dias

Last week, August 1st, the president Trump announced another 10% tariffs on the remaining 300 billion of dollars on goods coming from China. The “commercial tension” between the two nations dates back from the President’s campaign and continue to be a present topic in the news.

Without going on the merits of why this “tariff war” is taking place and who is to blame, we should think how it is affecting American customers and businesses. Although the largest companies can more easily change their chain of production, that is not the reality of small and most mid-size businesses that depends of imports from China. In a time of unexpected changes in the international market, it is time to get creative and seek for ways to avoid or diminish the effects of the raises in tariffs.

China and United States have been imposing tariffs and other tactics against each other. Understand how that dispute is affecting the price of imported goods from China:

  • On June 15, 2018, U.S releases the first list (list 1) of products from China with an implemented tariff of 25%, which took effect on July 6th.
  • On August 23rd, the 25% tariff was imposed in additional products from China (list 2).
  • On September 17th, the final list 3 imposing 10% tariff in additional products is released and it would raise to 25% in January 2019.
  • On December 2nd, the countries reached an agreement and United States agreed to refrain to raise the tariffs under list 3.
  • May 10th, 2019: China is accused of backing out from trade agreements and United States raises the list 3 tariffs from 10% to 25%
  • August 1st, 2019: Trump says that 10% tariffs will be implemented in the remaining Chinese goods to be in effect on September 1st.

Although completely avoidance of tariffs is a difficult task, there are a few options available to businesses.

  • Apply to an exemption: after every list released, the Office of the United States Trade Representative (USTR) provides a process for businesses to request exemption from the tariffs. The list 3 exemption process is opened until September 30th, 2019. Although it requests more information than in the past proceedings and specialists expects an approval rate of 25-30%, if your process is approved your business will save an important amount. When application is submitted it is publicized for comments (that can support or be against it) for 14 days. The applicant has 7 days to respond each comment. If application is approved, the exemption will be in place for a year and will have retroactive effect from September 2018!
  • Use of foreign-trade zones: The United States currently maintains over 230 Foreign-trade zones, in which products that arrive in the United States in those zones are not considered entered in the country until it leaves the zone. Thus, products that are imported to the zone and are then exported will not be considered they have entered in the country and will not be subject to tariffs.
  • Seek tax incentives: Some businesses may save a large amount by qualifying to tax incentive programs such as the IC-DISC which can lower the export rate from 35% to 15% or -if income tax is applicable -, to decrease the burden from 50% to 15%.

If you are interested in learning more about tariffs and other options for your business contact our office at 616-392-4100 and/or register for our seminar in tariffs that will take place in November.

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Image: Pixhere under Public Domain.

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