Trump’s Tariff Turmoil - Take Two

Prepare or Perish

Take a look at any recent article on trade and you will see speculation on what US import tariffs will look like in 2025 and beyond. Will we see more 301 tariffs, new 232 or 201 tariffs or quotas? Will the new administration make use of Section 203 of the International Emergency Economic Powers Act of 1977 (IEEPA), Section 338 of the Tariff Act of 1930, Section 122 of the Trade Act of 1974 or some other obscure law to increase tariffs? Will we see an across the board increase in tariffs of 10%, 20% or more from all countries? Will we see 25% to 100% tariffs on Mexican imports? Will Congress revoke China’s Permanent Normal Trade Relations (PNTR) or Most Favored Nation (MFN) status and impose Column 2 duty rates or even establish a new column in the HTS with higher rates for China?

All of us Customs nerds expect that we will see new tariffs, increased tariffs and other protectionist measures that will make it more expensive to import, especially from China. In this article I outline steps you can and should be taking today so you and your company are better prepared for whatever new tariffs we see. 

Be prepared – we all have force majeure provisions in our purchase and sales agreements that relieve us from contractual obligations for “acts of god” or situations beyond our control. Is it time to include a Trump majeure clause in contracts to allow us to back out of a contract due to an act of Trump that makes performance inadvisable, commercially impracticable, illegal, or impossible? As we review current and new commercial agreements be sure to consider:

• Who will pay increased duties, quotas and other tariff measures? 

• What does it take to back out of a  contract? 

• What happens if you cannot deliver or if it is not financially feasible to deliver due to new tariff measures? 

Sources for New Tariff Information – When Section 301 and 232 tariffs were imposed during the first Trump administration the notices were published in the Federal Register. These notices were PDF documents and not formatted for easy analysis. We expect the same in the next Trump Administration. When the Section 301 and 232 tariffs were introduced, many importers and brokers systems had to be modified to accommodate two rates for each product imported. If new tariffs are introduced we could see the need to track three, four or more tariffs for each item we import. 

• Where will you look to get information on the new tariffs? 

• Will your customs broker provide you with continuously updated spreadsheets or databases containing all of the new tariff information? 

• Do you have easy access to reports containing all of your products along with the HTS classification and projected import volumes so you can calculate the impact of duty increases? 

• Are your systems ready for multiple new tariffs? 

Timing of New Tariffs – Tariff increases happen on specific dates, usually spelled out in a Federal Register notice. Be prepared to conduct multiple “what-if” scenarios for landed cost on the fly. During one of the last tariff increases the broker I worked for had a charter flight scheduled to land at 1am on the morning a new 25% tariff was implemented. We worked with the carrier and others to move up the departure time so the plane would land before midnight, avoiding the new tariff for all shipments on that flight.

• Is your company prepared to adjust orders and shipping dates to beat the tariff increases?

• Are your suppliers prepared to move up production and shipping dates to beat the tariff increases?

• Can you ship by air instead of ocean? 

• What is the cost to make these last minute changes compared to the cost of increased tariffs? 

Sourcing Changes Near-Shoring, Friend-Shoring, Strategic-Shoring – I’ve been telling clients for most of my consulting career that purchasing all products from China is a recipe for disaster. Will 2025 be the year of the disaster for your company? Prudent companies plan for sourcing diversification, having two suppliers in two different countries, or better yet in two different regions. This may cost a little more in the short term but having alternative relationships will allow your company to shift production more easily if it becomes necessary. Building relationships in new countries will not be easy when everyone is scrambling to avoid new tariffs. 

• Are you prepared to use modern analytic tools to find new relationships and make tough decisions?

• Do you know where competitors are looking for new sourcing opportunities?

• As you build new relationships, will suppliers have the capacity for your needs and the needs of their other customers? 

Frontload Shipments – we are already seeing companies make purchases earlier and ship products faster to avoid expected tariff increases. Freight rates are going up, warehouse space is getting full, banks are taking a more cautious approach when financing these purchases.

• Consider earlier purchasing decisions or accelerated shipping timelines to avoid anticipated tariffs.

• Be sure to include all relevant departments in these decisions.

What is your US manufacturing strategy? –  Congress and the new Administration are very clear that they want to see production return to the US. 

• If you have not started looking into a US production strategy, now is the time.

• Are you able to produce any products in the US? 

Retaliatory tariffs – China, Mexico and other countries have already signaled plans to increase tariffs in response to US tariff increases. 

• Will these retaliatory tariffs impact any of your exports? 

• What is your plan to address tariffs imposed by other countries on US products? 

Freight Forwarders and Carriers – Many freight forwarders and carriers specialize on specific trade routes. If you are importing from China and Southeast Asia today and plan to shift production to South or Central America you should have discussions with current forwarders to ensure they are able to support new trade lanes.

• Can your current forwarders and carriers support these new lanes? 

• Now is also a good time to start building new forwarder relationships in any new region you are considering. 

Increased Enforcement – as duty rates go up CBP will increase their enforcement efforts to ensure importers are paying the correct duty amounts. We expect to see more Requests for Information (CBP Form 28) Notices of Action (CBP Form 29), audits, investigations, penalties and liquidated damages just to name a few. 

• Now is a good time to review the basic CBP enforcement priorities, country of origin, HTS classification, customs value, free trade agreement claims,  antidumping and countervailing duty and more.

• Now is a good time to review your first sale programs, buying agency agreements, assists and other additions to value.

De Minimis –  Many companies are using Section 321 or Type 86 to avoid paying duties on small package or ecommerce shipments today. CBP and Congress have signaled their desire to limit or eliminate these duty free programs. 

• Are you using Section 321 or Type 86 to import de minimis shipments today? 

• If so, do you have an exit strategy if this option is eliminated? 

• Are you prepared for change or limitations in de minimis that Congress, the current and new Administration are considering? 

Marketing – Tariffs are front page news, everyone knows they are coming. 

• Now may be the time to start discussions with your marketing teams on how best to message these increases to customers. 

Incoterms Rules and Importers of Record – Is there a reason to change from an F term (FCA, FOB, FAS) to DDP or from DDP to FOB?  By switching to DDP you transfer the obligation to pay tariffs onto the seller. Also with DDP Incoterms the seller becomes the importer of record. The city or place designated with your Incoterms specifies the location where goods are delivered, is the delivery location best suited to protect you from unexpected tariff increases? 

Customs Bonds – as tariffs increase so do required bond amounts. With larger bond amounts sureties will review your company’s financial statement to ensure that the company’s financial position will support claims by CBP. The larger the bond amount the more likely the surety will require your company to post collateral, typically in the form of cash or an irrevocable letter of credit. This collateral ties up your cash and is no longer available for other investments or business needs. 

• Have you reviewed your bond sufficiency recently?

• Did you include projected duty rate increase in your bond calculation?

Trade Data Analytics – I predict we will see an increase in demand for a new specialty in trade, Trade Data Analyst. This will be a person who understands and is an expert in the data analytics tools available today and also an expert in trade data. Excel will no longer be the go to tool for trade professionals. The future trade data analyst will use tools like R, Power BI, Business Objects, Sisense, Tableau, Periscope, Looker and more. 

• Now is the time to identify who on your team will be the go to for trade data analytics. 

• If you need assistance with trade data analytics feel free to reach out to me for support.

I hope you enjoyed this series of ideas companies can take today to better prepare for the inevitable changes coming. Please reach out to me if I can assist you with preparing for Trump’s Tariff Turmoil - Take Two. You can reach me at tom@tomgouldcustoms.com or visit my website at https://www.tomgouldcustoms.com/