Firms looking to mitigate the impact of US president Donald Trump’s tariff programme should carefully review the origin of their products, a Chartered Institute of Export & International Trade expert has said.
Speaking at yesterday’s free LinkedIn Live event from the Chartered Institute on strategies for managing tariffs, trade legislation senior advisor Garima Srivastava told business that, “while tariffs are disruptive, there are steps that businesses can take to protect themselves”.
Origin
“Start with origin,” Srivastava advised.
“You really need to understand if your products qualify for preferential or non-preferential origin status in the case of the US – this could remove your tariffs. It isn’t just a check-box exercise.”
The economic origin of a product can determine duty rates for products and is not the same as the country from which the good is exported. For example, a Chinese-origin product exported from the UK to the US would attract the tariff rate the White House has set for China, not the UK.
Getting a better understanding of the origin of your product “means going deep into your supply chain”, including where raw materials come from, as well as how a product is manufactured or processed throughout that supply chain. It can help you to establish “whether it meets specific transformation under specific rules of origin”.
Classification
Classification, meanwhile, is a crucial element of how tariff rates are calculated.
Customs classification is the process of identifying which commodity code is declared for a product when customs documentation is completed. This code is also used to determine what duties and other requirements apply for a product when it is moved across borders.
While many firms see it as something that is “streamlined” and not in need of review, Srivastava notes, “misclassification can be costly” when it comes to tariffs.
“Even the exemptions the US has come up with depend on where your product is classified, which commodity code you need to use.”
Valuation
Intercompany pricing is also crucial, she suggested.
The value of imports declared to US customs needs to reflect market reality, and if the price looks artificially low or inconsistent with transfer pricing rules, customs authorities may challenge it.
Rethinking production
More broadly, Srivastava said that “where there is flexibility” to relocate production or processing to jurisdictions less affected by tariffs, it is “worth exploring” as a way to avoid or at least cut duties.
This new age of major tariffs could also be a moment to “look at diversifying your export markets”, she said. UK exporters may want to look again at those countries with which the UK has trade agreements, including the likes of Japan and Australia.
What’s next?
Srivastava was joined at the session by the Chartered Institute’s director of EU and international affairs, Fergus McReynolds, who noted that some sectors remain heavily hit by tariffs even following the 90-day ‘pause’ on the higher reciprocal tariff rates.
A 10% baseline rate still applies to most imports, while higher tariffs are still in play for certain sectors.
“We shouldn’t forget that there also sectors already facing much higher tariffs, like steel, aluminium and the automotive sector – with more to come for the automotive sector, unfortunately.”
Making predictions about what the future could hold for US policy means trying to understand “what are the driving forces behind president Trump”, he said. Trump sees tariffs as an important part of both US trade and foreign policy, McReynolds explains, a view he “has firmly held for many years”.
The remarks of the Trump administration as a whole indicate tariffs are aimed at “negotiating better deals for the US”, McReynolds suggested, though the experience of Canada and Mexico ahead of the agreement of the US-Mexico-Canada Agreement (USMCA) in Trump’s first term indicates that striking a deal with the US won’t necessarily mean an end to tariffs.
‘For the long term’
Trump has dialled back some tariffs in response to market movements, McReynolds noted, and he added that he expects further moves away from a blanket tariff approach towards a focus on “more strategic sectors”.
“They are trying to protect the US’ trade in critical materials, and we’ve seen exemptions on electronics, for example. We’re starting to see a sector-by-sector approach.”
He added that traders should expect the most critical sectors to remain under tariffs for the foreseeable future, however. With high tariffs for steel, aluminium and automotive, and now an investigation into the pharmaceutical sector, “these are things that we have to expect and plan for in the long term”.
You can access a range of insights, explainers and more through the Chartered Institute’s Tariff Hub, which includes access to our new Tariff Navigator Toolkit and tailored training courses.
