Amid the many stops and starts related to the current state of United States trade policy, specifically as it relates to tariffs, it stands to reason that this topic is top of mind for shippers across all verticals. And with the White House expected to announce new tariff levies and actions on April 2, there will be many moving parts for shippers to monitor and be aware of, especially as things can quickly change, something which has been apparent. Erin Williamson, Vice President of U.S. Customs Brokerage at Levallois-Perret, France-based global third-party logistics (3PL) and freight transportation services provider GEODIS, provided insights and analysis, regarding steps shippers can take regarding tariffs, as well as her views on trade policies.   

LM: How can shippers navigate shifting trade policies?

Williamson: The sheer volume of new tariff policies, updates and short timelines till implementation make today’s trade environment particularly unique. The success of a shipper’s business depends on how efficiently they can proactively—versus reactively—manage the changes. There are a number of strategies shippers should consider to navigate shifting trade policies, with some more appropriate depending on their specific business needs, including:

• Import duty exposure calculations: The most critical first step for any shipper impacted by new tariff policies is to analyze and evaluate their current import structure and tariff exposure to create a foundation to help guide tariff reduction planning. This assessment should include both direct tariff exposure (e.g., calculating current tariff costs per product category and identifying high-exposure goods to prioritize) and indirect tariff exposure (e.g., pinpointing suppliers who may pass through tariff costs).
• Classification and valuation adjustments: Following the supply chain audit, shippers should review the classification and valuation of their imported goods according to the Harmonized Tariff Schedule (HTS) to ensure compliance and optimize costs. This allows companies to analyze products for potential tariff engineering changes that could qualify for lower-duty HTS classifications. We are also seeing companies leverage the “first sale” rule, which allows them to use the transaction value between the manufacturer and middleman as the dutiable value to save on import duties.
• Supply chain diversification: Companies are strategically diversifying their supply chains by shifting manufacturing to other countries to reduce dependency on China and mitigate tariff impacts. This transition is not new, however, evolving tariff policies have accelerated the movement to regions like Indonesia, Malaysia and Vietnam to reduce sole dependency on China. Of course, this strategy is lengthy and complex (typically 12-24 months) as it takes a significant amount of time to build or transfer manufacturing capabilities to a new country. There are many different factors to evaluate before making the decision, including considering regions with lower tariff exposure, stable trade relationships, reliable infrastructure and compatible quality standards. The steps include initial identification and screening, detailed capability assessment, sample production and testing, trial orders and quality verification, and progressive volume scaling.
• Pricing strategy and negotiations: Each company must carefully assess its pricing strategy to balance absorbing costs and passing them on to customers. In some cases, a company may choose to absorb additional tariff costs to remain competitive and prioritize customer loyalty. In other cases, a company may make price adjustments to offset the impact. It’s vital to strike a balance that allows a company to navigate the tariff changes without significant disruptions to its market position. It may be appropriate to engage in negotiations with suppliers for better terms and pricing to absorb some of the additional costs from the tariffs. This can help offset the immediate financial impact of the tariffs without drastically increasing product prices for consumers. Additionally, we will likely see exporters review terms of sale more and more, with a push for duties and taxes to be negotiated and paid by the shipper/pre-paid by origin.
• Bonded warehouses and foreign-trade zones (FTZs): Importers and exporters are increasingly exploring solutions such as bonded warehouses and FTZs so that product can come into the U.S. without being subjected to additional tariffs as it’s within customs custody. New tariffs would only apply if the product is within bond and then is re-exported overseas. Both bonded warehouses and FTZs offer some shared benefits such as duty deferrals/reductions and tax savings, however, each has a nuanced set of additional unique draws, limitations and regulations that can make one a more attractive option over another for a company moving high volumes of international goods.

LM: What are the potential impacts of shifting trade policies for shippers?

Williamson: Although there have since been exceptions made for goods that qualify under the United States-Mexico-Canada Agreement (USMCA) implemented March 7, the additional 25% against USMCA goods that don’t meet requirements, or the 20% in the case of Chinese origin goods, presents a financial obstacle for companies of all sizes—especially for those that traditionally have had zero or very low duties and taxes.

One potential impact we could see is customs bond saturation, which is when an importer’s duties and taxes exceed their bond amount. Every shipment has to have customs bonds to ensure customers pay duties and taxes on time, are compliant, etc. For example, say you are a steel importer, and product has been duty free with minimal fees. With the additional 25% tariff, importers and exporters may run into challenges if the bond can no longer cover potential liabilities. This could result in issues with securing underwriters and ultimately freeze some importers because the customs bond could become saturated. If the tariffs are in place for a sustained length of time, another potential impact we may see is bond stacking. With this, open bonds with unliquidated entries can increase in liability and “stack” on one another. Bond entries may not fall off quickly enough to reduce the collateral requirements without risking the surety has with the government, which could tie up a company’s money and become a financial issue for some importers.

At this point, though, many companies are still weighing their options. Given the high volume of changes, many are exploring possible short and long-term strategies that will best protect their margins and maintain their importing advantage, regardless of how trade policy changes. Businesses want to ensure they are not just reacting to short-term changes, but are making the best decisions for long-term success.

LM: What are the anticipated impacts on consumers?

Williamson: In terms of pricing impact on consumers, this will depend on the strategy of the exporters. That is, whether they will want to continue to remain competitive in spite of the tariffs and absorb the cost difference themselves or if they will choose to push those additional costs onto the consumer. It’s a delicate balance, though, as companies need to take factors like competitor response, brand perception and customer loyalty into account to determine if short-term price hikes will damage long-term relationships. In some cases, it may be appropriate to engage in supplier negotiations and/or explore additional revenue streams to help balance increased tariff costs without sacrificing customer loyalty.

It’s too early to tell how most companies will approach pricing strategies. In the short-term, due to contracts and programs already set in place, we don’t foresee consumer prices going up significantly right now. In the long-run, we anticipate most exporters will eventually pass along the cost. We’ll likely have a better idea of how exporters will approach pricing strategies in the months ahead. It’s important to remember this also impacts many products not made in the U.S., but are foreign sourced and go into products of U.S. origin. Historically, domestic companies have not lowered their prices in response to higher duties on imported goods. Instead, it’s likely that domestic prices could increase as well.

LM: What industries have been impacted the most by the tariffs?

Williamson: Globally, the aluminum and steel industries are currently impacted by the 25% tariffs that went into effect March 12. A curveball that many didn’t expect at this initial stage was the implementation of derivative products being subjected to additional duties as of March 12. A steel and aluminum derivative refers to a product that is made from processed steel or aluminum (essentially a finished product containing a significant amount of steel or aluminum), which is subject to tariffs under the same regulations as the raw metal. If an importer isn’t aware of the full makeup of its goods, they are required to pay the 25% tariff on the entire value of their product rather than on the smaller percentage of the steel and aluminum components. Many importers were under the assumption they would have more time to break down the derivatives of their products, which can be quite complex depending on the product, and are now forced to cover significant duty payments with U.S. Customs. Adding an additional layer of complexity, some products are facing multiple tariffs. Take the example of an imported steel bird feeder. That product is now facing four separate tariffs: 3.4% (normal rate of duty) plus 25% (Section 301 duties) plus 20% (International Emergency Economic Powers Act duties) plus 25% (Section 232), for a total of 73.4%.

Looking at Canada and Mexico specifically, businesses who are not USMCA certified are currently impacted with the 25% tariffs on goods. With that, we are seeing an increase in importers rushing to complete USMCA certifications who are not currently certified to receive cost savings while there is still an exemption through April 2. In the past, many importers opted not to certify under USMCA because their products were already duty free and, instead, they simply paid the minimal merchandise processing fee to avoid the compliance requirements of the free trade agreement. That’s shifting now. Many importers are scrambling to become USMCA certified to receive the short-term cost savings, of course, but also to protect themselves in the event the exemption is extended beyond April 2 or returns shortly thereafter.

As for China, e-commerce has been the area most heavily affected by the new tariffs so far as we have seen a severe reduction of that product movement into the U.S. industry-wide. This is not only related to the now 20% tariff on Chinese goods, but also to the cancelation of the de minimis policy that previously provided a duty-free exemption for packages valued under $800.

Additional industry-specific tariffs are expected to begin April 2, including lumber and forest products (25%), automobiles (25%), semiconductors (25% or higher, increasing over one year), and pharmaceuticals (25% or higher, increasing over one year). Section 232 tariffs on copper, copper alloys, scrap and copper derivatives may take place within 270 days of the announced executive order on Feb. 25, or could come sooner. There may also be tariffs on digital service tax. We are also anticipating additional reciprocal tariffs to match rates imposed by other countries. With tariff rules changing so frequently, it’s absolutely vital to stay up to date on evolving policy changes and remain as proactive as possible to inform supply chain decisions.