Tariffs on. Tariffs off. What’s a business to do?

Tariffs on. Tariffs off. What’s a business to do?

Last Friday, U.S. President Donald Trump announced a “very large Phase One trade deal with China”: The $160 billion in penalty tariffs that were set to take effect December 15 were suspended, and some existing tariffs will be scaled back. China’s Vice Commerce Minister Wang Shouwen confirmed that a deal had been reached.

According to a fact sheet issued by the Office of the United States Trade Representative (USTR), the United States agreed “to modify its Section 301 tariff actions in a significant way.” In exchange, China agreed to make “structural reforms and other changes to [its] economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.” China also committed to “make substantial additional purchases of U.S. goods and services in the coming years.”

The agreement commits the U.S. to halving tariffs on $110 billion of Chinese imports, including clothing, computer monitors, jewelry, smartphones, and toys. The retaliatory tariffs that China was set to place on U.S. imports starting December 15 have also been suspended.

A 25% tariff on $250 billion worth of Chinese imports (see Lists 1, 2, and 3) will remain in place for now. Trump says they’ll be used “for future negotiations on the phase-two deal.” Similarly, China is leaving intact previously established tariffs on U.S. goods.

Discussions for phase two of a trade deal could begin “immediately,” Trump said Friday.

What does the tariff deal mean for American businesses?

The trade deal with China averts escalation — at least for now.

Yet the volatility of international trade continues, and it’s hard on businesses. Friday’s deal was announced less than 48 hours before new tariffs were set to take effect. It’s hard for businesses to plan when no one knows what to plan for. Over the past 18 months, higher U.S. tariffs on Chinese goods have been announced, delayed, and reset. Some have been instituted, others abandoned.

Furthermore, the list of products excluded from the tariffs is in constant flux. For example, new exclusions for List 1 were granted in December 2018 and on eight separate occasions in 2019; exclusions to List 2 were granted three times in 2019. The exclusions themselves can be amended, and often are.

Meanwhile, China has increased tariffs on American goods as it has decreased tariffs on goods from other nations. And there’s trouble brewing on America’s western and southern fronts. The U.S. has threatened to increase tariffs on more than $2 billion in French goods, including Champagne, cheese, and handbags, in retaliation for France’s Digital Services Tax. It’s also threatening to expand tariffs on other members of the European Union, including Austria, Italy, and Turkey, for similar reasons. Tariffs on metals from Argentina and Brazil may also be restored.

If the U.S. goes through with establishing and reinstating these tariffs, the European Union and other countries could respond with retaliatory tariffs.

In other words, while Friday’s deal with China may grant some respite, the turmoil with trade continues.

Translating tariffs to tariff codes

Heads of state impose, change, or remove tariffs. Businesses deal with the fallout.

Every product involved in a cross-border sale is assigned a product tariff code, variously referred to as Harmonized Tariff Codes (HTCs), Harmonized Tariff Schedule (HTS) codes, Harmonized System (HS) codes, HTS numbers, etc. Tariff codes typically have 8 to 10 digits, the first six of which are the same across all countries that use the Harmonized System. Subsequent numbers are added by individual countries depending on the attributes they want to track. Each tariff code has a corresponding customs duty rate, or tariff.

It’s impossible to properly assign a tariff to a product without knowing the tariff code. As the United States International Trade Commission notes, you can’t rely on product names: “Consider the classification of a kitchen paring knife with a ceramic blade. Either a word search or casual browsing through the Tariff Schedule might lead to heading 8211 (‘Knives with cutting blades, serrated or not’). However, Chapter 82 Note 1 excludes articles with a blade of ceramic from Chapter 82. The proper classification is in Chapter 69 as an article of ceramics.”

Misclassification can lead to delays at the border and unhappy customers, so it’s essential that they’re right. And every time there’s a change to a tariff, businesses need to ensure they account for that change. It’s a lot of work.

Avalara Item Classification can help streamline the tariff code classification process. It can’t remove global trade uncertainties, but it can help you deal with tariff changes.

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