Skip to Content

Knowledge

Tariff War: What to Expect and How to Prepare

June 22, 2018

The trade confrontation between the U.S. and a number of its trading partners has resulted in new tariffs on goods worth hundreds of billions of dollars. It is critical for companies across supply chains to know which tariffs will impact their business and when those tariffs are set to take effect.

Chinese Tariffs

The Section 301 tariffs are part of the U.S. response to China’s purported unfair trade practices relating to intellectual property rights and technology. Last week, the U.S. unveiled 1,102 Chinese products valued at approximately $50 billion that will be subject to 25% tariffs. The tariffs are broken into two lists. The first list covers 818 goods worth $34 billion that will go into force on July 6. These cover mostly intermediate inputs (semi-finished products) and capital equipment. The 25% tariff would represent an additional duty that U.S. importers will pay on products of Chinese origin.

The second list covers 284 goods worth approximately $16 billion that will be subject to further review in a public notice and comment process, with written submissions due July 23, 2018, and a public hearing to be held July 24, 2018. Requests to appear and testify at the hearing must be made on or before June 29, 2018. After completion of this process, United States Trade Representative will issue a final determination on the products from this list that will be subject to the additional duties.

In response, China announced that it also would impose 25% tariffs on approximately $50 billion of U.S. goods in two phases. The first phase on $34 billion of goods is slated to take effect on July 6 and targets soy, cars, sorghum, fish, pork, and cotton. Additional duties on $16 billion worth of U.S. goods, including chemicals, medical equipment and energy products, will be finalized later. President Trump has already threatened additional tariffs against nearly $200 billion of China-sourced goods in response to China’s retaliation.

Steel and Aluminum Tariffs

The Section 232 tariffs refer to the 25% ad valorem tariff on steel and 10% ad valorem tariff on aluminum imports that were imposed on national security grounds. The tariffs apply to certain steel and aluminum articles imported from all countries except Korea, Australia, Argentina, and Brazil. 

Three of the largest U.S. trading partners—Canada, Mexico, and the EU—responded to the steel and aluminum tariffs with the following retaliatory tariffs:

  • On June 6, Mexico imposed tariffs on around $3 billion in U.S. goods. These include a 25% tariff on U.S. steel products; a 20% tariff on pork legs and shoulders, apples and potatoes; and 20-25% on types of cheeses and bourbon.
  • On June 22, the EU imposed tariffs on $3.2 billion in U.S. goods. The tariffs hit American products including motorcycles, orange juice, bourbon, peanut butter, motor boats, cigarettes, and denim.
  • On July 1, Canada will impose tariffs on $12.8 billion in U.S. goods, consisting of a 25% tariff on various U.S. steel products, and a 10% tariff on 84 other U.S. products, which include foods, drinks, household items, home appliances, and various other items.

And earlier this week, India announced its own retaliatory tariffs on 29 U.S. products worth $235 million. More than a third of that value comes from U.S. almonds, of which India is the world’s largest buyer. Those tariffs will take effect on August 4.

What steps should businesses take?

U.S. companies should carefully examine the impact that the tariffs will have on their products, business and industry and consider the following proactive steps:

  • Review the lists of products to determine potential exposure to the Section 301 and Section 232 tariffs, and other countries’ responses.
  • If impacted by a product in the second list of the Section 301 tariffs, plan to participate in the comment process.
  • Review existing purchase orders and supply contracts with any companies in China, Canada, Mexico, and the EU.
  • If importing a product subject to Section 301 or 232 tariffs, consider supply alternatives from other U.S. firms or other countries.
  • Track potential price increases of unaffected goods and reflect changes in pricing and contractual obligations.
  • Consider a classification audit of imported and exported goods to assure that they are properly classified within the regulations.