First, breaking down the basics:
So what are tariffs?
Tariffs are a tax on imports. They’re usually charged as a percentage of the transaction price that a buyer pays a foreign seller.
In the United States, tariffs — also called duties or levies — are collected by Customs and Border Protection agents at 328 ports of entry across the country. The proceeds go to the Treasury.
Sometimes, the U.S. will impose additional duties on foreign imports that it determines are being sold at unfairly low prices or are being supported by foreign government subsidies. – CBS News
Example of tariffs made simple: (ignoring real-world minimum amounts subject to tariffs).
Let’s say the U.S. imposed tariffs of 10% on parachutes from China. If an American retailer wanted to buy 100 parachutes from China for $5 apiece (a pre-tariff total of $500), the 10% tariff would come out to $0.50 per piece = a total of $50 as tariff for the shipment. That raises the total price of the shipment from $500 to $550.
What are the tariffs even supposed to accomplish?
The two main goals tariffs are supposed to accomplish are: Raise government revenue and protect domestic industries from foreign competition
There are some theories that suggest that the higher prices for imports will encourage consumers to instead buy goods made in the U.S. or elsewhere. But, the risk with this is that consumers could simply respond by spending less than they otherwise would, which would hurt growth.
Latest on Trump’s Tariffs
President Donald Trump shocked global markets when he mentioned his push to raise tariffs on Chinese imports. This tariff talk will have profound impacts on global economic growth.
Trump’s push involves imposing a 10 percent tariff on an additional $300 billion of Chinese goods starting Sept. 1. The 142-page list of items to be taxed consists largely of consumer goods. Trump’s tariff talk already affected the Dow Jones industrial average as it fell more than 98 points to close at 26,485.01 Friday.
To put matters in perspective, about 85% of the toys sold in the United States come from China and would be hit by the new tariff. Therefore the new tariffs could hit US consumers harder than before. It would tax goods like iPhones and other consumer electronics and even sneakers and toys.
What imports are effected?
The full list of tariffs affected can be seen here. Fair warning…there is a lot in this list.
So did we win?
“No country on earth has benefited from President Trump’s trade fight with China more than Vietnam.
The country’s factories have swelled with orders as American tariffs cause companies to reconsider making their products inChina. Now, more big technology firms are looking to bulk up their manufacturing operations in Vietnam, lifting the ambitions of a nation already well on its way to becoming a powerhouse maker of smartphones and other high-end gadgets.” – NY Times
A study shows that The Trump administration’s tariffs have opened new doors for U.S. commercial rivals in China, adding to trade-induced headaches for American businesses.
“As Beijing has raised duties on American exports in response to U.S. tariffs, it has lowered trade barriers for other countries,” according to an analysis by the Peterson Institute for International Economics.
On average, in China, it is now 14% cheaper to buy something from Canada, Japan, Brazil or Europe than it is to buy from the U.S. While recent reports document how Indonesia, Bangladesh and Vietnam have stepped in to fill the void in American supply chains, the Peterson study highlights how Beijing’s own policy shifts have benefited traditional U.S. economic allies.” – CNBC News.
So, as a brand buying from China what are my options?
In order for companies to weigh their options, they have to ask themselves some questions.
Can they press their foreign suppliers to cut their prices? Could they absorb the higher costs themselves? Or should they pass them on to their customers in the form of price increases — and risk losing business? Do they wait for these trade talks to blow over?
After self-reflecting on your own company’s position, here are the three most realistic options you have:
Shifting to other countries could cut labor costs in half. The trend of manufacturers gradually leaving China predates Trump’s trade wars. With wages and other costs in China rising, companies were already shifting toward lower-wage countries, from Vietnam to Mexico.
Increasingly, clothing and shoe companies are trying to design their way out of paying tariffs. Some have used a strategy called “tariff engineering.” It involves altering products just enough to change how they’re classified under the U.S. International Trade Commission’s Harmonized Tariff Schedule to evade or reduce import taxes.
WAITING IT OUT
The standoff over Beijing’s combative technology policies has dragged on for more than a year and consumed 11 rounds of negotiations. Even if the two sides forge an agreement, it’s far from clear that it would stick.
Real Life Example
Consider Xcel Brands, a New York-based company that owns such brands as Halston, Isaac Mizrahi and C. Wonder. Two years ago, it made all its clothing in China. Now it’s on the move — diversifying production to Vietnam, Cambodia, Bangladesh and Canada and considering Mexico and Central America as well. By next year, it expects to have left China completely. – AP News
Whether you own your own company or are just merely a consumer, best of luck!