Five new budgeting approaches for changing tariffs
The slew of recent changes to tariffs on U.S. imports requires new approaches for companies trying to calculate what their goods and materials will cost. The changes announced create significant complexity in trying to follow the developments, plus new types of tariffs require new assessments to determine the cost they impose. Also, once companies have procedures in place to respond to new tariffs, they should expect enhanced scrutiny from U.S. Customs about whether companies are paying the right amount in tariffs. Changes in this area have started and stopped abruptly, but the overall trend is now clear enough to require new attention.
Here are five such changes and considerations for addressing them:
- Finance chiefs need compliance chiefs keeping a close eye on Chapter 99 of the U.S. Harmonized Tariff Schedule
The tariff code imposing new costs on Chinese imports and steel and aluminum imports generally is set for a major overhaul. Businesses must closely monitor whether the new costs they expected are transposed correctly or change with the changing scope of affected goods. The orders compelling changes also contain some errors that could carry over in the, perhaps hastily, published version of the new tariff code.
- New methods are needed to determine costs of derivative steel and aluminum goods using U.S. materials
The scope of imported goods derived from steel and aluminum subject to new tariffs is about to increase, and new proof will be needed if the steel or aluminum was smelted and cast in the United States. Those goods are not supposed to be subject to the new tariffs, but U.S. Customs will be scrutinizing U.S.-origin claims to ensure they are not losing revenue. Companies must ensure they have proper documentation to survive that scrutiny.
- New methods are also needed to quantify the cost of steel and aluminum used in imported goods
As the scope of derivative goods subject to new tariffs expands, more products with steel and aluminum components - though not classified as steel or aluminum products - will be affected. In those instances (of non-U.S. origin metals, distinct from the point above), additional tariffs are supposed to be calculated as a percentage of the metal components’ cost rather than the total product cost. Companies must develop ways to track steel and aluminum component costs and ensure their documentation can withstand U.S. Customs scrutiny.
- To assess the cost impact of possible reciprocal tariff increases, companies need new knowledge of tariffs other countries impose
The next tariff development may involve increasing tariffs on all imported goods to match the rates charged by the supplying country for importing the same goods. This will require a compliance team able to navigate the tariff codes of other countries and match them with a company’s imports and their countries of origin.
- Cost forecasting must account for all new tariff increases
Part of the new tariff complexity is that the cost of a single imported good might increase based on multiple new types of tariffs. For example, the recent 10% tariff increase on Chinese goods was said to offset drug trafficking concerns, whereas the upcoming 25% tariff on steel and aluminum imports is said to be about national security. They are distinct tariffs, and companies may need to pay both increases.
Import compliance personnel are facing significant challenges in not only monitoring rapid changes in tariffs but also coordinating with the business on implementing processes that minimize tariff impact where possible. Given the significant impact this area has on the cost of goods and profitability, finance teams must ensure close coordination with their compliance teams.
For more information, please contact Corey Norton or any member of Porter Wright's International Business & Trade group.
