Preparing for New Trump Tariffs: 10 Approaches

By: Jeffrey Orenstein, Karla Cure, and Brian Hopkins

Here are 10 ways to avoid, mitigate, or delay the costs of new tariffs that President-elect Trump has promised for countries like China, Canada, and Mexico:

1. Confirming country of origin: Determine whether tariffs apply by confirming the country of origin of your imported goods. When goods have inputs from multiple countries, you must carefully apply the “substantial transformation” standard utilized by US Customs and Border Patrol (CBP) to determine country of origin.
2. Seeking alternative sources: If imported goods originate from a targeted country, determine whether they can be sourced from a nontargeted country at lower cost.
3. Confirming HTS Codes: Although tariffs were promised on “all” goods from targeted countries, historically, tariffs apply only to goods classified under certain Harmonized Tariff Schedule (HTS) subheadings. Classification is complex and errors are common, so carefully verify the HTS classification of your imports.
4. Tariff Engineering: If imported goods originate in a targeted country and are classified under a targeted HTS subheading, consider options for modifying the goods to change their origin or HTS classification. For example, further processing in a nontargeted country might “substantially transform” the goods so they originate in a nontargeted country. Also, importing components or subassemblies, rather than finished goods, may allow you to import under HTS subheadings not subject to the tariffs.
5. Product exclusions: If new tariffs follow the pattern of Section 301 tariffs on Chinese goods and Section 232 tariffs on steel and aluminum, US authorities may implement a “product exclusion” process. Product exclusions, if granted upon application, exempt goods from tariffs. Applications are more likely to be granted when the targeted country is the sole source for the goods or when tariffs would harm national security.
6. Examining declared value: Tariff duties are a percentage of the value declared to CBP, so ensure you declare the lowest value permitted under CBP regulations. Under the “first sale rule,” you can (subject to conditions) value goods based on the price paid the first time they are sold for US import, as opposed to higher prices subsequently paid to middlemen. Alternatively, if your supplier acts as the importer of record, tariffs could be based on their cost, rather than your higher sale price.
7. Shifting tariff costs: Contracts with “change of law” provisions may entitle you to renegotiate contracts and shift some or all tariff costs to your counterparties.
8. Stockpiling goods: Although only a temporary solution, new tariffs can be avoided by stockpiling imported goods prior to the tariffs’ effective date.
9. Bonded warehousing: Tariff payments can be delayed by storing imported goods in a bonded warehouse. Tariffs are paid when the goods are sold and leave the warehouse, instead of the time of import.
10. Temporary Imports: If goods will be imported only temporarily because they will be exported or incorporated into other goods for export, consider whether tariffs can be avoided through programs such as: temporary importation under bond (TIB), duty drawback, or use of a free trade zone.