With the presidential election now in the rear view mirror, the focus shifts to the forthcoming administrative changes under President-elect Trump. A key agenda item as he prepares to take office is the implementation of new tariffs aimed at reshaping international trade dynamics. These proposed tariffs, particularly targeting Chinese manufactured goods, Canada, Mexico, and other regions, signify a pivotal shift in U.S. trade policy. As businesses brace for these changes, understanding the potential implications and strategic responses becomes crucial in navigating this new economic landscape.  This article aims to explore the broad-ranging impacts these tariffs could have, focusing on planning, importation, and the roles of various parties involved in the supply chain.  Review of supply chains and locations as well as planning for these short term changes is critical.

Overview of Proposed Tariffs

The proposed tariffs are centered around increasing duties on imported goods from various countries, notably:

• Chinese Manufactured Goods: Potential 60% tariff (with an additional 10%)
• Goods from Canada and Mexico: Subject to a 25% tariff
• Goods from Other Countries: Subject to a 10% tariff

While no formal proposal has been enacted yet, the expected implementation timing is early 2025. There are potential exemptions available based on customs classifications, and the tariffs do not apply to services but may affect intellectual property licenses.

Key Considerations for Actual Importation

• Identification of Importer: Essential for determining who pays the tariff, affects title passage, and influences incoterms.
• Planning: Businesses must plan for payment, clearing, and negotiate with suppliers or middlemen.
• Planning for the supply chain is essential.

Potential Retaliation and Implications on China

There is a strong possibility that China may retaliate with similar tariffs on U.S. goods, raising questions about:

• Application of Tariffs: How they might apply to licenses and the implementation process.
• Payment and Title Passage: Similar challenges that U.S. importers face could affect Chinese exporters.

Potential Impact on Supply Chains

• Distributors or Middlemen:  Could have an effect on their sales.
• Re-shoring and on-shoring:  Moving production away from countries with highest tariffs.
• Use of Free Trade Zones: Utilization could mitigate some tariff impacts.
• Accounting and Software: Ensuring accurate tracing and compliance is critical.
• Potential customs refunds and exemptions and their impact should be evaluated.

Planning and Strategic Responses

Businesses must proactively prepare for potential tariffs through:

• Acceleration of Purchases: Buying goods before tariffs are enacted.
• Modeling Impact: Assessing financial implications and negotiating with suppliers.
• Customs Authority Engagement: Similar to approaches in 2017, focusing on control, ownership, and classification.
• Duty drawback and timing
• Use of Free Trade Zones

Tax Considerations

• Impact on GILTI and FDII: Assessing effects on U.S. tax rates and potential on-shoring for savings.
• Transfer Pricing: Quick addressing of inter-company agreements and adjustments is crucial.
• Tax aspects of the supply chain and location should be considered.

Decision-Making for Third-Party Suppliers                                           

Involves:

• Negotiations on Who Pays: Deciding responsibility for tariffs.
• Paperwork and Clearing: Ensuring timely processing and compliance.
• Location and Timing: Adapting supply chains to minimize impact.

Related Party Transactions

Decisions around:

• Duty Payment and Importer Status: Defining roles and responsibilities.
• Transfer Pricing Adjustments: Addressing quickly to maintain compliance and benchmarks.

Conclusion and Next Steps

To navigate the potential implications of these proposed tariffs, businesses should:

• Assess Impact and Prepare Action Plans: Modeling economic effects and addressing transfer pricing.
• Engage with Customs Clearing: For effective on-shoring or supply chain adjustments.
• Tie in with supply chain and tax planning.

In conclusion, the new tariffs being discussed, while yet to be enacted, require strategic foresight and planning across various dimensions of international trade and business operations. By understanding and preparing for these potential changes, businesses can better mitigate risks and adapt to the evolving global trade environment.

WebsterRogers stands ready to assist you in understanding and planning for these changes.  For more insights and help in evaluating your situation and developing a plan to meet your specific needs, schedule a meeting with our Strategic Tax Advisory Review and Transformation (START) Team. 

Strategic Tax Advisory Review and Transformation (START) Team

David Zaiken, Director of Tax Consulting, dzaiken@websterrogers.com

Kathleen Holston, Director, State & Local Tax Services, kholston@websterrogers.com

Kirby Millwood, Partner, Estate & Trust, kmillwood@websterrogers.com

Stephen Holladay, Tax Partner, sholladay@websterrogers.com

Adam Johnson, Tax Partner, ajohnson@websterrogers.com

Kevin Wise, Tax Director, kwise@websterrogers.com

Sarah Polson, Tax Director, spolson@websterrogers.com

Forrest Short, Tax Supervisor, fshort@websterrogers.com