Exporters facing US tariffs can mitigate impact
DEPENDING on one’s perspective, US President Donald Trump has either started several trade wars or has engaged in a long overdue defence of America’s economic interests which for decades had been abused by foreign trade partners.
This has included engaging in disputes with China over the massive US trade deficit and China’s trade practices, Mexico and Canada over Nafta, European allies and much of the rest of the world over cars, steel and aluminium, and the World Trade Organisation over its rules for policing trade disputes.
Overwhelmingly US companies have denounced the tariffs against imports of thousands of products they need from China, as well as car parts, steel and aluminium they use from other global trade partners. Yet, when the curtain is pulled back, many of the employees of those same companies – especially in the states that elected him – are willing to give President Trump the benefit of the doubt.
This is an interesting dichotomy. As individuals they seem to agree that something needed to be done. They echo Trump’s claim that for years the United States has been taken advantage of in the trade arena, resulting in a trade deficit and unequal market access for its businesses abroad.
They realise the US economy is booming, and if there ever was a good time to wage a trade war, maybe this is it.
After all, the US business sector now seems to have that cushion to absorb some pain of retaliation from countries targeted by Trump’s policies.
This viewpoint would be in line with the quote from senior administration officials early on in the presidency that “they were willing to let some shrimp rot on the dock” to achieve the trade balance they were after.
The key question is whether the structure of the US tariffs and renegotiations will inflict disproportionate damage on the US economy, for minimal gain. In other words, has Trump taken a too heavyhanded approach?
So far these extreme trade measures have not boomeranged against the Trump administration. The polling data for the President remains stable – albeit not stellar. The November mid-term Congressional elections may serve as a good barometer on “Trump Trade”. The economy keeps humming along and it may take months, if not years, to see a noticeable impact of these policies. But Mr Trump appears steadfast that he can win this war, particularly against China which appears to be his primary target.
China may not be able to keep up in the pricey global game of chicken with the US – in 2017, China’s exports to the US were valued at $505bn compared to $130bn worth of US exports to China. “[China’s] economy’s weak, their currency is weak, people are leaving the country. Don’t underestimate President Trump’s determination to follow through” said US National Economic Council director Larry Kudlow last month.
Countries in the EU are facing 10pc-25pc tariffs on exports of cars, car parts, steel and aluminium to the US.
What can Irish producers and exporters of these products do to mitigate the impact of the tariffs?
First, ideally they should be coordinating with their US customers (or affiliates) who may already be taking mitigating steps. After all, it is the US importer of record that pays the tariff. Hence, the following measures could be explored by both sides.
The first option would be to seek an exclusion request from the tariffs. The US Department of Commerce has set forth processes to request that specific products be excluded from the tariffs.
These processes offer companies an opportunity to explain how and why their products are critical to the US economy and may not be readily sourced elsewhere.
Another option would be through a change in the product’s customs classification.
US courts have affirmed that US Customs and Border Protection can only levy tariffs on the condition of goods as imported. This has allowed goods to be imported in unfinished or embellished forms at lower duties by legally taking advantage of classification provisions carrying a lower or free rate of duty.
This option may be applicable in the case of cars or car parts.
Finally, another approach would be to lower the dutiable value of the product upon importation to the United States through so-called “first sale” valuation.
In this scenario, US importers pay duty on the price that a trading company pays the manufacturer instead of the higher price the importer pays the trading company.
While the tariffs would still apply in this case, their impact would be less severe because the dutiable value would be significantly lower.
They should be coordinating with their US customers