The recent imposition of US tariffs on virtually every nation is a seismic disruption to global trade, impacting all businesses trading internationally. For UK businesses, a 10% tariff now applies to goods on import into the US, but for many countries and commodities the figure is much higher.
Businesses within the EU now face 20% tariffs, but even that is relatively low compared to the 145% levied against Chinese goods, 50% against Lesotho, 46% against Vietnam and many others.
Meanwhile, aluminium, steel and cars are all tariffed at 25%.
"Probably the most damaging and extreme thing that we have seen in so many decades... it's really important to understand that China is the world's largest manufacturer, the world's largest exporter. US-China trade is enormous. China controls 85% of the world's supply of critical minerals and rare earths... China is in almost every component in every manufactured item... Putting 54% tariffs on China [now 145%] shifts the whole global economy very quickly, and it's not good."
Rory Stewart, Former UK Minister on The Rest is Politics Podcast
Once again we find ourselves in a situation where we have an event so disruptive that it's impossible for businesses to avoid consequences. Whilst the overall picture is gloomy, that is not to say there aren't opportunities within the disruption, which we have covered in our mitigation strategies and opportunities article.
However, in this article we are going to explore 5 smart moves businesses can make in the wake of a trade war.
1. Ensure your customs value is optimised
With tariffs applied across the board, the customs value of goods becomes a critical factor in determining duty costs. Now, you obviously cannot artificially lower your customs value, and you certainly shouldn't try. But there are legitimate ways to ensure your customs value is optimised.
In the US, the preferred method of customs value will be the transactional value, i.e. the actual price of the goods, including freight and other costs. However, there are some considerations for making sure the duty rate paid is the lowest it can be:
- Exclude legitimate non-dutiable charges
- Costs such as inland freight or assembly do not form part of the customs valuation and can be omitted.
- Ensure the haulier is clearly differentiating them.
- VAT is not included in the USA customs valuation and should not be included.
- Prove UK manufacturing location
- As a result of these charges, some countries have significantly lower tariff rates applied than others. If you are UK based, ensure you can prove UK manufacturing location and pay 'just' 10% on the goods.
- See our article here featuring the easiest ways to obtain proof of origin.
- Utilise First Sale Declaration rule
- If multiple transactions are involved before the goods reach the US, consider whether the 'First Sale Declaration' rule can be applied.
- This rule means that duty payment due relates only to the first sale of the goods, not the final sale to the US buyer.
- More information on the First Sale Declaration can be found here.
- Supplier invoice audit
- Analyse the invoices received by suppliers for 'bundled' costs.
- There might be design, administrative or one-off costs included in the unit price which do not form part of the customs valuation.
- Ensure the customs valuation is not overestimating to 'be on the safe side'.
"We often see hauliers not itemising the inland or post-border transport costs separately, so they end up being included in the customs value for duty and increasing the amount to be paid. VAT does not form part of the customs valuation either, a mistake we often see both from UK importers and exporters."
Jamie Craig, WTA's Customs Consultant
2. Diversify your export markets
As covered in our mitigation strategies article, more reliance on the US market exposes businesses more keenly to these tariffs. Diversifying into other international markets can reduce dependency, open new revenue streams and protect against individually weak markets.
There are lots of markets which boast similar cultural links with the UK and USA, where brands can find success. Canada and Australia are good examples, the latter of which recently signed a free trade deal with the UK.
Download our Australia Trade Lane Guide
Learn where the opportunities lie in the Australian market, strategies for entry and a details unpacking of the UK/Aus trade deal.
3. Make better use of customs warehousing
For UK businesses exporting to the US or importing into the UK, customs warehousing offers one of the most underused ways of managing cash flow exposure, consequently reducing the impact of tariffs. This is particularly true in the current trading environment where goods are subject to dramatic and short term changes.
A customs warehouse allows goods to be stored without duty or VAT being paid until the goods are released into the free market.
Reasons for using customs warehousing more strategically in the current trading environment:
- Avoid double duties on re-exported goods
- If you bring goods into a country but then re-export them, they can be liable for double duty.
- Customs warehousing can eliminate this altogether.
- Defers duties until point of sale
- If you’re unsure whether goods will be sold domestically or re-exported, customs warehouses allow you to avoid duty until there’s a confirmed buyer or final market.
- Use as a buffer against short-term policy changes
- In the current environment, tariffs are changing regularly, often at short notice.
- By using a customs warehouse, you are protected against a tariff change which might be implemented one day, but then removed just days later.
- Create hubs closer to end market
- In fast-moving consumer good markets, having a hub of inventory closer to the customer can massively reduce delivery time.
"I think customs warehousing is a seriously underutilised option for supply chains. There's so many different benefits, which are even more prominent in the volatile tariff situation we have currently."
Jamie Craig, WTA's Customs Specialist
4. Implement advanced supply chain technologies
Through deployment of better supply chain technology, you can enhance overall performance and respond better to disruptions caused by tariffs.
With technology you get access to real-time data on inventory levels, cost and timing information, supplier performance and much more. Predictive analytics can accurately forecast demand and identify bottlenecks to improve operations. Improving use of automation is well known for boosting productivity and efficiency substantially.
Whilst now is a time supply chain costs are going to increase dramatically for shipments to the USA, it presents the ideal moment to find broader logistical savings. Our supply chain visibility tool, providing all these benefits and more, is the WTA Platform.
5. Speak to your trade associations
Joining and actively participating in conversations with your industry associations can be a good way to rally support around your cause. They can seek governmental support for the industry, if tariff appeasement is not forthcoming.
Making your voice heard is much better than being silent. Respond to surveys, meet directly with the trade associations and highlight concerns.
Beyond this, keeping across news related to tariffs and international trade better helps you anticipate changes that could impact your operations. For the latest customs, logistics and international trade news straight to your inbox every week, subscribe to our Market Update.
In these times it's extremely challenging to negotiate international trade effectively. Current market conditions make it difficult to operate on anything other than a short term basis. We hope this article has been able to help in that process.