Trade, Tariffs and Duties


I think it is important to start from the proposition that tariffs can be a legitimate and effective policy tool, in certain circumstances.  They can, also, however be a blunt instrument that does substantial economic damage to your own economy.  As noted in the video, the United States learned this lesson in 1930, when it passed the Smoot-Hawley Act, imposing tariffs on over 900 imported goods.  They said it would mitigate the effects of the economic collapse that had started with the stock market failure of 1929.  It did the exact opposite, raising prices for consumers who were already teetering on the edge of poverty, limiting international trade, and pushing the country into a much deeper economic depression. After the Second World War, the United States led a global period where developed economies all dropped their tariff rates to around an average of 2.0%, with many goods being completely tariff free.  This is the point of the GATT and WTO. What do you need to know as a business person?  From a bottom line perspective, a tariff is a tax that is paid by American individuals and businesses.  Now, there are ways to offset those costs, but at its most basic level a tariff is a tax paid by the importer of goods.  Here’s the law: 19 CFR § 141.1 Liability of importer for duties. (a) Time duties accrue. Duties and the liability for their payment accrue upon imported merchandise on arrival of the importing vessel within a Customs port with the intent then and there to unlade, or at the time of arrival within the Customs territory of the United States if the merchandise arrives otherwise than by vessel, unless otherwise specially provided for by law. (b) Payment of duties—(1) Personal debt of importer. The liability for duties, both regular and additional, attaching on importation, constitutes a personal debt due from the importer to the United States which can be discharged only by payment in full of all duties legally accruing, unless relieved by law or regulation…..(emphasis added). Anyone who has travelled abroad has experience with this.  When you reenter the United States, you have to fill out a Customs Declaration.  That declaration is designed to determine whether you owe any duties (taxes) on any goods you are bringing from abroad, i.e. importing.  So, let’s say that you are an American business…and let’s make you a boutique coffee shop on Central Ave in St. Pete.  One of your brands selling points is that you only use coffee from Fair Trade Certified farmers.  Your primary suppliers are in Costa Rica. If the United States government decides impose a tariff on coffee from Costa Rica, when the coffee arrives at the border, you, the importer, are responsible for paying the bill.  It’s not paid by the coffee growers in Costa Rica. Or, let says that you own an automotive supply shop where you sell your products to auto detailing shops and shops that build custom bikes.  Many of the products you sell are produced abroad.  Again, if a tariff is imposed on those products, it is you, the importer, that is legally required to pay the tax to the U.S. government, not the manufacturer of auto-parts. Now, as a business there are a few things you can do. First, you could just choose to eat the higher costs, and have less of a profit until the tariffs are removed.  Not very appetizing an option over the long run.  Second, you could raise your prices to help offset the costs, passing them on the consumer.  Third, you could try to negotiate a new price with the exporter in order to make back some of the tariff.  Or finally, you could try to find a new supplier, which is sometimes easier said than done. So, because it is you, the importer, who pays, the next obvious question for a business person, is how much do I have to pay?  In fact, as part of your submission of documents to bring the goods into the United States, you will have to classify them, and assert how much duty you believe is owed, and make a deposit of the estimated duties at the time you file you entry documents.   To understand what you owe, American business can refer to the Harmonized Tariff System (HTS).  The U.S. government maintains an electronic database that allows American businesses to determine duties.  A warning however, the classification system can be complicated and incorrectly classifying your product can lead to economic losses and penalties.  This is why companies often turn to agents and lawyers to help them with this process. For this week’s assignment, I want you to use the USITC’s (the United States International Trade Commission) database to look up the tariff rates on the following goods.  You can access the website here:  You’ll note that the Rates of Duty (tariff) column is divided into two categories and three columns.  Hover over the  to see what the categories mean.  Make sure to read closely as it could effect the tariff rate.  Pay particular attention to the country of origin in deter Article, Description Country of Origin Unit of Quantity Rates of Duty (Tariffs) Coffee, Roasted, not decaffeinated, Arabica, certified organic Costa Rica kg Green Tea (not fermented), Flavored, in immediate packings of a content not exceeding 3kg Vietnam kg Scissors, tailors’ shears and similar shears, and blades and other base metal parts thereof, valued not over $1.75/dozen South Korea No. Mufflers and exhaust pipes; parts thereof, Mufflers and exhaust pipes, for other vehicles Japan No. Tennis shoes, basketball shoes, gym shoes, training shoes and the like valued at over $12/pair Spain prs. Pencils and crayons, with leads encased in a rigid sheath Germany gross Maple sugar and maple syrup, Blended syrups described in additional U.S. note 4 to chapter 17, Described in general note 15 of the tariff schedule and entered pursuant to its provisions Canada kg Handkerchiefs, cleansing or facial tissues and towels, towels Cuba kg Denim, Blue United Kingdom m2, kg American-type cheese, including Colby, washed curd and granular cheese (but not including Cheddar cheese), and cheese and substitutes for cheese containing, or processed from, such American-type cheese, Described in additional U.S. note 19 to this chapter and entered pursuant to its provisions France kg, kg cmsc

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