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May. 10, 2019

Tariff Insider: May 10, 2019

Flexport

It’s Official: Tariffs Hiked to 25% on List 3 Goods

Following the discovery earlier this week that tariff hikes had been implemented ahead of formal notice, today marks the official day that tariffs on List 3 products exported out of China increase from 10% to 25%.

While the news seems to be in constant flux, for now List 3 goods with an export date of May 10th or beyond will be subject to the additional duty rate of 25% until further notice. As trade negotiations between China and the U.S. continue, this policy may change.

Telecommunications equipment, computer circuit boards, processing units, metal furniture, computer parts, and wooden furniture are among the List 3 goods that will be affected most by the higher duty rates.

The Cause of the Tariff Increase

Officials say that the tariff hike was the U.S. response to what it felt was China backing out on some of the agreements made during trade deal negotiations. China returned a new draft of the trade agreement with revisions, saying that some of the provisions would clash with current Chinese laws.

The Anticipated Impact

The impact of the newly imposed tariffs is expected to hit at the ports and on the balance sheets of businesses.

In anticipation of the tariff hikes, U.S. ports had been seeing higher import volumes. But with the increased tariffs implemented, some believe import demand might now drop off. One port bracing for impact: Oakland, which saw a 5.8% increase in import demand between January and April of this year. According to the Port of Oakland website, China is Oakland’s largest trading partner. “A tariff hike could dampen import demand while also prompting retaliatory levies on U.S. exports,” the site states. “We entered this year with uncertainty over the trade outlook, so we’re gratified by the solid performance of import cargo,” said Port of Oakland Maritime Director John Driscoll. “At the same time, all of us involved in global trade are concerned about what comes next.”

Large ports are expected to be able to withstand the effects of reduced import volume, while smaller and more specialized ports that primarily handle List 3 goods have fewer assets to be able to offset major losses.

For businesses, the tariff increases can determine what kind of margins they’re able to get away with. Although President Trump had suggested that China would be responsible for payment of the increased duties, it’s actually businesses that are hit. Because many companies stockpiled goods in the U.S. in anticipation of tariff increases in January, and then March of 2019, they are now having to reevaluate their entire supply chain. As Wall Street Journal reports, Polaris Industries says that its tariff costs would double to $150 million if the increased tariffs hold. And, GoPro is reportedly moving its production from China to Mexico. As companies look at how to offset tariff impact, it appears that apparel production businesses are moving to Southeast Asia, while Foxconn Technology Group is considering moving iPhone assembly to India. Multi-industry companies with significant exposure to China are especially at risk for experiencing a substantial business impact as a result of the increased tariffs.

Meanwhile, businesses of all sizes wait and watch. And the stock market continues its roller coaster ride.

Flexport is following the situation closely, and will continue to provide updates as necessary. To learn more about business impact from the trade war and duty mitigation strategies, download our free eBook, Battling Uncertainty: Inside Perspectives on the U.S. - China Trade War.

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