President Trump's strategy regarding the Chinese tariffs has been to right a long time wrong. Again, this was a significant aspect of his presidential campaign. The position, which arguably has merit, may come at a substantial cost to the U.S. economy. The theft and mistreatment of intellectual property, a potential monopoly around 5G cellular technology, and the knock-off market of some very high-end consumer goods have had a major impact. It's a difficult pill to swallow, but until now no political official has been willing to tackle the issue. What remains to be seen is how far Trump will take this battle and how much collateral damage will result. The initial collateral damage is in the lane imbalance of exports vs. imports. In an ideal world, transportation providers would like to see a balance of full containers going and coming to whichever port to reposition assets to meet demand. The trade war is expected to have a detrimental effect on this sensitive balance, specifically regarding U.S. exports. The imbalance of shipping containers is but a symptom of misaligned supply and demand caused by the ongoing trade skirmishes. But it is also an indicator of real impact on the supply chain.
Time To Plan
With no end in sight for the tariff war, shippers must become more efficient to maintain competitiveness and profitability. The increased costs will be passed on to the end user but it will be difficult to build in a reasonable profit with such increased costs. The answer is to become more efficient in operations to help the bottom line. That said, now more than ever, shippers need to simultaneously be prepared, alert, adaptable, flexible, and innovative, among other things in order to stay on top of, and in front of, any and all trade war related surprises that may cross their paths at any time. So not only do shippers need to concentrate on efficiencies but also contingency planning. As for other options shippers can take to counter the tariff impact, procurement staffers are looking for alternative sources of supply to ride out the trade war. This includes locales like Malaysia, Indonesia, India, and Vietnam. But while they may present interim options, they lack the sophisticated transportation and logistics infrastructure China has, which make it relatively easy and commonplace to move things into and out of China, whereas other regions are not prepared to handle that kind of volume or the handling fees.
In recent discussions with various supply chain stakeholders, the trade war, in a sense, has become an extension of an ongoing “quest” for shippers to truly be ready for anything. Ted Stank, professor of supply chain and logistics at the University of Tennessee's online Masters of Supply Chain Management program, explained that a big part of shippers being prepared goes back to having what he called a very aggressive and active risk management profiling process in their supply chain, given the many things that can disrupt global supply chains. Both international and domestic supply chain management has become incredibly complicated in the past ten years. Today’s businesses absolutely must follow trends in order to stay relevant. This is just as true for shippers as it is for any business. New tariffs cause businesses to rethink the way products are engineered, how suppliers in various countries are managed, and possible modes of transportation between countries to reduce tariffs. Many large shippers have already started moving production out of China due to the rising wages and increasing regulations. Weather President Trump's dream to return manufacturing to the United States may ever become more than a dream is likely decades from reality. In the mean time, shippers must become lean and mean when it comes to cost and have at least a plan-B in place in the event of supplier disruption.
A Tariff Exemption Is Available
On July 6th, the United States officially imposed 25% tariffs on $34 billion worth of Chinese products. However, the Office of the United States Trade Representative announced on the same day that those American companies that import from China and are impacted by the trade war will have 90 days to file a request for a one year “tariff exemption” with the United States Government. After filing the request, relevant companies will have 14 days to provide the reasons for that tariff exemption. If there are opponents, they have 7 more days to present their objections. After that, USTR will decide whether to grant an exemption or not. Furthermore, USTR indicated that the “tariff exemption” is based on particular products. Thus, once a product is excluded, all American companies that import the product, whether they filed the request or not, will benefit from the exemption.
The requester should submit the following information to the Office of the United States Trade Representative:
- Physical characteristics of the particular product in the filed request, so as to differentiate from other products under the same subheading.
- the 10-digit subheading of the Harmonized Tariff Schedule of the United States (HTSUS) in which the product is classified.
- How U.S. Customs and Border Protection will regulate the excluded products.
- Annual quantities and amounts of the product imported from China by the requester in the past three years.
There's only about 30 days before the deadline for this application. Here is a link to more detail on the specific exemption products.
The tariff exemptions are unlikely to be the answer for most shippers affected by these tariffs. Lean operations and contingency planning should be the concentration moving forward. This is where Land Link Traffic Services can help. We can review your current operations to identify potential cost savings and our vast inventory of equipment providers can offer several transportation options. Contact us today for a consultation!