Help with understanding Import Trade Tariffs

Import Trade Tariffs are in the news now daily and a trade war seems to be growing, but who is responsible for covering these costs?

The USA’s actions to impose additional tariffs on certain goods from specific countries (plus, in the case of some items, on all countries) have been met with retaliation from many countries. This has resulted in exporters and importers potentially facing additional hurdles in doing business.

Import tariffs, or duties, are a form of taxation imposed on goods entering a country. Most countries use the Harmonised System of Classification for Goods, devised by the World Customs Organization. The duty rate is calculated on a percentage of the value of the imported goods. However, some countries may sometimes also calculate duty on weight, volume, or a combination of factors. Governments impose import tariffs normally for two core reasons: to generate tax revenue and to protect local suppliers. The simple answer to ‘who pays?’ is it depends on who is clearing the goods through Customs at import. If this is agreed upon under the Incoterm® agreement, which is a set of rules published by the International Chamber of Commerce (ICC). They that define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. In all Incoterms® rules except one, the import clearance and payment of local duties and taxes falls to the recipient. There is one exception which is the Incoterm® DDP (Delivered Duties Paid), where the sender is responsible for clearing the goods through Customs in the recipient’s country and pays all related duties and taxes. Thus, for most businesses, the importer pays the tariffs.

Todays main issue, are the consequences of imposing new tariffs, which may not always be so straightforward hence all the changes. Imagine an importer who regularly sources products from a foreign supplier who will now face the prospect of a significant price increase on the landed goods purely because of a change to the tariff. In this case, it is likely that there will be some negotiation between the buyer and seller. To retain the business, the seller may be obliged to lower their price or share the increase costs. Hence, the new tariff is effectively being ‘paid for’ by the exporter by lowering its price. Alternatively, the importer may switch to a local supplier whose price may now be relatively more attractive because of the new tariff. In most cases, it can be expected that at least some of the cost will be passed on to the end user.

The only change directly affecting UK exporters and importers is the 25% tariff on cars, steel and aluminium and 10% on all other goods (up from 2.5%) imported into the United States, but the situation has been changing rapidly. However, if a UK exporter supplies goods of EU, Canadian, or Chinese origin, they may be subject to the recently increased tariffs.

The only change directly affecting UK exporters and importers is the 25% tariff on cars, steel and aluminium and 10% on all other goods (up from 2.5%) imported into the United States, but the situation has been changing rapidly. However, if a UK exporter supplies goods of EU, Canadian, or Chinese origin, they may be subject to the recently increased tariffs. It’s also essential to understand how rules of origin affect tariffs, and how goods that are transited through the UK or held in a Customs Warehouse before being re-exported are treated in the country of import. This understanding can make businesses feel more informed and knowledgeable about the potential impact on their exports and how they may be able to manage the impact. The impact of tariffs on supply chains, pricing, and compliance is significant, making it crucial for companies to stay informed.

Chambers of Commerce are best placed to help with understanding these issues and West London Chambers has won an award from Dept of Business for giving the best support for exporters in the UK so please be in touch, we are here to help.