Tariffs

By Jeff Gaus

The last post discussed trade, but what it did not discuss is the terms under which trade takes place. The recent US elections have brought global trade imbalances, and tariffs, to the forefront of the US’s diplomatic conversations. This is because of the asymmetry of trade between the US and its trading partners – the US imports more than it exports, causing the structural trade deficit exceeding $1.0T annually. Arguably, some countries engage in aggressive export policy and restrictive import policies, putting the US at a competitive disadvantage. The incoming US Administration is clear in its intention to use tariffs as a tool to “rebalance” trade with specific countries, and the world.

Tariffs are a fact of life; however, recent laws and rules – the Inflation Reduction Act, the CHIPS and Science ACT, the Uyghur Forced Labor Protection Act, etc. – provide tariffs, penalties, and rewards based on country of origin of many products. The penalties for non-compliance are becoming onerous. And, companies are being held responsible for actions or sourcing choices of upstream suppliers.

So, the question becomes: in the face of new, or newly enforced, tariffs – how will one know if your goods are in compliance or out of compliance? What evidence will one need to offer to prove compliance and/or avoid tariffs? 

For an in-depth discussion of how tariffs can impact your company, please email me at jeff.gaus@theprovenancechain.com.

Here is a bit more explanation for those of you still learning about these practices.  Often we hear the term: “free trade”, the Wikipedia definition of which is quite simple: Free trade is a trade policy that does not restrict imports or exports.

Wikipedia states: A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry.[1]

If one interprets these definitions literally, whenever there is a tax, regulation, or restriction of any kind on the flow of goods and services, “free trade” doesn’t exist. What exists is “regulated” or “‘fair” trade – trade conducted according to agreements, or rules.

Regardless of propaganda and political posturing, ALL countries engage in restrictive trade practices with some countries being more liberal in their policies than others. Trade agreements and organizations exist in order to establish, monitor, and enforce the rules. The World Trade Organization (WTO) is an intergovernmental organization headquartered in Geneva, Switzerland[6] that regulates and facilitates international trade.[7] Governments use the organization to establish, revise, and enforce the rules that govern international trade in cooperation with the United Nations System.