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Trade War Escalation: Tariffs Will Impact More Imports

Last updated on May 20th, 2020

Trade War Escalation - May 2019

With the rate hike on many Chinese goods, and a new round of tariffs proposed, importers and customs brokers need to be vigilant about monitoring bond sufficiency.

May 2019 was a very busy month for the Trump administration and changes to tariff rates.  Some importers will see some relief with the reductions and/or removal of tariffs on aluminum and/or steel from Turkey, Canada, and/or Mexico.  India and Turkey will  soon have their GSP eligibility revoked. And, the automobile and parts tariff decision was delayed for up to 6 months.  However, hikes to existing tariffs and the initiation to impose tariffs on brand new Chinese categories will impact far more importers in far greater amounts.

The Section 301 Tariffs imposed on the “List 3”Chinese goods increases from 10% to 25% and is being phased in based on combinations of export and import dates, but should be fully implemented by June 15. This is projected to impact nearly $200 billion of imports annually.  Also, the administration started the process for inclusion of nearly everything else from China not already subject to the Section 301 Tariffs.  About $300 billion of imports, predominately toys, apparel, and footwear, could be subject to 25% rates by the end of summer.

Tariffs proposed in late May on all goods from Mexico have been suspended – pending the implementation by Mexico’s government of successful measures to stem migration to America’s southern border. But, if Mexico’s steps don’t meet U.S. expectations, the tariffs could be revived.

Importers and customs brokers must continue to closely monitor their continuous import bonds for sufficiency.  CBP’s policy is a continuous bond must always be no less than 10% of annual duties, taxes, and fees.  These amounts include special classes of duties, such as the assortment of Trump Tariffs, countervailing duties, and antidumping duties.  Parties that import merchandise under bond, such as using bonded warehouse facilities or TIBs, should take into account the duties, taxes, and fees those importations would incur had they been entered for consumption.  Prudent importers should take steps to project import activity over the next 12 months to see if and when changes to the continuous bond will be necessary.  CBP is not asleep. A dedicated team reviews each and every importer monthly, and when they identify insufficient bonds, CBP usually (but not always) gives importers 30 days to attain compliance.  When CBP determines the bond is grossly insufficient, it can flip a switch and make that bond useless immediately.  That means ISFs don’t get filed, merchandise does not get entered, and cargo sits at terminals.

As importers require bonds for greater amounts, more underwriting information may be necessary for a surety to continue to provide the bond. This means more time is needed to assemble required information and to make decisions. When too much time has passed, deadlines are missed, importers won’t have valid bonds, and cargo will sit at the border.

Customs brokers can run reports through FastBond™ of any importer’s past activity on bonds Roanoke provides where the CHB is the broker of record. Additional tools available are the “5 Steps Guide to Management Bonds Subject to Trade Wars” and a Bond Sufficiency Calculator to determine the proper bond amount.

For additional information and bond requests, please contact your Roanoke bond customer service representative.

About the Author

Matt Zehner is Vice President, Surety Information & Analysis for Roanoke and has been involved in the international trade segment of the insurance field for over 25 years. Matt is involved with Roanoke’s Customs and OTI Bonds products which includes monitoring current events for changes in the legal and regulatory environment and working closely with federal agencies and industry trade associations concerning changes impacting the international trade industry and its surety products.