What the China Tariffs Mean for Nonprofits
Update: As of Tuesday 8/27/19, we are able to share that the Office of the US Trade Representative has confirmed that the following will go into effect:
- List 1, 2, and 3 tariffs currently at 25% will increase to 30% as of October 1
- List 4a tariffs, currently slated to take effect at 10% on Sept 1 will increase to 15%
- List 4b tariffs, currently slated to take effect at 10% on Dec 15 will increase to 15%
China has retaliated with tariffs ranging from 5-25% which could tally $75B worth of tariffs on over 5,000 goods the US is importing into China. The majority of these will go into effect September 1st with the balance going into effect on Dec 15th.
Our staff is preparing strategies to roll out for our client’s portfolios and will continue to keep you updated about this and other sources of volatility in the direct mail world – stay tuned!
Nonprofits haven’t been excluded in the escalating trade wars the United States is having with China. If your organization depends on items such as acquisition freemiums or back-end premiums from China as part of your fundraising efforts, take a few minutes to review the below summary of milestones, our predictions for what could occur this summer, and the actions you can take now to help insulate yourself from this risk.
How did we get here?
- March 2018 – President Trump announced tariffs on up to $60 billion worth of Chinese goods being brought into the US signaling that trade tensions between the US and China were getting very tense.
- October 2018 – A 10% tariff is imposed on $250 billion worth of products imported into the US, the majority of which are List 3 products. It’s shared that an additional 15% tariff would apply to these items beginning Jan 1, 2019.
- December 2018 – Trump and Chinese President Xi Jinping agree to pause the trade war for 90 days of continued talks which takes the Jan 1st increase off the table.
- May 2019 – Ahead of formal notice, tariff hikes on the List 3 products increase from 15% to 25%. Until this point, many of the items Production Solutions might import for a client had not been impacted.
What could be next?
The US Trade Representative (USTR) has announced they are considering imposing a new 25% tariff on 3,805 Section 301 product categories which have been spared up to this point. The value of these goods is about $300 billion and could mean virtually everything imported from China, including apparel, electronics, toys and other typical household items would be impacted. Public hearings started on Monday June 17th and are expected to occur over the next week. There is a 7-day rebuttal period for comments to be received which is much shorter than the comment period on previous rounds.
We could see these new tariffs in effect at any time after that point – as soon as the last week of June. Trump is scheduled to attend the G20 Osaka Summit in Japan on June 28-29 where he has said he will meet with Chinese President Xi Jinping. The timeline has been outlined for the US to be in a position to place these new tariffs in effect shortly before or after these talks. Again this additional tariff is speculation at this point as America waits to see how things progress.
When are tariffs actually applied?
Tariffs get applied at the time an item is exported from China, which is typically after inland freight and at the port of departure. This means if you have something in production at this very minute and a new tariff is put in place and the item doesn’t clear export prior to the effective date you would be required to pay the additional tariff prior to the shipment departing. Pay special attention to this if you have ship dates around the end of June as this new tariff could be put in place last minute.
How are tariffs calculated?
Tariffs are applied to the customs invoice after duty has been assigned. As an example;
You might buy an item from a premium broker for $1.00. The premium broker typically wouldn’t list $1.00 on the customs paperwork as it would be overstating the value so they declare the cost they will pay the factory. In this example, we will say it is $0 .80 cents.
At clearance, any duty is applied on the declared unit cost of $0.80. Duty rates vary by article/item category and the country it is being exported from. If the duty rate is 5% the math would be $0.80 + 5% = $0.84. If this item has a 25% tariff applied then the math would be $0.84 + 25% = $1.05. You could anticipate the premium broker requiring the additional $0.21 per unit to clear customs.
What you can do?
- Consider what you have on order or will be ordering in the near future. Determine the best route for investigating the financial impact and communicating the possibility of additional tariffs amongst your organization.
- Investigate domestic production from the United States or other non-china import alternatives on future orders.
Is there anything we can do to not incur a tariff?
Depending on the item being imported one could look at itemizing the packaging or components on the finished good as a means to lower the exposure. As an example if a 25% tariff is put in place on a plushie toy and the plushie is placed into a fabric sack and the sack itself doesn’t have an additional tariff applied, you could explore working with the premium and customs broker to break down the items separately on the declaration so that we could exclude paying the 25% tariff to the cost of the fabric sack.
Unsurprisingly, China is retaliating and has imposed tariffs on our US exports as well. US trade with China was at a record high in 2018 with the US importing $520 billion worth of goods from China and exporting $120 billion to China.
We’ll share updates when we know more and please connect with a Production Solutions team member if you want to discuss any specific items you’re importing as well as investigating non-China alternatives. While our main intention of sharing this information is around premium goods and their impact to nonprofit fundraising efforts, the reality is if these tariffs are put in place we all will feel the impact in our personal lives. Dollar store junkies should stock up now!