Effective Tariff Planning for a Second Trump Administration

12 Nov 2024 Effective Tariff Planning for a Second Trump Administration

Authored by RSM US LLP, November 12, 2024

Executive summary: Importers can mitigate the impact of the Trump administration’s proposed tariff hikes

President-elect Donald Trump has expressed intent to increase tariffs during his second term, which could significantly impact most importers, particularly those dealing with goods from China. Although it is difficult to anticipate the specific tariff increases Trump plans to pursue—partly because he mentioned a wide variety of trade targets and tariff ranges during his campaign—importers may contend with increased costs that could disrupt supply chains. Fortunately, companies may benefit from several tariff reduction strategies to mitigate the impact by reducing or eliminating costs and improving cash flow.

Expected tariff increases under new Trump administration

As Trump prepares for a second term beginning in January 2025, he has signaled aggressive trade and tariff policy stances. A crucial consideration underscoring Trump’s intent: The executive branch has largely unchecked powers to set tariffs it deems appropriate to protect the American economy and national security. Several U.S. statutes provide the executive branch this authority, including the International Emergency Economic Powers Act of 1977, section 301 of the Trade Act of 1974, and section 232 of the Trade Expansion Act of 1962.

With the possibility of increased tariffs on all U.S. imports and an additional tariff on Chinese goods, importers could face substantial increased costs, compressed profit margins and disrupted supply chains in the early months of 2025 and beyond. These expected increases in customs tariffs would impact companies importing raw materials, intermediate and finished goods, and capital equipment.

Mitigation strategies

Although increased tariff rates may be daunting, U.S. importers may be able to capitalize on several well-established and beneficial customs and trade programs to mitigate the effects by reducing or eliminating costs while improving free-cash flow. Some options and estimated implementation times include:

• Bonded warehouses: Merchandise may be entered and stored in a secure facility under customs supervision for up to five years without the payment of tariffs and related fees until it is ready for sale or distribution. If the goods are ultimately exported, tariffs are avoided altogether. Estimated setup time: 1 to 3 months.
• Foreign-trade zones: Materials may be entered for further processing and then imported into the United States with deferred, reduced or eliminated tariffs, as well as lower customs fees. Any waste, scrap and yield loss are exempt from tariffs. Like the case of a bonded warehouse, any products that are exported are not subject to tariffs. Estimated setup time: 1 to 6 months.
• Temporary import bonds: Goods imported for purposes such as repair, testing and further manufacturing may be imported and stored without paying tariffs, provided they are exported or destroyed within a set time frame. These bonds typically last for one year from the date of import and may be extended, allowing them to be valid for up to three years in total. Estimated setup time: 1 to 3 days.
• Duty drawback: This program refunds up to 99% of tariffs and fees paid on imported goods that are later exported or used to manufacture exported goods. Estimated setup time: 1 to 3 months.

Implementing these programs can help companies better navigate the complexities of a high-tariff environment while maintaining their competitive edge. There are also other tariff mitigation strategies that either stand alone or could be combined with any of the above programs to further enhance the supply chain and profit levels. These include, among others, customs valuation planning, tariff classification engineering and free trade agreement qualification.

This article was written by Mark Ludwig, Jodi Ader and originally appeared on 2024-11-12. Reprinted with permission from RSM US LLP.
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