In recent months, the U.S. government has taken significant tariff action, affecting a variety of products in a wide array of industries. In light of these developments, the KPMG Trade & Customs team is happy to share this update with our clients.
Please note that because the situation is fluid and evolving on a near daily basis, frequent updates are necessary to help ensure your company is acting on the most current information.
With that in mind, broadly speaking, the United States has undertaken three different tariff actions, with varying implications:
In response to these actions, China has announced retaliatory tariffs on a number of U.S.-origin products, including agricultural and automotive products as well as steel, aluminum, plastic, and other raw materials.
The following will provide an overview of each tariff action detailed above as well as provide a five-step recommendation to assist companies to begin addressing the potential impact each will have on U.S. business operations.
On March 8, President Trump introduced, by Presidential Proclamation, tariffs on certain raw and semifinished steel and aluminum products. The steel (25 percent) and aluminum (10 percent) tariffs were issued pursuant to Section 232 of the Trade Expansion Act of 1962, which authorizes, among other actions, additional tariffs for national security reasons. Products covered by the tariff are mostly industrial and semifinished steel and aluminum goods, such as tubing, wire, rod, and flat-rolled sheets. Currently, the tariffs do not apply directly to consumer articles and other "finished goods" made of steel and aluminum.
The tariffs apply to imports of subject goods from all countries across the globe, with the exception of Canada, Mexico, countries that are part of the European Union, Brazil, South Korea, Australia, and Argentina, which are temporarily exempt through April 30, 2018 unless the exemption is extended. Other countries with which the United States has a "security relationship" are invited to negotiate alternatives. Further, the U.S. Secretary of Commerce has also published a procedure for securing product-based exclusions based on certain criteria, which is available to companies, including importers, who use steel or aluminum in business activities in the United States.
The tariffs went into effect on March 23, 2018, and are applied in addition to any current import duties and fees.
The Department of Commerce’s Section 232 report indicated the intent of the steel and aluminum tariffs under Section 232 is to raise domestic steel production from its present 73 percent of capacity to an 80 percent operating rate and domestic aluminum production from the present 48 percent average capacity to an 80 percent operating rate.
On April 3, the United States Trade Representative (USTR) recommended an additional 25 percent tariff on certain products originating from China. These tariffs were proposed pursuant to Section 301 of the Trade Act of 1974, which authorizes, among other trade actions, tariffs to counteract violations of trade agreements or other discriminatory trade practices.
In the current case, the USTR determined that China has systematically sought to misappropriate U.S. intellectual property through joint venture requirements, unfair technology licensing rules, purchases of U.S. technology firms with state funding, and theft of business information via intrusions into U.S. computer networks. An interagency team estimated that China’s policies result in harm to the U.S. economy of at least $50 billion per year.
To counteract this practice, the USTR recommended tariffs on over 1,300 unique products originating from China, across a variety of industries. Industries affected include industrial and agricultural machinery, aerospace, information and communication technology, and consumer electronics, among others. The proposed tariffs would affect between $50 and $60 billion in imports annually.
|Televisions and stereos||Aerospace apparatus||Power and hand tools||Motors/
|Agricultural machinery||Electrical machines||Home furnishings||Brewing Machinery|
|Plastic products||Machine tools||Printed circuit boards||Bearings|
|Medical supply goods||Biomedical products||Motorcycles/
While a list of Harmonized Tariff Schedule (HTS) codes affected by the tariffs has been published by USTR, the Section 301 tariffs are currently subject to a public comment period and will not take effect until the review process is complete. At such time, we expect a final list of products subject to additional tariffs to be published (on or after May 22, 2018).
At present, we are not aware of a specific date for when these tariffs might become effective, nor can we predict what the final list of products will look like; however, we are tracking updates daily.
In addition to the retaliatory tariffs announced in response to the administration’s steel and aluminum tariffs, on April 4, China announced a second set of potential retaliatory tariffs—this time on 106 U.S. products affecting as much as $50 billion in US exports.
The official list of affected HTS codes has not yet been released, but the product groups targeted include aircraft and automobiles, including parts and components; industrial apparatus and machinery; plastic products; agricultural products and juices; and various alcohol and tobacco products.
At present, the Chinese Ministry of Commerce has not advised when these tariffs might become effective; however, we are closely monitoring developments.
Prior to any of the actions taken above, the U.S. government also announced import tariff rate quotas on residential washing machines (starting at 20 percent), and cells and modules used in solar panels (starting at 30 percent). These tariffs are set to phase out over the course of three and four years, respectively, and apply to imports from all countries globally. An interagency team estimated that China’s policies result in harm to the U.S. economy of at least $50 billion per year.
The Trade and Customs group at KPMG is standing by to assist your company in formulating a strategy and develop an action plan to mitigate the effects of tariffs.
Partner and U.S. Practice Leader
Partner and Global Practice Leader
|John L. McLoughlin
Principal and East Coast Leader
|Luis (Lou) Abad
Principal, Washington National Tax
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the authors only, and do not necessarily represent the views or professional advice of KPMG.