Four Questions Companies Should Ask When Dealing With Tariffs

Four Questions Companies Should Ask When Dealing With Tariffs

In recent years, the trade compliance landscape has undergone several changes. An ongoing trade dispute between the U.S. and China has led to tariffs on over $200 billion USD worth of goods. Similar disputes between the U.S., EU, Canada and other nations mean the import of foreign goods into global markets is now subject to complex and changing requirements.

However, recent tariffs have proven to be dynamic. For example, in 2018 the U.S. announced a 25 percent tariff on steel and a 10 percent tariff on aluminum, before granting certain countries an exemption. As a result, Canada, one of the largest U.S. trading partners, had its exemption status changed three times in less than a year.

Relatively rapid policy changes such as the example above can create confusion and frustration for importers and exporters that use inefficient methods to respond to tariffs, ultimately exposing them to risk.

There are four major product questions a company must ask when considering how best to deal with tariffs, and the answers to these questions will determine the efficiency of their trade compliance program.

What Is It?

Almost every product shipped from one country to another is given a uniform, six-digit Harmonized Schedule (HS) code that serves to identify the product to an importing nation’s customs office. This HS code is an international standard; however, individual countries may add more information, creating longer codes. The U.S. extends its classification to a 10-digit code known as the U.S. Harmonized Tariff Schedule (HTS) code. 

These codes further classify a product or good, and are used to determine the tariff or duty rate of the product being traded. They are also used by countries to track trade statistics. Incorrectly identifying a product may result in the loss of favorable trade conditions provided through legislation, such as free trade agreements, or in enforcement actions for deliberate misclassification to avoid a tariff.

Because HS/HTS codes are developed based upon a product’s properties, having specific product information is a key component of correct identification. It is the responsibility of the importer to correctly identify the HS/HTS codes for products. To apply an accurate and consistent HS code, companies should communicate with their suppliers or the original equipment manufacturers (OEM) to harmonize the classification of a product.

Consistent trade classification avoids undue scrutiny from customs offices, and the targeted enforcement actions that result from inconsistent classifications and submissions to the authorities. 

Where Is It Coming From?

As countries exchange products and tariffs, the question of where a product originates has implications on the final cost of importation. Depending on the trade landscape, different origins can result in significantly different costs for the same or similar products.

When a product is not made entirely in a single country, companies may use a legal principle called substantial transformation to determine the origin of a product. This criterion is used when a product undergoes a fundamental change that can have substantial implications for the determination of where the value of a product was created, the appropriate country of origin and the relevant tariffs.

Supply chain transparency is necessary in order to correctly identify the country of origin for a product and its parts, ensuring a company is prepared to meet the obligations presented by regulations and tariffs.

Learn how Assent helps companies collect, validate and centralize the supply chain data necessary to respond to tariffs, including country of origin information and HS/HTS codes with our guide, Managing Data for Trade Compliance.

Where Is It Going?

A product’s country of destination is another integral question when determining applicable tariffs. The destination may influence claims of duty drawbacks or enable a company to take advantage of preferential trade agreements, so a full picture of a product’s journey is necessary to account for the business risks presented by tariffs.

How Much Does It Cost?

While the ultimate cost of a product doesn’t affect the application of tariffs, it does impact how a business responds. A company may choose to change suppliers, raise the price of their goods or, in extreme cases, stop producing a product outright. In order to achieve a comprehensive price projection, a company must have the ability to manage large amounts of data relating to the product, its transit and the trade compliance landscape.

Dealing With Tariffs

Failure to appropriately manage tariffs can expose a company to a wide range of risks, and companies are increasingly turning to software solutions to help them manage the large amount of data required for compliance.

Assent streamlines data management for trade compliance, allowing a company to efficiently document the product information needed to maintain market access. To learn more, contact us at