Tariff 'stacking' adds another headache for US importers
NEW YORK/WASHINGTON: John Hamer, president of Rodgers Wade Manufacturing in Paris, Texas, makes store fixtures for big retailers such as Ross Dress for Less and Ulta Beauty.
He sources many of the goods from China, which until recently meant he paid 70 per cent in tariffs on metal fixtures.
"The media was saying it was 30 per cent, but that was never true," he said, referring to the tariff rate for China announced in May as part of a truce between the Trump administration and Beijing as it negotiated a broader deal.
That is because Hamer's 30 per cent tariff was stacked on top of existing tariffs, including one on Chinese steel products that varies depending on the amount of steel used in a fixture.
When US President Donald Trump adds a new tariff, the old ones do not go away. Some companies will pay far more due to a phenomenon called tariff stacking – the latest complication for US importers trying to navigate Trump's on-again, off-again trade war.
The reality for many US businesses is that their tariff bills are often far higher than the headline number touted in trade talks.
Tariff stacking applies to any country exporting to the US, but the most extreme cases tend to involve China, where the US has accumulated a long list of sometimes hefty existing tariffs, implemented under different provisions of US trade law.
The latest twist is an announcement that the two sides have agreed to a 55 per cent tariff, but that is partly only an estimate of what the average pre-existing tariffs were. Hamer is not sure what his total tariff bill will be now, but he figures it could not get much worse.
"Hopefully this will bring the (tariff) number down – and some of the clients who've been sitting on the sidelines will go ahead and place orders," he said, "because it's been all over the map."
'HERE'S THE TARIFF BILL'
Hamer is searching for suppliers outside China to avoid his stacked tariffs. He has checked Mexico and is planning a trip to India next month as part of the effort. In the meantime, he is passing through all the tariffs.
"The customers pay the tariff," said Hamer. "When it comes in, we say, 'Here's the tariff bill.'"
Many businesses are still hoping for a reprieve from President Donald Trump's trade war. Federal courts, including the US Court of International Trade, have ruled that Trump's imposition of tariffs exceeded his authority. A federal appeals court is considering the administration's appeal to that ruling, and the tariffs remain in effect while that plays out – a process expected to take months.
Some are counting on tariff exemptions, a popular tool used by companies during the first Trump administration to get goods imported without the taxes.
Michael Weidner, president of Lalo Baby Products in Brooklyn, is one of them. "We believe there should be an exemption for baby products," he said. "Same with toys."
The Trump administration has said it will resist creating such carve-outs. And even during the last trade war, it was a complex process. For instance, Lalo imports a "play table" from China that happens to be classified under a customs category subject to a 25 per cent tariff under a part of trade law that aims to fight unfair trade practices. So Weidner has been paying 55 per cent tariffs on those, thanks to stacking.
Trump campaigned on a vow to use tariffs to pull manufacturing back to US shores and collect revenue to help fund a major tax cut. His battle with China quickly spiralled into a conflagration with the US imposing a 145 per cent across-the-board tariff that shut down much of the trade between the world's two largest economies.
The agreement to curb the tariffs is part of a larger effort to negotiate individual deals with most of the US's trading partners.
PASSING COSTS THROUGH
On Wednesday, a White House official said the 55 per cent figure represents a sum of a baseline 10 per cent "reciprocal" tariff Trump has imposed on goods from nearly all US trading partners; 20 per cent on all Chinese imports due to punitive measures Trump has imposed on China, Mexico and Canada, associated with his accusation that the three facilitate the flow of the opioid fentanyl into the US; and finally, pre-existing 25 per cent levies on imports from China put in place during Trump's first term.
"It sounds like that's the way he's thinking of the baseline – 55 per cent – at least for some products," said Greta Peisch, a trade lawyer at Wiley Rein in Washington.
Ramon van Meer's business selling filtered shower heads from China may yet survive the trade war, though he is not certain.
That depends entirely on whether he can manage the multiple tariffs placed on his US$159 shower heads, which became a viral sensation on Instagram.
When the Trump administration trimmed tariffs on China to 30 per cent in May, van Meer's tariff bill was actually 43 per cent. That is because the 30 per cent tariff was stacked on top of an existing 13 per cent tariff.
It is an improvement over the 145 per cent tariffs slapped on Chinese imports in April, when he halted shipments entirely.
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