Corp has joined QAD Precision. In this QAD Precision Report we
look back at tariffs instituted by recent US presidents, and examine
the benefits of foreign trade zones.
In January Joe Biden was inaugurated as the 46th president of the
United States. The US is the world’s largest economy. Given this, any
new administration is carefully watched by leaders around the world.
A new president can mean changes to US global trade and/or foreign
policy — issues that reverberate far beyond the US. As the expression
has it, “When America sneezes, the world catches a cold.”
One issue that the world will be watching closely is how US-China
relations might change with the new administration.
President Biden has stated that he will not
be repealing the so-called “Trump tariffs” — at least not
immediately. Furthermore, his pick for US Trade Representative,
Katherine Tai, has long taken a tough stance on China. [For further
analysis on this, please see our report
on Katherine Tai.]
Tariffs were a defining characteristic of former President Trump’s
administration. However, tariffs have long been a strategy that US
presidents have deployed when it comes to trade. Former presidents,
Barack Obama and George W. Bush both used tariffs to achieve specific
goals. Like President Trump, and now President Biden, these tariffs
were not always welcomed by the business community.
The Rubber Hits the Road: President Obama’s 2009 Tire Tariffs
Tariffs are often used to protect a country from competition. Back in
2009, then-President Barack Obama was concerned that the US tire
industry was being overwhelmed by cheaper imports from China.
Figures from the United Steelworkers Union concluded that tire
imports from China had increased 215 percent between 2004 and 2008.
The union stated that US production had fallen by 25 percent and that
4,000 tire workers had lost their jobs as a result of this
competition. In response, President Obama
imposed a 35 percent tariff on Chinese tires.
Unsurprisingly, the US bought a lot less tires from China. However,
of tires from countries such as Canada, Mexico, Japan and South
Steel Yourself: President Bush’s 2002 Steel Tariffs
Like his successors, former President George W. Bush used tariffs to
protect US national interests. In March 2002, he imposed tariffs of up
to 30 percent on steel imported from Asia, South America and Europe.
The European Union threatened the US with retaliatory tariffs. More
importantly, the EU filed a complaint with the World Trade
Organization. The WTO found in the EU’s favor. By December 2003,
President Bush rolled back the tariffs.
The tariffs proved controversial at home as well as abroad. While
steel manufacturing jobs may have been saved, critics contended that a
high number of jobs
were lost in other industries, including in automotive manufacturing.
More Than Tariff Reductions: The Benefits of Foreign Trade Zones
Business leaders can be vocal in their disapproval of government
tariff strategies. That is unsurprising — no company wants to pay more taxes!
However, there are a number of strategies that companies engaged in
international trade can legally use to reduce their duty obligations.
One of the most comprehensive ways of doing this is by leveraging foreign
trade zones — FTZs. We will examine these now.
DELAYING OR AVOIDING DUTIES
Using an FTZ allows a company to legally delay, or avoid paying
certain customs duties entirely.
Imagine a US company importing sports equipment manufactured in
China. If the company brings these goods into an FTZ, duties are
payable only if and when the goods are sent to US retailers or end customers.
If the goods are re-exported to another country, the company is not
legally liable for any US import duties. Since the goods were stored
in an FTZ, they were, legally speaking, never imported into the US.
INVERTED TARIFF RELIEF
An FTZ can also help a company to reduce its duty obligations. A
company that brings in parts or raw materials into an FTZ and finishes
production there, can pay the duties on finished goods, if this is
lower than the duty rate for the parts.
ZERO DUTIES ON WASTE, SCRAP, AND YIELD LOSS
A further benefit of FTZs is that companies do not need to pay duties
on by-products of manufacturing, such as waste.
In addition, companies are not obliged to pay duties on scrapped
merchandise or irrecoverable yield loss that is destroyed in the FTZ.
REDUCED MPFS WITH WEEKLY ENTRIES
FTZs also reduce customs headaches. Importers can file one entry
every week with customs authorities instead of needing to file every
This also results in significant savings. In the US, companies not
using an FTZ must pay a .021 percent Merchandise Processing Fee (MPF)
for every shipment. The MPF can be as low as $25 or as high as $485,
depending on the value of the shipment.
Since importers using an FTZ only need to file weekly, they only pay
one MPF per week.
ZERO DUTIES ON DAMAGED OR NON-CONFORMING GOODS
Companies using an FTZ are not liable for duties on damaged or
non-conforming goods. If goods are defective or damaged in some way,
no duties are liable while the goods are being tested, repaired, or
stored in an FTZ.
To learn more about our Foreign-Trade Zone Management solution,
please click here.
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