You have seen it now. The new Trump administration started early to impose tariffs on its allies, partners, and enemies worldwide, claiming that the USA has been taken advantage of. We are calling them Trump Tariffs.
The BBC describes Trump Tariffs in their latest reporting:
“The US has introduced a 25% tariff on all steel and aluminum imports worldwide.”
In response, Canada and the European Union have announced new tariffs on billions of dollars’ worth of US goods, stoking fears of a global trade war.
President Donald Trump has threatened to impose a 200% tariff on alcohol from EU countries unless the bloc scraps what he says is “its nasty 50% tariff on whisky.”
What are Tariffs?
As we can see, a tariff war is an economic war that threatens the goodwill of those affected and creates obstacles to collaboration. Moreover, tariffs are a war on the consumer.
Even when the tariffs are not officially imposed, the mere suggestion of the threat creates chaos among import-export businesses, as the recent cases of Trump Tariffs flip-flop against Canada and Mexico show.
First, let’s define tariffs. A tariff is a tax on imported goods from another country. The importer generally passes this tax to the consumer, increasing product prices.
Some countries use tariffs to protect industries from unfair or government-subsidized prices. Most recently China, Japan, and Korea, have used tariffs to protect domestic industries. However, they were usually imposed in connection with incentives for local production and manufacturing, in order to stimulate local industries.
The Bad Effects of Tariffs
Unfortunately, tariffs can also be used as a political tool to “punish” countries or specific industries. It seems to be the case with many of Trump’s recent actions. Also, tariffs raise consumer costs. More damaging, these taxes may allow domestic producers, even those unaffected by tariffs, to raise prices, creating an inflationary spiral. Low tariffs in the USA have been a characteristic of the last 70 years’ economy, so most international companies and consumers may not have contemplated the possibility of sudden price increases and an uncertain economic landscape.
One issue is for sure, tariffs affect how businesses do business and may be a warning sign of an incoming recession, specially if the implementation is chaotic, elevated and arbitrary. In this changing and hostile environment, what can business owners do if you are a buyer or seller of imported goods affected by tariffs?
Fighting Back Trump Tariffs
Business Attorney Marcos Garciaacosta suggests the following actions:
- Check your contract clauses. Review your active contracts to determine how tariffs affect your day-to-day operations and prepare to modify or write new contracts if necessary.
- Does your contract have a government tariffs section or actions? Or, specifically, a tariff clause? Since tariffs have not been such an important issue before, reviewing your contracts to include a tariff clause may be a good strategy.
- Will the existing policies in the USA fall under acts of God? If you are disadvantaged due to the imposition of tariffs, you may claim the Acts of God section of your contract as a shield against bad outcomes. It’s worth asking if the tariffs were foreseeable.
- What kind of passing of control or possession do you have? Who is responsible for the fate of products at each stage of the logistics process?
- What Incoterms* do you have? Understanding all these is important to determining who will be responsible for paying import duties and how the tax will be paid.
- If you take possession and control at the producer’s site, fob, for example, a common incoterm, you may be responsible for any cost incurred when the product is in the hands of a shipper.
*Incoterms: International Commercial Terms, are a set of standardized rules that govern how buyers and sellers transport and deliver goods. They’re used in contracts for domestic and international trade.
Regardless of the political future, and even if Congress or the courts are be able to put a stop to Trump’s worst instincts, these concerns will remain beyond the current administration, so you should be prepared and ensure your contracts are solid enough not to put your revenue in danger.
ABOUT US
Marcos E. Garciaacosta, Esq. is the managing attorney and founder of Marcos Law, a boutique law firm specializing in Business Law, Trademarks and all aspects of intellectual property.
Contact us for a free 15 minutes free consultation by phone scheduling at (480) 324-6378.