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What’s a tariff?
A tariff is a tax imposed by a government (in this case, the U.S. government) on imported or exported goods.
When a country places a tariff on imports, it causes foreign-made products to be more expensive. On the positive side, tariffs may encourage consumers to buy locally made goods and help domestic businesses by reducing the competition they face from abroad. On the other hand, tariffs may raise prices for businesses (and their consumers) and limit choices.
There are three different types of tariffs:
- Ad valorem tariff: A percentage of the value of the goods
- Specific tariff: A fixed amount per unit of the good (for example, $5 per ton of steel)
- Compound tariff: A combination of both
Why is everyone talking about tariffs now?
President Trump has announced tariffs on goods imported to the U.S. from these three countries:
- Canada: 25% (this tariff has been paused for at least 30 days—stay tuned!)
- Mexico: 25% (this tariff has been paused for 30 days—stay tuned!)
- China: 10% (this tariff is in effect; see below for more details)
As you can see from the info above, the tariff that has been imposed is an ad volorem tariff, which means that importers will be taxed a percentage of the cost of the goods.
China’s counter-tariffs
In response to the U.S. tariff on Chinese imports, China has announced counter-tariffs on goods imported to China from the U.S.
Starting on February 10, 2025 China will implement:
- A 15% tariff on certain kinds of coal and liquefied natural gas
- A 10% tariff on crude oil
- A 10% tariff on agricultural machinery
- A 10% tariff on certain larger cars and pickup trucks
Who is responsible for paying for these tariffs?
The importer is typically the one who ends up paying for a tariff. This means that if you own a business that imports goods from China, you will be responsible for payment.
In many cases, the final cost of the tariff trickles down to consumers in the form of higher prices for the imported goods.
Here’s how it works:
- The importer pays the tariff: When goods arrive at the border, the importer must pay the tariff to customs before they can bring the products into the country.
- Price increases for consumers: Importers may pass the added cost of the tariff onto consumers by raising the price of the goods. This is common with products that are in direct competition with domestic goods.
- Domestic market impact: If tariffs make foreign goods more expensive, domestic products may become more attractive to consumers, which can increase demand for locally made items.
How will these tariffs affect my business?
If you import goods from China, you will feel the effects immediately.
Here’s what you should know:
- The cost of goods you import from China will increase by 10%.
- Supply chains may be affected, which means that you may experience challenges or delays getting your imported materials.
- You may feel the pressure to increase prices for your customers, which may affect your relationships and patronage.
- Counter-tariffs are likely—this means the countries affected may respond by issuing their own tariffs. In fact, we’ve already seen this with China.
What can I do to minimize the impact of tariffs on my small business?
- Reasses your supply chain: If you import goods from any of the affected countries you may want to consider other options. Can you get your materials from somewhere else?
- Renegotiate supplier contracts: If getting your goods locally (or from an unaffected country) simply isn’t possible, talk to your suppliers about adjusting their prices.
- Evaluate your inventory: It may take months for your existing inventory to sell out. Understand what you’ve got and when you’re going to need to order more materials; plan appropriately and take the time to get your finances in order, which leads us to . . .
- Cut costs where you can: Assess your entire operation. Is there somewhere else you can streamline and cut costs? Review your overhead and eliminate any non-critical cost
- Remember that other financial factors will change under this administration: During President Trump’s last term the corporate tax rate dropped from 35% to 21%. Trump has mentioned that he plans to drop that tax even lower this term; we’ll keep you posted on any updates there.
According to the latest reports. President Trump will meet with Chinese President Xi Jinping next week. For updates on this dynamic situation check back here—we’ll keep you posted on any changes that may impact your business.
