Steel/Aluminum Tariffs...what this means
Like breathable air, we do not realize how important steel and aluminum are until we have to live without it...or pay more for it. Unfortunately, this will not only affect our prices on steel products, but also our export market of other commodities. But, what's done is done. Now, how do we handle it?
First, it is important to know which trading partners this affects. According to the docket, the only countries exempted from this additional tariff are Canada, Mexico, Australia, Argentina, South Korea, Brazil and member countries of the European Union.
Next, you need to know which products this pertains to. Essentially, it is steel products of HTSUS chapters 72 and 73, and aluminum products found in chapter 76.
Now, what are your options? You have a few:
1) Consider the use of a Foreign Trade Zone for warehousing these goods until they are needed. While it won't eliminate the duty, the goods will be in a sort of suspense until you take them out, at which time you will pay all duties, including the additional duties. But, who knows, perhaps this measure will be repealed by then.
2) Negotiate harder with your current suppliers. For every $100 you spend on material, you are now going to pay an additional $10-$25 in duties for these goods from non-protected countries. See if your suppliers can help offset this cost be reducing their prices.
3) Find ways to reduce the cost of transport. Perhaps you can discuss lowering prices with your freight providers. It won't be easy here, as there is not a lot of room when the industry operates on razor thin margins. But, a little here may offset what your suppliers cannot.
4) Consider sourcing from the protected countries listed above. Just, make sure the goods are actually made in that country, not first imported into the country from one that is not protected.
5) And, finally, this is the whole point of the extra duties: consider sourcing locally. We do have a fledgling steel industry in the United States. And, now, you are forced to consider them. They do cost more, thanks to labor rates, but if you work up all of the numbers, you may find that the costs are the same. With importing, you have all the logistics costs, from transportation and customs brokerage to domestic drayage fees and, of course, duties. By sourcing locally, you can significantly reduce/eliminate many of those costs, and may find that the bottom line is the same. Moreover, you receive your goods faster, since they don't have to cross any oceans.
Whatever you consider as your action to move forward, there will be an initial sting. You now have to do the work and spend the resources to discover where your best options lie. However, once decided, you will know, without a doubt, that your company's flexibility is not dependent on one market over another, but that you can adapt to the changes as they come.
Originally published March 23, 2018 by Kim Daniels