Since February, the landscape of duties and levies faced by businesses that export to the US has transformed almost beyond recognition. As the second Trump Administration has settled in at the White House, a flurry of Executive Orders (EOs) has established an array of new trade tariffs, forcing many countries to respond with reciprocal measures.

“Even for us in our advisory role, we could be speaking to a business owner on a Monday and telling them, ‘This is how things work right now’, then on the Friday, there will be a new EO that changes the picture completely,” says Anna Doherty, Customs Practice Director at The Chartered Institute of Export and International Trade (CIOE&IT).

Doherty points out that while UK exporters selling goods to non-US territories are dealing with a fairly static and calm environment, they must continuously stay up to date with US developments, as they change almost on impulse. “One challenge is that some of the US customs brokers don’t necessarily understand the emerging rules either,” she says.

Tariffs can stack

As a result of US EOs, Doherty notes that exporters must grapple with a stacking of tariffs. On top of blanket levies imposed on specific countries and product types, further proclamations have expanded the tariffs’ scope to include ‘derivative products’, such as those made from steel and aluminium. “If you’re exporting, say, a washing machine to the US, you must now know exactly where its steel and aluminium came from, and what percentage of the machine’s value in that content you’re required to pay under Section 232,” Doherty explains.

If that aluminium is from the UK, it’s 25%. If it’s non-UK, it will be 50%, and if it’s from Russia, 200%. It’s not just about which territory you’re shipping the goods from, Doherty explains, it’s about understanding where the components came from.

The product’s whole value is still subject to a tariff of 10% from the UK, plus the standard, pre-existing Most-Favoured Nation rate – a non-discriminatory, default tariff. To get full visibility over how much duty exposure you have on your product, you must understand its composition inside and out, and where its component parts originated, says Doherty.

“If you’re unable to evidence that, then the highest rates of duty apply on the entirety of your product. For businesses that operate on small margins, that would be a killer. Even the administrative effort to get to the point where they can evidence where everything comes from would be too much, because they’re only making US$10-50 per unit.”

Get to grips with compliance

Essentially, when it comes to adapting to recent or incoming tariffs, Doherty stresses that UK businesses must see knowledge as their greatest ally. If you’re going to trade internationally, she says, you must first have a grasp of the three pillars of customs compliance:

• classification – in other words, the Commodity Code
• origin, or the product’s economic nationality, and
• valuation. 

“Those factors determine the value on which the duties are based and relevant taxes applied. Origin can be tricky. For example, if you sourced components or materials from Germany, but they first came from China, they’re not German products.”

Understanding incoterms

In addition, a business must have a thorough understanding of International Commercial Terms, or incoterms®: rules established by the International Chamber of Commerce that set obligations between a buyer and seller in any given customs transaction, and govern where risk falls.

“An incoterm tells the buyer and seller who’s responsible for dealing with export formalities to get the goods out of one country, then the import formalities to get them into the destination country, plus who’s responsible for the payment of the duties and taxes,” Doherty explains.

The main incoterms that SMEs need to be aware of are:

Delivered Duty Paid (DDP)

Under this system, which many UK SMEs would have observed before the Trump tariffs, the exporter takes care of all of the formalities in both the UK and US. They also pay all the duties, which is reflected in the price they pass on to their end-customers. “If that was your operating model up to April, you’ll have likely found that you’ve had to raise your prices. Another option is to look at how you could use other incoterms to de-risk yourself.”

Delivered at Place (DAP)

Moving from DDP to DAP means that the seller still takes responsibility for getting the product to the buyer in the country of import, but the buyer pays the duties. “In a B2B transaction, DAP is probably more appropriate, because a buyer in the country of import may have access to facilitations that the exporter cannot enjoy,” Doherty says. “As we know, the US has no VAT. But if you export to the EU under DDP, you would be liable for VAT that you can’t recover. However, if the importer is responsible for those duties, that acts as a de-risking tool.”

Ex Works (EXW)

In Doherty’s assessment, this is the most misunderstood incoterm. On the surface, it looks like the lowest-risk model for the seller, who simply makes the product available, while the buyer must take care of collection, import clearance and transit.

However, Doherty points out that there are obligations linked to the goods, such as export controls, sanctions and other regulations that sit alongside duties and taxes. Selling under Ex Works does not remove your responsibility for compliance. “That’s especially true if you’re dealing with electronics or chips, which can sometimes be classed as dual-use and may therefore require licenses when you export them to certain destinations. There are also significant export controls related to trade with countries neighbouring Russia.”

Knowing your way around those incoterms®, Doherty says, will provide your business with strong foundations for being tariff-adaptable. But there is another important step that companies must also take: upskilling.

“There are lots of great places to start,” Doherty notes. “We at the CIOE&IT have a number of free whitepapers and guides. Then the government provides sources of tailor-made help and support, plus its Integrated Online Tariff, which enables you to look up commodity codes, import duties, taxes and controls.”