Every manufacturer with an international export range understands the hurdles that need to be overcome to successfully participate in an international business partnership. One of these hurdles is import taxes, which are fees imposed on the goods of an importer when the goods are transported across international borders. Although the taxes are applied to the importer, these taxes can influence which exporter the importer can affordably work with.
In certain contexts, import taxes can also be considered duties or tariffs:
- Tariffs are a tax applied to the imported goods from a different country.
- Duties are indirect taxes imposed on the consumer of the imported goods.
Different tariffs apply to different products and to different countries. This can make navigating through the topic of import taxes difficult, so in an effort to guide you through import taxes specifically for the U.S. — the world’s largest importer — here are the most important aspects of U.S. import taxes to consider.
Why do import taxes exist?
Income and Market Advantages
Import taxes exist for a few different reasons. First and foremost, when an import tax is applied to the product, that tax increases income for the local government. This helps, in part, to make up for loss of income from the exportation of manufacturing services to international countries, as is the case for U.S. companies that have historically sent many factories overseas.
An indirect advantage of an import tax is that it creates a market advantage for organizations that locally grow or produce goods. For companies established in the same country in which the product is being delivered, import taxes do not apply.
In some cases, an import tax is applied to penalize a particular nation or nations. For example, the 2019 U.S. tariffs were applied to Europe, Canada, and especially China for what the Trump administration claimed were predatory tactics to give Chinese companies the upper hand. Additionally, these import taxes were an attempt to encourage distributors to work with U.S. manufacturers.
Protection of Citizens and the Environment
Finally, import taxes exist to help protect a country’s residents and environment by applying restrictions or limits on certain products. Depending on the product, restrictions can become bans. In fact, the U.S. has banned many items such as dangerous toys, cars that do not protect passengers in a collision, some wild meats, and prohibited substances such as absinthe and rohypnol.
Which countries incur an import tax?
The World Trade Organization (WTO) provides all WTO members with a database that contains comprehensive information on Most-Favoured-Nation (MFN) applied and bound tariffs at the standard codes of the Harmonized System (HS). The HS is an internationally accepted product classification system.
Locating Exported Product and Tarriff Information
Here’s how you can go about finding tariff information about a specific exported product:
- The U.S. uses 10-digit Schedule B number codes to classify products.
- The Census Bureau provides a free search tool to find any specific 10-digit product code.
- Once you have identified the product in the search tool, you can determine the applicable tariff and tax rates for that product and the country of origin.
Keep in mind that the tool provides estimated tariffs. The final determination depends on the custom officers of the country.
Countries Exempt From Import Taxes
Many organizations throughout the world have attempted to mitigate import taxes, including WTO, by promoting free trade. While import taxes apply to most international products, the U.S. has free trade agreements with 20 countries. One of the more notable agreements is the North American Free Trade Agreement (NAFTA), which became the United States-Mexico-Canada Agreement (USMCA) in September 2018.
What are some strategies to reduce or minimize import tariffs?
Because not all countries have a free trade agreement with the U.S., importers have mitigated tariffs by implementing strategies that are most useful for the importing organization. The primary strategies include the following:
- Product exclusion requests contain the comprehensive physical description of the item, including all distinguishing and unique physical features.
- Country of origin adjustments have been made by importers moving portions of Chinese manufacturing operations to another country.
- Strategic sourcing is similar to country of origin adjustments, in that importers source their products from multiple locations from around the world to find alternatives to tariffed goods.
A related trend can be seen in companies with factories in China that want to lessen their reliance on that nation. While some businesses are moving manufacturing operations back home to get closer to their customers and avoid import taxes, other companies are moving operations from China but staying in Asia, because of supplier proximity and lower cost of labor.
Partner with a trusted manufacturer.
Although Vietnam is not exempt from U.S. import taxes, many organizations continue to pivot towards Vietnamese manufacturers because of shipping advantages, tax incentives, high-quality and time-efficient manufacturing, and lower cost of production and labor, each of which help reduce the importers’ tariff and duty costs.
At VPIC Group, our customers trust that we can deliver their manufacturing needs, from smaller industrial components to automotive parts, healthcare equipment and more. We complete these products with the newest technologies and procedures. To begin the process of working with VPIC Group, connect with us today.