tariff Archives - NovaLink

U.S. tax reform legislation of 2017 allowed companies to repatriate overseas cash at a one-time 15.5 percent tax rate, down from the 35 percent paid in the past. But what will companies do with all that cash now that it’s back home? Some are buying back stock, but others are investing in U.S. manufacturing sites. And now, with nearly 6,000 Harmonized Tariff Schedule (HTS) item classifications identified for the imposition of a 10 percent to 25 percent penalty tariff on imports from China, it is time to consider all options. Even though some products, parts, and raw materials have escaped the penalties so far, the future of new tariffs and penalties is uncertain, especially with companies that have Mexico industrial manufacturing operations. Will your products be next? What is your U.S. manufacturing and tariff strategy?

Should you be considering Mexico contract manufacturing? Sourcing from other countries? Reshoring? Building inventories? Use of a foreign-trade zone? Increasing prices to your customers? And what about exports? Every time we impose a penalty tariff, foreign countries respond with an import tariff of their own. Have you considered how these foreign tariffs will affect your export sales?

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Beginning in July of 2018, the United States imposed a 25 percent tariff on goods made from factories in China when they’re imported into the US. The goal of this tariff, and other China tariffs, is to enforce more fair trade practices with the US. The end result is products will be more expensive for private and business consumers, as the expense will be passed on to consumers.

For many companies manufacturing goods in China, there are some implications related to the tariff: any of the $200 Billion worth of goods included on the tariff list (ranging from dishwashers to Fitbit fitness trackers to food seasonings) by the United States are subject to the 25 percent tariff tax. (In fact, some companies are3 even paying up to 40%, for goods such as garment materials.) This will inevitably place some companies in the unfortunate position of having to raise the price of their products to cover the cost of doing business in China.

Fortunately, there is a viable solution for companies who may be facing this China tariffs: Reevaluate your supply chain model by Reshoring Manufacturing to North America.

The new USMCA trade agreement between Mexico, Canada and the United States that is ready to be ratified by the end of this year will provide lower tariff rates and reduced duty rates between the three nations, which in turn will allow manufacturing goods imported between them easier and cost effective. Some other benefits and points to consider:

There are no tariffs for products made in Mexico and imported into the United States that meet USMCA rules of origin requirements.
Manufacturing in Mexico vs China also means lower shipping time for goods to get into the United States, as well as lower average cost of shipping.
For companies that are getting established, starting operations in Mexico is almost half the time it takes to begin manufacturing operations in China.
Mexico, like China, has a highly-skilled and productive labor pool to scale up your operations as needed.

We believe that moving to Mexico shelter manufacturing services is the obvious, and most cost-effective choice for manufacturing companies who may be concerned about the ongoing risks of operating overseas manufacturing. Contact NovaLink today for free consultation how you can change your manufacturing base from China to Mexico easily and seamlessly.

What’s Your U.S. Manufacturing and Tariff Strategy?

Avoiding the China Tariffs