Introduction

Where do we start with President Trump’s imposition of tariff measures?



President Trump indicated as part of his presidential campaign for re-election that he would take on world trade and that his approach could be aggressive.

Trump has a reputation for challenging world trade regulatory processes, and his approach to such processes has been seen to ride over them, provoking obligatory retaliatory measures from US global trading partners.

Some of us familiar with global trade regulations and trading practices have held our collective breath as the US announces that further Presidential Proclamations are on their way. The purpose is to impose trade measures and restrictions on US global trading partners.

What are Tariff Measures?

Tariff measures are a recognised and permitted mechanism under international trade regulations. They are adopted and implemented into national legislation by participating countries in accordance with agreed trade policies.

How they are implemented globally - the legalities of the WTO

Imposing a higher tariff and/or quota restriction on specific goods and services on imports from particular countries or trading blocks is a WTO regulatory measure that is intended to protect the importing country from possible damage to its domestic markets or industries. 

Tariff measures can suddenly impact the market as they may be implemented as an emergency to defend a domestic market. Retaliatory measures can also, therefore, be implemented suddenly. 

The resulting impact on those involved in the cross-border movement of goods where the measures have been placed can be catastrophic, mainly due to the speed of implementation or where there is a lack of clarity or understanding as to how increased costs will impact an affected industry, supply chain or business.

How Trump is introducing them and why - Presidential Proclamations

There were two Presidential Proclamations relating to steel (10^th February) and Aluminium (11^th February) referencing tariffs levied on US imports.

The legal basis of a presidential proclamation is the Trade Expansion Act of 1962 (19 U.S.C. §1862, as amended), section two of which allows for any department, agency head, or “interested party” to request that Commerce investigate to determine the effect of specific imports on U.S. national security.   In both instances of the proclamation, the Secretary of Commerce is quoted as the source of the opinion that imports of steel and aluminium could threaten or impair US national security.

The interpretation of this ‘opinion’ is that imports of steel and aluminium are due to such a high influx volume that they are putting the US steel and aluminium manufacturing industry at risk of completely losing out to the competition. A consequence is that the US steel and aluminium industries would be unable to react to a national crisis where such metals would be integral to a successful outcome of any conflict. That is, the threat to the US is measurable in its impact on the US local production of enough steel and aluminium to fully support the manufacture of enough product for use in national infrastructure, but also unable to produce enough military product to support US national defence.

In his previous term in office, President Trump implemented tariffs on steel intended to bolster steel production and manufacturing in the US. These measures were largely unsuccessful, and Trump blames this lack of success on US international trading partners.

Trump asserts that the surge in global steel production has adversely affected the US steel industry and that this surge has been compounded by the actions of given countries whom Trump squarely blames for not controlling their export trade in steel into the US. 

In item 14 of the proclamation specific to steel, the President asserts that he has revisited previous proclamations and that, in his judgment, the countries named in these proclamations, namely Argentina, Australia, Brazil, Canada, EU, Japan, Mexico, South Korea and the UK, have failed to provide effective long-term alternative means to address their contribution to the threatened impairment to US National Security.

Trump effectively places the responsibility for the US steel issue directly onto these countries.

 It would be reasonable to counter that an increase in non-compliant steel imports could evidence a lack of effective compliance controls at import into the US.

The US management of its borders and specific management of steel imports, whether transhipped or where there is doubt of goods origin, should be subject to robust US border controls, as would be the case for any other trading country. 

Declaring goods ‘Origin’ is a global regulatory requirement. 

Origin is one of the three pillars of Customs compliance. Along with goods Classification and Valuation, evidence of Origin is essential to international trade mechanisms, and due diligence towards the origin of goods is crucial through the supply chain. That buck stops with the importer.

The rule of thumb is that the Importer of Record must be satisfied with importing goods, that the import is compliant with local regulations, and that any due diligence must be applied in good time before the goods move into free circulation.

The country of import must set adequate regulatory safeguards and controls at its borders. Should these controls fail, as Trump asserts, it could be argued that the onus lies with the importing country (the US) to reset its compliance standards for those imports.

There are international reporting mechanisms should the goods' Origin be incorrectly declared for a particular product, in this case, steel. There is a process for a national authority (in this case, US Customs) to make a case to the country of export that international regulation of goods Origin is being inaccurately applied. An escalation process to the WTO is available if a dispute cannot be resolved.

Evidence of the origin of the goods must be provided in the legal declaration at the border of the country of export and again on the import declaration.

There will always be businesses that do not conform to compliance standards, whether deliberately or otherwise. 

Due diligence on the part of the importer, supported by national regulations and robust compliance audits, goes a good way to prevent imports of a non-compliant origin, and national anti-dumping, countervailing and safeguard measures are all tools for a nation to implement if considered necessary. However, applying these measures should be appropriately justified to avoid trade conflict.

It is questionable whether President Trump’s measures are justifiable. The use of ‘national security’ as a reason could be considered unjustified.

How the UK manages Trade Measures

The UK has a robust process for determining whether trade measures may be required. The Trade Remedies Authority gathers pertinent data, including the sounding out industry, then delivers a recommendation to the Secretary of State, who has the authority to implement a recommended measure or return the recommendation for further investigation. There is no instant implementation of a trade measure unless the UK is placed in a position to retaliate against a measure imposed by another country. Even then, due process must be followed and justified.

Next stage in implementation into the US Tariff:

The details of the implementation of steel tariffs lie in the President’s proclamation for steel imports. The implementation date is 12^th March 2025, with the US tariff to be updated within 10 days of that date.

Item 20. (2)(a) advises that modifications to the US tariff duty rate on steel will be advised in an annexe to the proclamation to be set out in a Federal Register Notice. Moreover, it must be noted that President Trump intends to monitor the effectiveness of his actions in due course, which implies that movement in the tariff could go either way in the future. Trump is not done yet.

The proclamation for Aluminium runs in the same vein.

Trump and VAT

Value Added Tax is a consumption tax levied on all goods and services within a country. In EU member states, VAT regulations are local to each member state and VAT values vary.

President Trump argues that VAT is an indirect tax perpetrated on US imports by those countries that impose it. 

In the UK, the VAT payment on imports largely depends on the delivery term used. This determines which party in the transaction will be responsible for paying the import VAT. 

Example: An importer in the UK contracted to a DAP Incoterm® delivery into the UK would either pay the VAT themselves on import if goods were to be used within the business or could defer or postpone the VAT on import and account for the tax in accordance with VAT reporting processes. This scenario would have no 20% UK VAT payable for the US exporter.

It would, therefore, have significant implications on UK exports to the US, should the President apply an equivalent 20% levy on imports from the UK. Likewise, a UK supply chain that includes goods movement between an EU member state and the US will be impacted.

No import tax or VAT equivalent is payable on imports to the US. Instead, the US applies import duties, tariffs, or Customs fees (the UK does not employ Customs fees) on imports, and a sales tax, which could be considered the VAT equivalent, is paid later at the state level by the end consumer.

The US also employs a Merchandise Processing Fee to be charged on most imports. It is this tax that can be exempted under certain US trade agreements.

In general terms, duties, taxes, and Customs are considered business costs in the US. This may influence Trump's approach to VAT.

Other considerations:

For those with complex supply chains that include multiple cross-border movements involving imports to the US of goods captured in the new measures, it will be essential to take stock quickly.

The UK and EU use Outward Processing to enable the management of duty and VAT within the international supply chain, effectively removing duty or VAT due per each import of the cross-border movement of the supply chain. The US uses Duty Drawback to support its international supply chain movement of goods. 

However, in implementing the tariff measures on steel and aluminium, Trump has removed the ability to use duty drawbacks in relation to goods subject to the newly imposed tariff measures in the US. Therefore, goods affected by the new measures could be subject to multiple duty and import charges within a supply chain if their movement includes multiple imports into the US.

Waivers:

Affected countries may apply to the US for exemptions to the new government-level measures (so far). 

As these measures progress, requests will be made for specific waivers. 

For example, the AUKUS is an Australia/UK/US cross-border military project. It would be in the best interest of all parties to that project if an exemption were provided to support the project's cross-border goods movement. Being an international military project, increased costs would directly impact the government party to the project.

More changes to come. 

The warning is given of further steel goods captured within the measure at point 20 (5) of the proclamation relating to steel. The president confirmed that the US would consider any steel derivatives captured within the scope of the new duties within a 90-day period.

As we advance, where goods are exported for import into the US, businesses and supply chains are potentially in for a rough ride as further trade measures are both threatened and, therefore, to be expected. 

The salient point will be to pay close attention to the supply chain and any activity that includes cross-border activity with the US. The situation is fluid, quick-moving and potentially volatile. 

Useful links to US Websites

1. The White House: To receive direct updates, including those related to international trade, you can subscribe by visiting the official White House website and entering your email address.
   The White House
2. U.S. International Trade Commission (USITC): The USITC offers free email updates on various trade topics. You can subscribe by providing your email address and selecting your areas of interest on their subscription page.
   USITC
3. Office of the United States Trade Representative (USTR): The USTR provides updates on trade agreements, negotiations, and policies. To receive press releases and updates, you can subscribe through their website.
   United States Trade Representative
4. International Trade Administration (ITA): Part of the U.S. Department of Commerce, the ITA offers resources and updates on international trade. You can sign up for email updates by entering your contact information on their website.
   U.S. Department of Commerce