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You may read the title of this blog post and think I came up with it myself. But I didn’t. In fact, the slogan “Made in China 2025” has been China’s slogan since May of 2015- ten years ago!
In fact, I wrote an article entitled, “Understanding Tariffs in a Global Economy” that was published in MBNews in February, 2019. Seeing where it is 2025 and the US has shifted back to implementing Chinese tariffs, I thought it appropriate to share a portion of the article.
The information I shared back then is important to help you navigate the tariffs now.
Understanding Tariffs in a Global Economy
Published in MBNews February 2019, written by Alison Raymer
Made in China 2025 is a strategic plan that was enacted by Chinese Premier Li Keqiang and his cabinet in May of 2015. This plan is commonly known as “China 2025” and, oddly enough, is not discussed in depth by North American media.
As monument builders who are members of an industry that may be impacted by China 2025, it is important that we understand what it is, how it impacts us, and how it could impact our future monument marketplace. To do such, we must understand the economics.
Chinese Economics
It is important to note, for those who may not be as clear on their Chinese history and/or politics, that The People’s Republic of China is governed by the Communist Party of China. Since making economic reforms in 1978, China has enjoyed one of the world’s fastest-growing economies by nominal GDP, and it is the world’s largest exporter of goods and the second largest importer of goods.
Back in 2015, China made official their desire to be the world’s largest manufacturer of design, software, and manufacturing, targeting a combination of high-tech sectors and infrastructure. It is a lot to accomplish, and doing such will involve multiple steps, including acquiring and protecting Intellectual Property (IP) rights, not a past strength of their economy.
China has made significant changes since 2015 in how they do business, and they have a firm grasp on the steps they need to take to meet their goal. For instance, more and more privately-owned companies (as opposed to state-owned) are emerging and competing quite aggressively in the marketplace.
Of course, anyone who is keeping up with the news understands that President Trump is attempting to thwart China’s strategic plan by placing into effect the Section 301 tariffs. Many have dubbed this as “The Trade War.”
Section 301 Tariffs
As with most political issues today, there is a lot of misinformation out there regarding Section 301 tariffs. The goal of this article is to help explain how they work and how it impacts you as a member of the monument industry.
As of January 1 of 2019, the incremental US tariff on imported monument goods from China will increase from 10 percent to 25 percent. So, in summary, the total tariff after January 1, 2019, will be roughly 29 percent.
The Office of the US Trade Representative (USTR) identified sectors that would be impacted by China 2025, and determined that the best way to thwart their strategic plan and protect US trade interests would be to impose additional tariffs on specified imported goods. In the course of identifying which goods would be tariffed, the USTR held hearings and took into consideration testimonies regarding the Section 301 tariffs. It was ultimately determined granites would be tariffed.
Navigation Impact
How will the tariffs impact you? Probably in a few different ways– some good and some not so good. It’s important that you consider all information in this article and elsewhere, and make your own conclusions on how this situation could strategically impact your business.
- It is important for monument retailers to know that the tariffs are charged on your importer’s cost. When an importer brings a container into the US, it is accompanied by an invoice and a bill of lading. The tariff is charged on that invoice at the time of entry.
- It is important for you to understand that, while the tariffs do entice companies to either do business domestically or find another country of origin to import from, it can also have a price, supply, and demand effect. This is basic economics, and should not be ignored as you consider your supply chain strategy.
- It is important to realize that, if a price/supply/demand impact takes place, it can open up the market for foreign competitors to compete with you. You must remain cognizant of that.
As you can see from this article, which is very basic in detail and the level of information provided, there are many layers of concern regarding the Section 301 tariffs. In combination with a more aggressive Made in China 2025, it has become an important part of our doing business.
It is important for all members of MBNA to understand the “how and why” behind the tariffs in order to strategically navigate their companies. If not, you could easily fall victim to undesired results.
Please seek the advise of your tax and/or legal counsel accordingly. Operating in North America in a successful manner may depend upon it.
Same Story, Different Year
Looking back at that article, I realize most of the information is the same. But there is one key piece of information I want to expand upon here- how tariffs are calculated. Understanding this key piece of information will potentially save you hundreds- if not thousands- of dollars!
Why Tariff Calculation Matters
In 2018, when the trade war had initially begun, I occasionally purchased a small number of imports from a supplier whom I will not name (you’ll see why as you keep reading).
When the tariffs hit at the incremental 25%, this particular supplier attempted to charge an additional 25% of their published stone price in the name of tariffs. That meant, if the price book price was $100, they attempted to charged me $125. Whoa!!
If you know me, you know that that arrangement was simply not going to work.
At the time I understood something they didn’t expect me to- how the tariffs were calculated. Because I understood the calculation, I knew the supplier was WAY overcharging for “tariffs”. In fact, this supplier was attempting to maximize their profits by capitalizing on the idea that monument builders didn’t understand tariffs and would simply pay the additional fee. And that wasn’t okay with me!
So what did I do?
I called the supplier, explained I would not be padding their pockets in the name of tariffs and exposed their scheme. Their response to me was that they didn’t think anyone would understand the calculations and were surprised I did.
Seriously…they thought we wouldn’t understand because we didn’t engage in importing. They thought they could capitalize on a lack of understanding and they were wrong!
As a result, I didn’t pay the additional tariffs. However, many companies did.
Don’t be that company! Here is what you need to know.
How Tariffs are Calculated
When a supplier imports product, the tariffs are calculated by U.S. Customs based on the invoice total. Not the invoice plus freight bill…just on the invoice! So, if the total invoice amount coming into the United States is $10,000, then the 25% China tariff is an added $2,500.
Let’s break this down.
Consider a 2-0x1-0x0-4 flat marker. Let’s say the importer cost for that marker, per the import invoice, is $15. (remember, this is just the invoice cost- not freight and other import related charges).
Let’s say that same 2-0x1-0x0-4 flat marker sells to retailers for $100. Keep in mind, the supplier already figures in their granite, freight, tariffs and profit margin into that $100. So the additional tariff charge is on top of whatever has been figured into their price.
When this article was written, in 2018, the Chinese tariff was 4%. It was then bumped up to 25%. The original 4% tariff of $0.60 was already covered in the supplier’s price. The added 21% tariff would be $3.15.
In this example, I would expect the supplier to charge the $3.15 to me for tariffs, which was the added 21%. However, I did NOT expect them to charge $25.
In my case, where the supplier tried to charge an additional 25% of the product list price, the supplier would have recognized a profit of $21.25 in the name of tariffs on this one flat marker.
How to Avoid Over-Paying Tariffs
If you are concerned your supplier is over-inflating the tariffs on pieces you purchase, negotiate with them. How? With data, of course!
To determine a reasonable tariff amount, determine what is the average price of the material you are purchasing. Then calculate the tariff and see how it compares to the supplier. If the supplier is within reason of your calculated tariff, you are good. However, if the supplier is not within reason, you need to share your calculation with them and compare it to their tariff charge. Request an explanation for the large difference and, if the explanation is unsatisfactory, explain that you will not unnecessarily pad their pockets in “the name of tariffs”.
Where We Are With Tariffs
Now that you have read the entire article and information within, you realize it doesn’t discuss today’s tariffs. However, it does offer valuable insight and information for you to use in your business. Please check the current tariffs before adjusting your prices and do not rely on the percentages I used in my examples.
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