What risk and compliance issues can trade tariffs create?
Trade tariffs are a known focal point of the new administration. Tariffs are taxes that a country imposes on certain imported goods, increasing their costs for domestic buyers, making it harder for foreign companies to compete within a country’s economy.
In response to U.S. tariffs on trading partners, many affected countries have imposed reciprocal tariffs—tariffs on imports from a country that has levied tariffs on their goods.
These measures impact U.S. companies operating in affected markets, whether through sourcing materials or selling products. Many U.S.-based companies, unfamiliar with tariffs and their associated risks or compliance challenges, now face the complexities of navigating these trade policies.
Key Risk and Compliance Issues Related to Trade Tariffs?
- Complex customs procedures – Companies who source products from outside the US should be familiar with custom procedures, however, with the additional tariffs imposed, these procedures could have changed; additional steps may have been added, additional payments may need to be completed before the product can be released.
- Higher cost of doing business – The imposed tariffs could make sourcing goods or doing business outside of the United States more expensive for companies. Failure to account for this additional cost will affect the company’s profit.
- Noncompliance with the tariff – Noncompliance with the tariff could be costly for a company and could attract unwanted attention from regulators and/or the federal government.
- Tariff classification – Tariffs apply to specific classifications of goods, and misclassification can disrupt sourcing or lead to unexpected cost increases. Companies should assess whether their products or supplies are subject to these tariffs to mitigate potential risks.
- Supply chain disruptions – Companies may choose to adjust their supply chain to reduce the higher cost associated with a tariff, however, an adjustment in their supply chain can be costly and take time to implement.
How Can Companies Reduce Risk and Ensure Compliance?
- Understand the tariff and how it effects their company – Companies should understand which tariffs can/will impact their business, where in the supply chain they will impact, and how the tariff will impact their business.
- Establish compliance procedures for all applicable tariffs – Once a company understands the basics of the tariff, developing internal controls/procedures to address the tariff can help reduce the risk of noncompliance to the tariff and help maintain efficiencies within their shipping/receiving process.
- Leverage trade associations – Engaging with the experts can help a company develop their plan for tariff compliance and how the tariff will impact their company.
- Monitor for regulatory changes – If the early months of 2025 are any indication, the tariff landscape can change rapidly. Implementing a monitoring process to track current and potential tariffs will help companies stay ahead of changes and allow more time to plan for compliance.
Implementing internal controls and procedures for tariffs can significantly mitigate the risk of non-compliance and potential tariff impacts. This proactive approach can greatly benefit a company, enhancing its position in the global market.
If you have any questions about the risk and compliance issues related to trade tariffs or any other industry factors, contact our team at [email protected].
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