In recent months, there has been increased media attention on the potential introduction of trade tariffs, particularly those imposed by the current United States administration.
This has raised important questions for businesses engaged in international trade, including what trade tariffs are, how they operate, and the potential impact they may have on exporting goods to certain countries and territories.
What is a trade tariff?
A trade tariff is a tax levied on imported goods as they cross a country’s customs border. The tariff is payable at the point of entry, with the applicable rate determined by internationally recognised product classification codes.
The imposition of a tariff increases the landed cost of goods in the importing country. This can discourage foreign suppliers from exporting to that market and is often intended to protect domestic industries by making locally produced goods more price-competitive.
What is the impact of trade tariffs?
The introduction of trade tariffs can have several material consequences for businesses involved in cross-border trade, including:
- Reduced export demand: As tariffs increase the end cost of goods, foreign suppliers may experience reduced demand and a loss of market share, making certain export markets less commercially viable.
- Increased costs: Importers bear the immediate financial impact of tariffs at the border, resulting in higher landed costs, reduced profit margins, and additional administrative complexity within the supply chain.
- Retaliatory trade measures: Tariffs can prompt reciprocal action from affected countries, leading to escalating trade restrictions. This can increase market volatility and make pricing, forecasting and operational planning more uncertain.
How could high trade tariffs affect your business?
From a financial perspective, trade tariffs increase the cost of goods sold by effectively adding a tax component to exported products entering the affected territory.
Given the fluctuating nature of US trade tariff policy, it is prudent for businesses to undertake scenario planning to assess potential outcomes and ensure they are adequately prepared for any financial or operational impacts.
