How Trade Tariffs are fixed and what Impact Trump's Tariffs will have on the UK?
Posted on 29th April 2025 at 11:20
Trump’s tariffs, unveiled on April 2 – branded ‘’Liberation Day’’ by the US president have sent shock waves around the globe, leaving businesses around the world wondering how America’s new trade policies will affect their imports and exports. Economists are also expressing concerns over the potential for a global trade war. Before diving into the details, let’s first understand how tariffs work.
What is a Tariff?
A tariff, also referred to as ‘’duties’’ or import ‘’duties’’, is an additional tax or fee that is added to the cost of imported goods upon their arrival in the receiving country. They are paid to the local customs authorities and are mandatory for releasing goods. Tariffs are fixed based on the Harmonized System (HS) of Classification for Goods, an international standardized system for classifying traded products designed by the World Customs Organization. To ensure consistency in global trade, most countries use this regimen for their customs procedures and trade statistics. However, countries can still apply some specific modifications to the HS. The UK Global Tariff (UKGT) is a prime example. This is done to align with the economic and trade priorities of each country.
The tariff rate is often calculated as a pre-fixed percentage known as an Ad Valorem Tariff. Specific tariffs, however, can be calculated based on weight or volume, while some countries use the Compound tariff, which is a combination of Ad Valorem and Specific tariffs. These tariffs are set to protect domestic suppliers by making foreign goods more expensive, and generate tax income for the government.
Who Pays Tariffs?
Tariffs are paid either by the buyer who imports the goods or the seller who exports them, according to the Incoterms (International Commercial Terms) set by the International Chamber of Commerce (ICC). The Incoterms clarify the responsibilities of buyers and sellers in global trade, defining who bears the costs of shipping, clearing goods through customs, and any delivery-associated risks, typically under a contract.
There are 11 scenarios in the Incoterms. They are valid for all transportation modes and cover all costs, notably: loading at origin, export customs declaration, carriage to port of export, unloading of truck at the port of export, loading onto vessel/airplane at the port of export, carriage (sea/air) to port of import, insurance, unloading at port of import, loading onto truck at port of import, carriage to place of destination, import customs clearance, import duties and taxes, and unloading at destination.
In almost all scenarios, tariffs as well as clearance fees are paid by the recipient, except in the case of rule DDP (Delivered Duty Paid), where all costs fall on the shoulders of the seller.
What shippers can do to navigate the Impact of Trump's Tariffs
To navigate the impact of Trump's tariffs (or any significant trade policy changes), shippers can take several strategic and operational steps to minimise disruption and maintain profitability. Here's a breakdown of effective responses:
1. Diversify Supply Chains
Shift sourcing from countries hit with high tariffs (e.g., China) to nations with favorable trade terms (e.g., Vietnam, Mexico, India).
Nearshoring or reshoring to reduce exposure to international trade volatility and lower transportation costs.
2. Review and Reclassify Tariff Codes (HTS Codes)
Work with trade compliance experts to ensure products are correctly classified. Sometimes, small changes in classification can significantly reduce tariffs.
Explore if slight product modifications can change tariff classification and lower duties.
3. Leverage Trade Agreements
Take advantage of existing free trade agreements (e.g., USMCA, CPTPP) to reduce or eliminate tariffs when sourcing or shipping.
Monitor new agreements or changes under current administrations.
4. Use Foreign Trade Zones (FTZs)
Store, assemble, or manufacture goods in FTZs to defer, reduce, or even eliminate tariffs on certain components or products.
5. Optimize Logistics and Inventory Management
Consolidate shipments and optimize routing to reduce costs.
Increase inventory of tariffed goods ahead of policy changes (if predictable).
6. Build Strategic Partnerships
Collaborate closely with customs brokers, freight forwarders, and legal advisors to stay compliant and anticipate changes.
Join industry groups or coalitions to advocate for favorable trade policies.
7. Pass Costs Strategically
Adjust pricing models to share tariff burdens with customers when feasible, while maintaining competitiveness.
Consider value-added services to justify any price increases.
8. Stay Informed and Agile
Monitor political developments and tariff updates closely. Use scenario planning to prepare for future shifts in trade policy.
Create contingency plans for sudden policy changes, especially in politically sensitive regions or election cycles.
How can Boast help?
As a Global Freight Forwarder and Customs Broker, we can be your ally in managing the impact of these tariffs utilising our in depth knowledge of global customs regulations, freight sourcing and shipping routes.
Please Contact Us if you need require any guidance or support with overcoming the various challenges associated with Trump's new Tariffs.
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