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Will the China Tariffs Impact Your Holiday Sales? Here’s How to Apply for Exclusion
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According to the National Retail Federation (NRF), e-commerce sales are slated to increase between 11% and 14% this holiday season. Interestingly, 79% of consumers surveyed by NRF in September cited they are concerned that tariffs will cause prices to rise, potentially impacting their holiday shopping experience.
The longtime trade war between China and the U.S. has weighty implications for brands and retailers operating on Amazon, particularly as the highly anticipated holiday season approaches. In 2018, President Donald Trump imposed several rounds of tariffs outlined below:
- July 6 on $34 billion worth of goods
- Aug. 23 on $16 billion worth of goods
- Sept. 24 on $200 billion worth of goods
More than a year later, the Trump administration has now granted temporary tariff exemptions to more than 400 types of products that were impacted, such as Christmas lights, dog leashes, single-cup coffee filters, and plastic straws. The impetus for the exemptions has to do with the more than 1,100 exclusion requests made by companies in the U.S., according to documents from the Office of the U.S. Trade Representative (USTR).
On Sept. 1, 2019, the latest round of tariffs on Chinese imports went into effect on about $112 billion worth of Chinese imports. The 15% taxes apply to products such as apparel, shoes, diapers, electronics, sporting goods, and other consumer products that are highly sought after as holiday gifts. As a result of the tariffs, many U.S. companies, including those who operate on Amazon, are faced with a crucial decision: to pass on the higher prices to their customers or absorb the costs to remain competitive, which will ultimately lower their margins.
According to CNBC, with that round of tariffs in place, 87% of textiles and clothing from China and more than half (52%) of shoes will be subject to import taxes. An additional tariff increase of 5% — bringing them from 25% to 30% — was slated for Oct. 15, but has since been delayed after successful negotiations in Washington D.C. in the days leading up to the targeted increase. As a result of the negotiation, China agreed to buy between $40 and $50 billion in U.S. farm products.
The 15% tariffs on $160 billion worth of goods for “round two” are still scheduled to go into effect on Dec. 15, during the height of the holiday shopping season — and are estimated to cost the average U.S. household $1,000 a year. Products that will be impacted include cell phones, consumer electronics, laptops, toys, and clothing.
How to Apply for Tariff Exclusion
With customer centricity front of mind for brands and retailers, particularly those on Amazon, many are seeking approaches to limit the impact of these tariffs on their consumers. Given that Q4 would be a tricky time of year to switch suppliers to a new source outside of China — given that the process is immensely time-consuming – many are applying for tariff exclusion.
At the AMZ Innovate conference in New York City in early September, Ambassador David Adelman presented on the Trump administration’s tariffs and the product exclusion process. If your business is affected, the USTR provides a limited window after each released list of product lines affected by new Section 301 tariffs for companies to submit product exclusion requests. Here are the steps you must follow for the exclusion process:
1. Submit the requests via the USTR exclusions portal.
2. Include data on your expenditures and sales in connection with the Chinese-origin import. The data may be filed as protected from public disclosure.
3. You must address and explain whether:
- A comparable product can be sourced domestically or from a non-Chinese supplier
- You have attempted to procure the product from outside of China
- The tariffs will cause “severe economic harm” to your company or other U.S. interests
- The product is “strategically important or related to” Chinese industrial programs
Any tariff exemption on the product(s), if granted, will be valid for one year after the notice of the exclusion is published. According to David Adelman, interested parties are allowed to publicly respond in support of or opposition to your request on the USTR exclusions portal.
The USTR evaluates each request on an individual basis and takes into account whether the exclusion would “undermine the objective of the Section 301 investigation.” Applicants who had already paid the additional tariffs and are eligible for exemption can apply for a refund of the tariffs within six months after the release of the exemption list.
The ongoing trade disputes between the U.S. and China will not only impact consumers with increased prices this holiday season, but set high stakes for brands and retailers who need to decide how they are going to handle the tariffs. Given that the USTR has demonstrated a willingness to grand tariff exclusions, that is certainly one route worth exploring.