Understanding Tariffs, HTS Codes & Import Costs — Simplified for Entrepreneurs By Austin Indian Women in Business (AIWB)Featuring Insights from: Uma Vajapeyazula and Phani Vajapeyazula | “Trade Talks

Featuring Insights from: Uma Vajapeyazula and Phani Vajapeyazula | “Trade Talks for Entrepreneurs” Podcast Series

Understanding Tariffs and Their Impact on Small Businesses

"Tariffs are essentially taxes or duties added by the government on imported goods as they cross borders."

• Governments impose tariffs as a form of taxation on goods imported from other countries. When a product is imported, the government may add a tariff to ensure that imported items do not undercut local businesses, creating a balance in the marketplace.

• For example, if a small business imports a part worth $100, the government may impose a tariff, raising the total cost to $150 if the tariff rate is 50%. This additional cost must be factored into the business's pricing strategy.

"The primary reasons for implementing tariffs are to balance trade and protect local industries."

• The primary goals of tariffs are twofold: to balance trade between countries and to protect local industries by making imported goods more expensive. This is intended to encourage consumers to purchase domestically produced products, thus supporting local businesses and maintaining economic stability.

• Under current trade policies, tariffs may also be used strategically to discourage trade practices that the government views as harmful, such as those involving certain countries that are perceived to undermine economic or geopolitical interests.

Who Ultimately Pays the Tariff?

"The importer of record is responsible for paying the tariff."

• The responsibility for paying tariffs falls to the importer of record, which can be either the supplier or the business that receives and resells the imported goods. If a supplier in another country is the importer of record, they will pay the tariff, but if a business chooses to act as the importer, they will incur these costs.

• For instance, if a small business imports a product and pays a tariff of 50%, they may choose to absorb this cost or share it with their customers by adjusting retail prices. This decision will ultimately impact the pricing strategy of the small business.

"The decision on how to pass tariffs onto consumers varies based on business dynamics."

• Small business owners face challenges in deciding how to manage the added costs of tariffs. They might either absorb the costs themselves, which can impact profit margins, or pass on the costs to customers in the price of the product.

• The choice made by the business owner will depend on market conditions, customer acceptance of price increases, and overall business objectives.

Differentiation Between Personal and Business Imports

"Differentiating between personal and business shipments is crucial in understanding tariff applications."

• Understanding how tariffs apply to personal versus business imports is essential for small business owners. Tariff regulations can vary significantly based on whether a shipment is classified as commercial or non-commercial.

• Small businesses need to be aware of the tariff limits and thresholds that may apply to their specific situation, particularly when importing goods for resale from international suppliers.

"Different countries have their own specific tariff regulations that must be understood by importers."

• Each country has its own set of tariffs based on various factors like the nature of the goods and their respective trade agreements. Business owners must familiarize themselves with the regulations applicable to the countries they are importing from to effectively navigate import costs.

Understanding Tariffs and Import Costs

"Knowing where you are importing from is important."

• Importing goods from various countries such as China, Indonesia, or South America will involve varying tariffs and costs. Business owners must determine the source of their imports to understand the specific tariffs that apply. This knowledge not only helps in assessing the right amount of tariffs due but also informs pricing strategies when reselling products.

• When dealing with suppliers, one must inquire whether tariffs are already included in the purchase price. If so, understanding how these tariffs influence the final cost to the consumer is vital for maintaining profit margins.

Pricing Strategies Amid Rising Costs

"Are you the importer paying the tariffs, or are you buying from a supplier who has already paid the tariff?"

• Business owners face tough decisions on pricing when tariffs increase. They can either pass the entire additional cost onto customers, absorb some costs to maintain competitive pricing, or analyze market conditions to ensure their pricing does not disadvantage them against competitors.

• Decisions regarding price adjustments should carefully consider market competitiveness, as raising prices without justification can lead to loss of customers who may find alternatives elsewhere.

Evaluating Supplier Costs and Tariffs

"Be clear in trying to understand on what basis you are paying the tariff."

• Business owners should scrutinize their supplier's pricing to ensure it reflects the actual cost of goods. This includes asking questions about how suppliers declare costs and whether there are opportunities to minimize tariffs, such as negotiating upfront payments that prevent tariffs from being applied to service costs.

• It's essential to understand that tariff rates vary based on the country of origin and the type of goods. Therefore, evaluating different sources and their associated costs can be a strategy to mitigate tariff impacts.

Importance of HTS Codes

"HTS codes are very important for scrutinizing what's being imported."

• HTS codes, or Harmonized Tariff Schedule codes, are crucial for accurately identifying products for tariff classifications. These codes determine the specific tariff rate that a product incurs based on its material and type. Misclassification can lead to unexpected additional costs.

• Business owners must ensure their suppliers accurately utilize HTS codes, as this affects the calculation of tariffs and could impact profitability.

Changes in Import Regulations and Tariffs

"The de minimis rule, which previously exempted imports valued under $800 from tariffs, has now been removed."

• As of August 29th, the previously established de minimis rule for importing goods has been abolished. This rule allowed small businesses to avoid tariffs on goods valued under $800, creating a significant distinction between small and large business importing practices.

• Now, all imports will be subject to tariffs regardless of their declared value, emphasizing the importance of understanding the tariffs based on the declared value of goods, the country of origin, and the appropriate HTS (Harmonized Tariff Schedule) codes.

• If a supplier fails to provide necessary information like the country of origin or the HTS code, customs officials may assess tariffs at the highest possible rate.

Importance of Detailed Declarations

"You need to disclose items in detail; you can't just say 'textile' anymore."

• Entrepreneurs must ensure that their suppliers accurately detail the contents of shipments prior to shipping. General terms are no longer sufficient; for instance, rather than simply indicating 'textile,' suppliers should specify fabric compositions, such as a blend of cotton and silk.

• This necessity for detail extends to the use of HTS codes, ensuring that each item is classified correctly to avoid increased costs or delays.

Distinctions Between Personal and Business Imports

"Personal imports are less scrutinized and exempt from many tariffs due to lower volumes."

• Distinguishing between personal and business imports is crucial, as personal items are typically subjected to less scrutiny than business imports. Personal imports are likely to be viewed as one-time or low-frequency purchases.

• Businesses engaged in frequent importing could face heightened inspection and should anticipate additional inquiries regarding their import practices.

Increased Scrutiny on Packages

"Anticipate more scrutiny at customs than before, as existing protocols may change."

• Due to recent regulatory changes, customs are likely to enhance scrutiny over all imported packages. This could result in random inspections and more frequent demands for documentation.

• The heightened scrutiny may generate delays in package clearances, leading to uncertainty among business owners about the reasons behind these hold-ups. Even if past practices had been successful, they may no longer suffice under new regulations.

Understanding Import Procedures and Tariffs

"There are a lot of processing and delays that you have to expect in the customs importing process."

• The process of importing goods, especially for small businesses, can be complex and may require the assistance of a customs broker or consultant. Entrepreneurs should familiarize themselves with the procedures, including understanding HTS codes, which categorize products for tariff assessment.

• It's important to prepare clear documentation as this makes it easier for customs agents to process imports, reducing the likelihood of delays. Engaging with professional brokers can help ensure that the correct amount and type of documentation is provided.

The Role of HTS Codes in Tariff Assessment

"Taking help from professional brokers can be really helpful to figure out exactly what the supplier should disclose."

• HTS codes are crucial for determining the tariffs that apply to specific products. Large businesses often navigate these codes more efficiently than small companies, but even they must adapt to changes in tariff scrutiny.

• For example, specifying how much of a product is made from materials like aluminum or steel can significantly affect the tariff rate applied. Accurate declarations from suppliers are essential to avoid unexpected costs.

Practical Steps for Importing Goods

"You have to know the HTS code to understand how the tariff rates change."

• Small business owners should utilize online resources to search for the appropriate HTS codes for their products. By entering product descriptions, entrepreneurs can find out the specific tariffs that will apply based on their country's origin.

• It’s crucial that the value of goods and the HTS code come directly from the supplier to avoid errors and ensure compliance with customs regulations. Variations in HTS codes can lead to significant differences in tariff rates applied.

Understanding Tariff Rates and Supplier Decisions

"If I were a business owner, I would look at this tariff rate and understand it first."

• Business owners must analyze tariff rates when deciding between suppliers from different countries. For example, if sourcing the same product from both India and Bangladesh, a business owner should compare the tariff rates applicable to each country.

• If the tariff for a product from Bangladesh is lower than that from India, it may be beneficial to shift focus to the Bangladeshi supplier. The decision should also consider the reliability of suppliers and their pricing, as well as the overall landed cost of the product.

• Conducting this kind of analysis allows business owners to optimize their supply chain effectively.

Resource Availability and Timing for Businesses

"This is a very good resource to understand very from the basics and everything."

• For small business owners, especially during busy seasons, it is recommended to utilize available resources for understanding tariff and import regulations without seeking immediate specialist advice.

• Instead of diving deep into complex legal guidance, users can leverage free online tools to grasp the foundational information necessary for making informed decisions.

• As the conversation indicates, time constraints often prevent immediate exploration of expert resources, but there's value in reaching out to specialists when the business cycle allows for it.

Changes in Tariff Rates

"These numbers keep updating, and the tariffs for India used to be 25% and now have changed to 50%."

• Tariff rates are not static; they frequently change based on new regulations and international trade policies. An example provided highlighted that the tariff rate for imports from India had decreased from 25% to 50%.

• Additionally, unique tariffs are in place for commodities such as aluminum, steel, and copper if those materials are not sourced from the U.S. This signifies the importance of knowing not just the general tariff rates, but also any specific provisions that may apply to certain materials within a product.

Importance of Accurate Documentation

"The default is based on the HTS code that your supplier is going to declare or select."

• Accurate documentation and proper HTS codes are essential for all shipments. If a shipment contains multiple types of goods, it’s vital for suppliers to declare the correct codes to avoid issues with customs.

• Business owners should foster open discussions with suppliers about the documentation they provide. Ensuring that invoices are comprehensive and legitimate can help in maintaining compliance and minimizing potential delays in shipping.

• Questions regarding mixed package contents and compliance with regulations should be addressed proactively to ensure a smooth import process.

Challenges with Multiple Vendors

"If three vendors are giving the right documentation and one is not, what are the implications?"

• When working with various vendors, discrepancies in invoices can arise. If most invoices are complete while one is lacking essential information, it can complicate the documentation process.

• Importers need to be vigilant about maintaining clear records that are easy to trace back to each vendor. This manages potential scrutiny from customs authorities regarding the accuracy of the declared products.

• The relationship between accurate invoicing and taxes highlights the importance of maintaining full, detailed records for any product being imported.

Due Diligence in International Shipping

"Due diligence is essential when engaging with suppliers to mitigate risks and streamline the shipping process."

• When purchasing from foreign businesses, especially small ones, performing due diligence is critical. This involves ensuring that your supplier can provide all necessary shipping documentation and maintains proper records of receipts and invoices.

• If you're relying on a friend or helper in another country, it's wise to ask them to handle the paperwork and communications with the shipper. This includes informing the shipper about the contents of the shipment, as certain items, like medicines and gold, may have shipping restrictions.

• A clear dialogue between the buyer and the shipper helps facilitate a better understanding of what is permissible to ship and the required documentation.

Importance of Proper Documentation

"Keeping thorough records reduces the risk of delays and complications with your shipments."

• Proper documentation is vital for ensuring that shipments pass through customs without issue. This includes having copies of invoices, receipts, and any required declarations for taxes and tariffs.

• Notably, tariffs can significantly impact the cost of importation. Business owners should account for these added costs in their budgeting and pricing strategies to avoid financial surprises.

• It is recommended to consult with a tax professional when dealing with taxes related to imports to ensure compliance and understanding of what constitutes taxable expenses.

Tariff Awareness and Strategic Sourcing

"Understanding tariffs and sourcing decisions can significantly influence your overall business profitability."

• Entrepreneurs need to be aware of the real costs associated with tariffs and plan for potential increases. It’s suggested to budget for additional expenses, potentially setting aside 10%-20% to cover unforeseen costs.

• As tariffs vary by country, exploring alternative sourcing options from regions with lower tariffs, like Bangladesh, could be beneficial.

• It is critical for suppliers, particularly in India, to adapt to changing tariff landscapes. This may involve assessing whether value addition processes can be shifted to lower-tariff countries without compromising product quality.

Adaptation Strategies from Suppliers

"Suppliers who adapt quickly to tariff changes safeguard their revenues and maintain competitiveness."

• Suppliers in regions affected by high tariffs, such as India, need to consider innovative strategies similar to those adopted by Chinese suppliers in response to tariffs.

• This might involve relocating some manufacturing processes or value addition to countries with lower tariffs, or re-evaluating logistics strategies to minimize costs associated with shipping.

• Adapting operations quickly can help maintain competitiveness in the market, avoiding losses in revenue due to high shipping costs.

Understanding the Impact of HTS Codes and Tariffs on Business

"This is a game changer for me right now to understand this concept."

• An entrepreneur expresses gratitude for the informative insights received on HTS codes and tariffs. Their newfound understanding is crucial as they navigate the complexities of international trade and related costs.

• The entrepreneur acknowledges the overwhelming amount of inquiries they receive daily and recognizes the necessity of fostering expert discussions, such as hosting a Zoom call, to further clarify these concepts for their community.

Community Engagement and Knowledge Sharing

"We're really glad that you're doing this for your community."

• Acknowledgment is given to the effort made by individuals who are actively sharing knowledge within their community. Such initiatives enable business owners, especially those who operate independently, to benefit from shared insights.

• Plans are made to create and disseminate engaging content, including blog posts, to enhance understanding and interaction among community members about crucial business topics.

Guests / Speakers Profile:

🎙️ Uma Vajapeyazula

Market Strategy Director | Cummins Inc.Uma Vajapeyazula is a global business leader with over 18 years of experience in marketing, product strategy, and clean energy innovation at Cummins. With an Executive MBA from Kelley School of Business and a Six Sigma Black Belt, she’s known for simplifying complex business challenges into clear, actionable strategies that empower entrepreneurs and organizations to grow confidently.

🎙️ Phani Vajapeyazula

Senior Director of Procurement – New Product Development | Cummins Inc.Phani Vajapeyazula is an accomplished procurement and business strategy leader with nearly two decades at Cummins. He specializes in global sourcing, new product development, and cost optimization, combining technical expertise and analytical insight to help businesses make smarter sourcing and supply chain decisions in a changing global trade environment.