Secondary tariffs have introduced a layer of complexity for trade compliance professionals and importers. These additional duties not only target imports from specific countries but also penalize third-party entities trading with U.S.-sanctioned nations. To effectively manage these challenges, businesses must understand secondary Harmonized Tariff Schedule (HTS) codes, their practical applications, and how to classify products accurately.
This blog breaks down everything you need to know, offering actionable steps to protect your business from unnecessary costs while ensuring compliance.
What are secondary tariffs?
Secondary tariffs are trade enforcement measures imposed by the U.S. government. Unlike primary tariffs targeting imports from a specific country, secondary tariffs penalize goods from third-party countries trading with nations under U.S. sanctions. For example, if a country imports oil from Venezuela, the U.S. may impose a flat-rate tariff (e.g., 25%) on all goods imported from that country, regardless of their origin.
What is the purpose of secondary tariffs?
The purpose of secondary tariffs is to amplify the effectiveness of U.S. sanctions by discouraging countries from trading with regimes deemed problematic by the U.S. government. By applying economic pressure, secondary tariffs aim to drive broader global compliance with U.S. foreign policy objectives.
How are secondary tariffs applied?
Secondary tariffs are typically implemented via executive orders at a flat rate. These tariffs apply uniformly across all imports from targeted third-party countries, regardless of the specific goods involved.
Impact on the global economy
The effects of secondary tariffs extend beyond the targeted nation. They impact other countries that depend on trade with it. This ripple effect can lead to higher consumer prices, decreased international investment, and heightened tensions in diplomatic relations.
Real-world implications for businesses
For businesses, secondary tariffs introduce several challenges. Here’s what you need to consider:
Risk assessment
Evaluate your supply chains for potential exposure to secondary tariffs. This is especially critical if any suppliers operate in countries that conduct trade with U.S.-sanctioned nations.
Contractual safeguards
Update contracts with clauses that address the potential cost impact of secondary tariffs. Ensure clear responsibilities and options for renegotiation or termination.
Monitoring and compliance
Establish robust systems to track changes in U.S. sanctions and tariff policies. This enables timely adjustments to procurement and sourcing strategies.
How to classify products with secondary HTS codes
A crucial step for managing tariff exposure lies in accurate classification using both primary and secondary HTS codes. Incorrect classifications can lead to compliance violations or unnecessary tariff payments, so precise application is critical.
1. Review and update primary HTS codes
Ensure that primary product classifications accurately represent each item’s nature, composition, and intended use. Mistakes can result in non-compliance or costly penalties.
2. Apply secondary HTS codes
Assign secondary HTS codes based on special tariff measures. Examples include:
- Section 301: Additional duties on Chinese-origin goods (e.g., 9903.88.xx).
- Section 232: Tariffs on steel/aluminum and derivative products (e.g., 9903.81.91).
- Section 201: Safeguards targeting specific industries, such as solar panels (e.g., 9904.xx.xx).
- IEEPA-based Reciprocal Tariffs: Duties aimed at addressing trade imbalances, such as those with Vietnam or India (e.g., 9903.01.63).
- Additional Indicators: Quota-related codes and exclusions tied to special circumstances.
3. Integrate quota indicators and exclusion data
Ensure proper classification when quotas or exemptions apply, reflecting accurate trade allowances.
Tools and resources
Software solutions
Trade compliance platforms like E2open streamline classification and tariff assessments and can automatically recommend accurate primary and secondary HTS codes.
Expert guidance
Professional consultants with expertise in tariff compliance offer tailored, accurate solutions and can help your company avoid costly errors.
Key takeaways: A checklist for compliance
To ensure a smooth classification process, follow these best practices:
- Document everything: Maintain comprehensive records of product composition and country-of-origin details.
- Prepare for audits: Be ready to provide bills of materials (BOMs), certificates of origin, and other documents proving the accuracy of classifications.
- Update continuously: Monitor regular updates to HTS codes and tariff regulations to stay compliant.
- Leverage trade compliance technology: Invest in tools that help you stay updated on regulatory changes.
Final thoughts
Secondary tariffs and HTS codes are reshaping global trade, presenting challenges that demand proactive management. Accurate product classification and robust compliance systems are not optional; they are essential to manage financial risks and maintain operational efficiency.
With the right tools and processes in place, businesses can navigate this ever-changing trade landscape with confidence. Keep an eye on the trends outlined here, stay up to date on regulatory changes, and prioritize compliance to ensure success in today’s global market. Happy trading!
For a deeper understanding of secondary HTS codes and actionable strategies to manage tariff compliance, download our comprehensive white paper: Navigating the New U.S. Import Tariff Landscape. Or, feel free to contact us!
