Tariffs & Packaging
Is any part of your product or packaging from another country? If so, you may be impacted by tariffs. The goal of this lesson is to demonstrate how to locate tariffs associated with your product and your packaging, so you can better calculate your total cost when comparing international and domestic providers. So, let's begin with a brief introduction.
What is a Tariff?
A tariff is a cost added by the government to an imported good, which can range from raw materials to finished products. And specifically, when a product is imported into a country, the government may charge a tariff to the importer, which is usually a percentage of the product's value (and that's at that time). And the importer technically pays that tariff, and these costs are usually billed to their customer, who typically increases the product price, which may happen again and again until it reaches the ultimate customer or the consumer.
So, tariffs are different from taxes. Taxes are imposed to specifically generate revenue for governments on categories of goods and services. And tariffs are applied to specific goods from specific countries or groups of countries, and have been traditionally imposed to protect domestic industries from foreign competition.
Tariffs may affect packaging. Materials, forms, and end use, like food versus non-food, can range from no tariffs at all to percentages that will significantly influence product pricing. So, let's discuss two essential tools that will enable you to become a tariff expert.
How to Identify Tariffs
First, everything purchasable has an associated code within the Harmonized Tariff Schedule. It's called the HTS. It's huge! So, start by searching for your product and your packaging components, and when you find what you're looking for, copy that 8-digit code.
And next, you'll need to insert that 8-digit code into the United States International Trade Commission, or the USITC, tariff database and make note of the following information:
NTR duty rate
Non-NTR duty rate
Date introduced
Ending effective date
Unit of quality
Binding status
And with this information in hand, you can understand how much you're paying in tariffs and then compare this to domestic suppliers who are not assessed a tariff. Let's explore an example, focused on importing 2 0z aluminum tins.
Example: HTS 7612.9010
Here is an example of comparing purchasing 10,000 2 oz aluminum tins for cosmetics that falls under HTS 7612.9010 (aluminum casks, drums and like containers, for any material other than compressed liquid or gas with cap . . .) from a US supplier (found on ULINE) and from a supplier in Shijiazhuang, China (founded on Alibaba).
You’ve heard about lower per unit costs for aluminum containers sourced from China but wanted to see how tariff costs and other costs (freight, inland transportation, port fees, packaging, etc.) could impact how good the offer is.
First you gather info on the tariff itself . . .
You identify that China is an NTR Duty Rate nation—meaning it is classified as having “Normal Trade Relations” with the United States. There is also a category for Non-NTR nations, which typically have tariffs 4–5x that of NTR nations—the four current Non-NTR nations include Russia, Cuba, North Korea, and Belarus.
Next, evaluate the cost of the units in the United States, sourced from ULINE, finding that the total cost per 10,000 units (including shipping) would be ~$10,908.33 USD. As the 3rd row indicates, since this product is made and sold in the United States, it is tariff free—making this offering more attractive than importing the same product from an NTR nation, working to aid domestic suppliers of aluminum containers and related products in remaining competitive with international competition.
Then you find a comparable product on Alibaba, from Shijiazhuang Huiqing Trading Co., ltd.—based in Shijiazhuang, China—finding that the cost per unit is only $0.25, much lower than the ULINE offering of $0.77 per unit.
You then look at that tariff cost per unit, finding that with a 5.7% tariff on the value of this good, each unit has an additional $0.01 tariff cost per unit. Meaning that for every unit of this product imported, the US company would pay an additional $0.01 USD per unit. This is used to help encourage turning to domestic suppliers for this product, as these costs can add up. As you can see, when ordering $10,000 units, this represents an additional cost of $142.50 in tariffs, which then has to be added to other costs (freight costs, port fees, inland transportation, packaging costs, and more) which is around $6,575.00, making the total cost $9,242.50.
Since you understand the variability in shipping / other costs related to importing products from China to the US, you decide to look at a Minimum Estimate ($4,450), an Actual / Median Estimate ($6,575), and a Maximum Estimate ($11,300)—the total costs are $7,042.50 (min), $9,242.50 (ave.), and $11,300 (max.). With all things considered, the product, tariff, and other costs related to importing 10,000 units from a Chinese supplier compared to a US supplier is cheaper in most cases, unless the cost estimates are in the higher range, in which the US option is slightly cheaper ($10,908.33 vs. $11,3000).
As you can see, the tariff in this case (per 10,000 units) adds an additional cost of $142.50, which aims to help keep the US suppliers competitive. When looking at the total for Min, Actual, and Max, the tariff represents 2.2%, 1.54%, and 1.26% of the total costs respectively. Keep in mind, this is with a 5.7% tariff, which could be increased if China were to be moved from NTR status to Non-NTR status or if an administration decided to impose higher tariffs on aluminum products from China.
Regardless of macroeconomic shifts, you can feel comfortable evaluating packaging alternatives by doing the steps we’ve outlined here and staying ahead of shifts that could impact your bottom line and procurement processes. We encourage you to follow these steps if you have a need to compare pricing options from suppliers around the world!
