Preparing for Potential Tariff Increases and Associated Fraud Risks

Donald Trump has now been inaugurated to his second term as President of the United States. Over the past few months, there have been many comments made by the administration about President Trump’s proposed trade policy and the imposition of additional and/or increased tariffs on imported goods. There is not yet certainty of if or when this might happen. While tariffs were not a part of the executive orders signed on the first day of Trump’s new term, customs brokers and importers should still be prepared to mitigate potential disruptions and financial impacts that increased duties could bring. This overview will detail the proposed tariffs that may be imposed, what you can do to prepare, and what Avalon is doing to help support you in the upcoming weeks.

Types of Tariffs That May Be Imposed:

• • Section 122 of the Trade Act of 1974: Allows the President to impose an additional 15% tariff on imports for 150 days against countries with a "large and serious" balance-of-payment surplus with the U.S. Countries like China could potentially be subject to this tariff.
  • Section 201 of the Trade Act of 1974: This provision allows domestic industries seriously injured or threatened by increased imports to petition for import relief. It does not require the finding of an unfair trade practice. Section 201 tariffs are currently in place on solar cells and modules.
  • Section 232 of the Trade Expansion Act of 1962: The President can impose tariffs on imports that threaten national security. Currently, Section 232 tariffs are in place on imports of steel and aluminum from certain countries.
  • Section 301 of the Trade Act of 1974: These tariffs address unfair trade practices by foreign countries. The President can initiate an investigation and respond to practices that adversely affect U.S. commerce. This action was used in the previous Trump administration to impose tariffs on imports from China and the European Union.
  • Section 338 of the Tariff Act of 1930: Enables the President to impose additional tariffs up to 50% on any country that discriminates against U.S. products.

How You Can Prepare

1. Stay Informed

Regularly monitor updates on proposed tariff changes. Subscribe to industry newsletters, government announcements, and trade publications to stay ahead of potential regulatory shifts and encourage your clients to do the same.

2. Review Import Data with Clients

If, and when new or higher tariffs are announced, review your client’s import data with them to get a clear picture of the financial impact the increases could have on their business. Verify that the imported goods are accurately classified under the HTS. Importers also need to be on alert for signs that goods may have been illegally transshipped. Ensuring accurate classification, valuation, and country of origin will help determine if the goods are subject to proposed increases and identify potential duty-saving strategies. A data review can also identify areas where importers can implement changes such as using bonded warehouses or Foreign Trade Zones (FTZs) to provide deferrals and/or other cost-savings on certain goods.

3. Be Responsive to Surety Insufficiency Communications

High volumes of bond insufficiencies could be issued; therefore, it is imperative to respond to surety communications. Timely responses ensure smoother processing and can avoid costly delays.

4. Proper Bond Forecasting

It is important that brokers help their importers to forecast duties, tax and fees for the next 12 months of activity. Customs only reviews bond sufficiency on a rolling 12-month retroactive basis (i.e. the last 12 months of activity). The increased bond amounts required in insufficiency letters from CBP will not contemplate additional tariffs that an importer may be subject to over the next 12 months. Simply increasing to the minimum bond amount required by Customs at the time of the insufficiency letter may result in a bond repeatedly being rendered insufficient. Having open exposure in multiple bonds periods will cause a stacking liability exposure for the importer and the surety.

5. Know Your Importer

Importer vetting is crucial, particularly given the rise in companies that temporarily establish operations to import goods, only to then shut down and create new entities to evade duty payment. This practice is often seen with merchandise subject to antidumping (AD) and countervailing (CV) duties. It is best practice to confirm the following information:

• • Are they incorporated in the U.S.?
  • Do they have a physical address, or is it a mailbox center?
  • Do they use a U.S. bank?
  • Request a copy of the owner’s passport, driver’s license or state identification
  • Run a credit check

6. Look for Red Flags

Here are some examples of potential signs of suspicious or fraudulent importer activity:

• • Bond requests from newly established importers who then subsequently have other filers handle the entries
  • Importers moving between sureties due to claims issues.
  • Bond requests from freight forwarders who may not have proper importer vetting procedures in place

7. Review CBP and PGA Updates

Staying informed about new CBP and PGA updates helps you stay aware of current issues impacting the industry. For instance, the FDA recently issued Import Alert 98-07, which reinforces that any unauthorized e-cigarette product imported into the United States may be subject to detention without physical examination and refused admission by FDA. This could lead some bad actors to mis-classify products to evade CBP and FDA scrutiny.

8. Use Merlin Bond Tools

Our Merlin portal has Bond Sufficiency email notifications that allow you to receive automatic emails once a bond hits a certain threshold. If you are not currently receiving these emails, we encourage you to log into Merlin to set them up. Consider setting the threshold to 50% to address any bond sufficiency issues early.

What Avalon is Doing to Prepare

We are enhancing our online educational resources to provide better support to our clients. Be on the lookout for upcoming webinars covering key topics such as bond stacking and utilization of Merlin tools. Our Customs Bond Calculator is readily available to help you determine appropriate bond amounts.

Avalon representatives are available to discuss the impact of increased tariffs as well as essential insurance coverages such as Errors and Omissions Insurance, Regulatory Defense and Trade Credit Insurance that are essential for logistics professionals in this ever-changing trade environment. If you have any questions, don’t hesitate to contact us – we’re here and ready to assist you.