Fun & Games with Tariffs

There has been a lot of chatter about tariffs recently, some of that involving political debate and arguments. Let’s put all politics aside, and for the moment, take a practical, and even almost humorous, look at tariffs.

Firstly, let’s make it perfectly clear – tariffs are a form of a sales tax. No obfuscating language will change that. When a product comes into this country (is imported from another country), and it is subject to a tariff, what might come into this country at a cost of say $100, if there is a 10% tariff, now is entering this country at a cost of $110. There is no way around it – that $10 is going to be paid by the ultimate user/consumer. One way or another, that tax (tariff) will get passed on to whoever ultimately is going to be buying that item.

There is something called the “Harmonized Tariff Schedule” which is used to classify imported merchandise for various purposes, including determining duties and for statistical purposes. This Schedule is split into 22 sections and 99 chapters – you get the idea, this is pretty complicated. Before even getting to the first section, that Schedule includes about 900 pages of notes and rules for interpretation. And you thought the Tax Code was complicated. There are some truly fascinating nuggets you can learn from this Tariff Schedule. For instance:

• Under the US/Mexico/Canada Agreement, pigments classified under headings 3206 or 3212, are disregarded in determining the origin of the goods classified under headings 3207 through 3215, except for any such pigments or materials based on titanium dioxide.

• Imported meat or edible offal of turkeys that is not cut in pieces, frozen, and valued at less than 88 cents per kilogram, is taxed at 8.8 cents per kilogram; but, if the value is 88 cents or more per kilogram, it is taxed at 10%.

•  As to the preceding, if it’s not cut in pieces and is fresh or chilled rather than frozen, then it is taxed at 15 cents per kilogram, regardless of valuation. That is, unless it is covered by one of 17 separate trade agreements, in which case it is free. Well, not really free, but no tariff.

• But wait, it gets better. Imported knitted or crocheted fabrics of a width not exceeding 30 centimeters, that contain by weight 5% or more of elastomeric yarn, but no rubber thread (other than those in category 6001), and that are made of cotton, are taxed at 8.8%. However, those made of other materials are taxed at 8%. Let’s not stop there. For cotton, there are 14 separate trade agreements that remove the tariff. For other materials, there are 15 agreements.

I think you would agree with me that it would be a hoot to have any politician (forget which side you’re on) debate the efficacy of the tariff system.