Name: Tariffs Unpacked with Elliott Davis
Uploaded: 2025-05-06T16:11:05.981Z
Duration: 46 min 56 s
Description: Tariffs Unpacked with Elliott Davis

Transcript for "Tariffs Unpacked with Elliott Davis": What's up, Eric? How are you? Good, Casey. How are you doing? I am good. Alright. We'll give it a few minutes for people to get on. And and where are you where are you, calling in from again today? I know you're on the road. Yeah. I'm in our Charleston office this week, heading back later this afternoon. But, was in New Orleans last week and potentially DC next week? Obviously, it's a hot topic, so there's a a lot of client calls and a lot of opportunity to serve people. So it's a lot of fun. Definitely. What do you what do you have lined up in DC? So there's a trade symposium in DC next week with the national security director talking about how supply chains impact kind of national securities. That's what that is on Tuesday Wednesday. Great opportunity. Great. Well, I see there's quite a few people here already. So, if you guys can hear us, maybe if you wanna drop in the chat where you guys are where you guys are dialing in from, and we'll get started. So I know Eric's in Charleston. I'm in Southern California. We got some people in Texas calling in. Florida. Sure. We've got some people calling in from overseas. There we go. Jen, San Diego, just south of me. Natsco in Colorado. There we go. Puerto Rico, UK, Milwaukee, NorCal. Awesome. Well, Eric, thank you for joining us again. I know we've, had you on before, and, we're fortunate to be able to, you know, chat with you quite a few times throughout, you know, throughout the last few months, and, I definitely always learn a ton from our conversations. I share as much as I can internally with our teams, and you're you're definitely, a huge, a big ask for when it comes to us talking about anything publicly with with the tariffs as well. So we'll let them dive into things. Oh, there we go. We have Noel calling in from Hong Kong. So to start, just real quick, a lot of you know Shipbob is. Again, we're here to enable, you know, brands like you all to deliver a delightful customer to travel experience around the world. I see that moving on. Again, from one one platform across a hundred plus channels, d to c, b to b, marketplace, we've got 60 plus facilities around the world in, The US, Canada, UK, EU, Australia, and we are fortunate to work with some, amazing brands. Go to the next slide, please. And, again, it's really from the technology side, it's really the the full stack approach. So from the merchant application, we use all day every day. The bottom of the stack, which is our warehouse management system or or WMS, which powers everything in our four walls, whether it's our flagship facility here in SoCal close to me or it's our latest global facility out in The Netherlands. And then it's the decision engine is really the brains that connects the two. All of this sits underneath your commerce channels and on top of our logistics network. So let's dive directly into the tariff mitigation. I know that's what everybody's here for. So I I love this slide. I think it really helps break things down so clearly of just, you know, what what are the different tariffs and line items that people need to think about? How can they differ based off of the different raw materials? In this example, I know the country of origin is China for all of them, and it just really helps, I think, visualize and and show from a simple math perspective, like, you know, what is the FOB cost, like, today, and then what is the new landed cost. And so, Eric, if I can hand the mic to you, I'd love for you to talk through this with us. Then I I know we're gonna get into the definitions of what each of these means, but, please, all yours. Sure. Yeah. Thanks for having me again, Casey, and thanks for that warm welcome. This is just exemplary of probably the most impacted supply chain country of origin, which is China. And it walks through three different products being imported into The United States. The first, we have this stainless steel water bottle. Right? You know, we sell these all the time, right, in The United States. The vast majority of them are still produced in China. So it's a really helpful example for us to understand how tariffs stack. So the first thing you have to understand is that every product that crosses the border has a, harmonized tariff schedule of The United States code. That's called the most favored nation code or the permanent normal trade relations status code. That's basically, organized into chapters by the World Customs Organization, which has, say, a 86 members, almost 200 members. Right? That's the baseline tariff rate, and that is specific to the product that's gonna cross the border. That code is you can think of it as the, like, product passport to get in and out of borders. Right? And the World Customs Organization publishes the harmonized portion of the tariff code. That is the first six digits of any tariff code are the same anywhere in the world for for most trading partners for those 200 nations. Right? Those first six digits are all the same. That's the harmonized portion. The last four digits, the last two or four digits, depending on the country that you're in, are governed by the destination country into which you're importing. So in The United States, that's the US ITC, and those last four digits are the subheading and the statistical analysis of the product that's actually crossing the border, and that's where you get your duty rate. So in this particular example, this water bottle is coming in at one or 2%, two or 3% duty rate for that tariff code that's listed there. But in this instance, what we're talking about in the news is not that baseline tariff rate. We're talking about the layers of tariffs that have been stacked on top of that baseline tariff rate due to the presidential policies. So congress has the right to impose additional tariffs on top of that baseline rate, but they've delegated that responsibility in large part to our executive branch. And so the president has several statute guys at his disposal. We'll talk about those in a minute. But they all stack on top of one another. So the first one that was imposed was way back in the first Trump administration, and it was called section three zero one. And that was imposed in 2017. It went into effect in 2018, and that's related to unfair trade practices in The US. And the there are four big lists of commodities that are impacted. So if your tariff code falls into one of those lists, you're gonna be impacted anywhere between seven and a half and 100%. When they were first imposed, it was between seven and a half and 25%, and then the Biden administration sort of doubled down on those and certain tariff codes were impacted at a greater percentage all the way up to a %. The next is section two thirty two, which is related to national security. This impacted largely during the first Trump administration steel and aluminum, and that current rate is at 25%. And the next and since this is a stainless steel water bottle, it's impacted by that section two thirty two steel and aluminum tariff. The next was imposed by president Trump shortly after taking office, and we call these the AIPA border tariffs, the northern border and southern border as well as the Chinese tariff on issues related to a national emergency around fentanyl and illegal immigration. So we originally imposed a 25% tariff on Canada and Mexico and a 10% tariff on China. That 10% tariff on China about a month later was increased to 20%. We call these the IEPAA border tariffs, and we'll kind of define what IEPAA is in just a minute. And then lastly, we have the Liberation Day announcement, as we like to call it in US, where it was all the reciprocal tariff rates that were published. And 57 different countries were listed in that annex that received, a rate above the 10% baseline. And then China was originally hit with 34%, then it went to 84%, then we landed on 125%. And we delayed the reciprocal tariffs for all the other 57 nations and brought those down to a 10% baseline. So that delay now is gonna go on until July 9. So in this water bottle example, you can see here that it's getting impacted by the normal tariff rate. It is not impacted by section three zero one, but it is impacted by the IEP of border tariff, by the section two thirty two tariff on steel and aluminum. And it would have been impacted by the reciprocal tariff at a 25%, but there's an exemption in that particular executive order in the federal register notice that says, if you are impacted by section two thirty two, then the reciprocal tariff does not apply. So you can see that that one's crossed out. So you have this item that originally may have been, you know, a couple of dollars imported to US is now, you know, nearly doubled in cost due to these tariffs. The the second example is like a car air freshener, and it is impacted by its normal tariff rate as well as section three zero one, the IEP the border rate and the IEPA reciprocal rate, and you can see that it's gone all the way up to almost 22¢ an item now. And then the last one is probably the biggest impact because apparel footwear and textiles already have really high normal tariff rates. This polyester shirt has a 32% tariff rate for just its regular baseline rate, but it's impacted by section three zero one. It's impacted by the AIPA border tariffs at 20% from China, and it's impacted by the reciprocal rate at a 25%. So what used to cost just, you know, $6 FOB or something is now almost $18 to get into the country. That's before you add in cost of insurance and freight. So this is really inflationary for certain types of commodities. So this little slide here gives you a really good understanding of how the tariffs stack, how they impact certain industries more than others, and how it impacts China very greatly because the the baseline of these stacking tariffs for China is the IAEPA border at 20% plus the reciprocal at a 25%. So when you hear in the news that everyone's saying, well, the the tariff rate on China is a 45%, that's where they're getting that number. Very helpful. And I I know we're getting some questions in the comments, which we'll we'll get to in a second. But, if you can talk through I know a lot of this is around the tariffs. De minimis is obviously very, very top of mind for a lot of brands and is getting a lot of news because of the impact of, you know, marketplaces like Timu and Sheen. The normal tariff rate let's let's go to your polyester polo shirt example. The normal tariff rate here is at 32%. And so if you can talk through us with you know, this is if you are importing directly from China into The US and then selling here. What was how were people utilizing de minimis, with in regards to this normal tariff rate? What a great question. So, the de minimis rule essentially says that, when you import something into The United States and the total value of that shipment per shipment per day per importer is if it's less than $800, then it can enter the country duty free. So online marketplaces are the the biggest impact in The US. Think about, Shein and Temu and Amazon Marketplace. Anyone shipping directly from an overseas factory or seller into The United States to a consumer and it's less than $800, technically, the consumer is the importer of record. And so per day, you have an $800 limit. And so as long as the value of your shipment was less than $800, it would receive duty free treatment. And the reason behind that was it was simply too difficult to enforce. Right? We don't wanna be putting a nominal tariff rate on low value goods entering the country. It would be too much. The cost of collecting the duty would have been more than the duty itself, so it didn't make a whole lot of sense. But with the birth of online marketplaces selling direct from factory to consumers in The United States or direct from an exporter to consumers in The United States, those the shipment volume went from, like, a few hundred thousand packages a day to 4,000,000 packages a day. So trying to collect we're we're kind of losing out on a ton of revenue by not collecting that. And also, it was being used as a way to circumvent the tariff impositions upon products entering The US. And so as of May 2, that is now gone away for China and Hong Kong and Macau. So if you're gonna import directly from China, Hong Kong, or Macau, you no longer can qualify for the de minimis exemption. Thank you for this. And this explains a lot why there were certain, types of businesses or categories or product lines that were very, very focused on de minimis and section three two one. Because in this example, I know that there's other costs included, like freight and insurance. In this example, you know, to sell this this shirt, it would cost you $6 if you, you know, utilize section three two one, versus in The US. If if you ship it here, you'd have to pay that that normal tariff rate even before all of these changes. But now you have to, plus all of this tariff stacking, which nearly three x is the cost of the good. Yes. Exactly right. So, you know, online marketplaces were selling a lot of apparel and textiles and a lot of consumer products into The US under the de minimis rule because it's, you know, there's a website, a consumer logs on, they buy something from China, they're willing to wait a week or two for the product to get here, and it comes in in the de minimis value under $800, and they paid no duty, not even the normal tariff rate. So now that has gone away, and there are mechanisms to collect those duties even on low value shipments that are less than $800. It's gonna slow down commerce. It's gonna require duties to be paid and collected. I I heard an announcement yesterday that Temu decided to stop shipping to The US while they try to figure this out because they can't process the duty payments. And it's it's gonna be a struggle to have value into The US from China, Hong Kong, and Macau. Now, technically, for the rest of the world, de minimis is still available until we work through some of the duty collection mechanisms. But I think that's likely going well. If your if your strategy is to import into The US using a section three twenty one or or type 86 entry, it that is gonna go away. So I would make a shift. That was gonna be a question of mine. Again, you don't have a crystal ball, but you've been into this for a very long time and are very close to it. You mentioned you're you're heading up to DC next week. You you know, there are other countries that are, you know, very popular with a lot of our our brands and customers, you know, such as Vietnam and India and elsewhere. If you had to guess and it seems like from some of the, from the comments from Lutnick and others, it seems like three two one is is gonna be no longer once they get the mechanisms in place. So it's it's not a an if, but most likely a one. Would you say that's that statement's true? Yes. 100%. And if you look at most of the parcel carriers, small parcel carriers like UPS, FedEx, DHL, all these small package carriers, they already have online mechanisms to collect duties. So when you fill out your paperwork, your commercial invoice, your shipping label, you have to put in commodity descriptions. You have to put in tariff codes. They can collect their duties through their commerce platform. The the hang up here is really the postal service because they don't have that mechanism yet, but that's just a matter of time. Right? It exists. Other people are doing it very well. Now the postal service just needs their tech to kind of get up to speed so that we could collect or or customs and border protections tech to kinda get up to speed. But that's that's not gonna take too long in my opinion. Yeah. Okay. We you mentioned things slowing down, which we'll get to in a second. We're getting a bunch of great questions. So I wanna I wanna dive into those while we have them here. So Yeah. Here's the question we get all the time. A a variation of this question is from Sasha. And so the question was, okay. I'll I might reword it slightly, but if you and I think this is actually really helpful too because you think of the manufacturing cost versus the sales cost and and, I guess, what you're tariffed off of. And so if you sell a product from The UK to The US, but the product is produced from China, then maybe block that in in in their example, it's cotton cap. But can you talk us through, like, what is how is that treated once it's imported in The US? Sasha, great question. I get this a lot. So in The United States, Customs And Border Protection is tasked with enforcing cross border movements and shipments, and they're concerned with primarily three enforcement mechanisms. The first is country of origin, and that's really where your question, resides. The second is the harmonized tariff classification. What is the actual commodity crossing the border? And the third is what we what we like to call, valuation, customs appraisal value so that we make sure we're collecting the correct amount of duties based on the value of the item that crosses the border. Country of origin is not country of export. Those are different. So in your scenario, the origin of the product that was manufactured was China. The country exporting to The US was The UK. Well, when that product hits the domestic port in The United States, the declaration of country of origin would be China, not The UK. The country of origin is related to where the product was manufactured in what we call substantial transformation. Where did that product take all of its raw material components and substantially transform into a new item that is then going to be sold? Where did that substantial transformation give the item its essential character for end use in commerce? That would be the country of origin. So in your instance, it's it's China who manufactured the hat. And, yes, it was transshipped into The UK and then sold into The United States, but the country of origin remains China. But but let's say it was we we can use a similar example to what you have here, on the polyester shirt. Let's say it costs $6 to manufacture that good or the FOB cost was $6, but then they sold it for $50. Are they like, how are they tariffed in that regards? Is it off the original manufacturing cost? That's a great question. It kinda leads to one of the solutions we could talk about. So that gets to the customs valuation, the appraisal value of the item crossing the border. Generally, we use transaction value to communicate the appraisal value. So whatever the commercial invoice is, customs will use that onwards to apply duties. However, there are rules like the first sale for export rule that allows you to go upstream and use the first sale of that garment as the appraisal value upon which to pay your duties. So that the first sale between the manufacturer and the vendor or the manufacturer and the reseller, That can be used as your customs declaration value or the appraisal value of that item into US commerce, but you have to follow certain criteria. It has to be a bona fide sale. It has to be an arm's length transaction, not between related parties generally. It can be a related party, but the burden of proof is a lot higher. It has to be destined for The US market, and it has to be, you have to keep records for five years that justify the value of that item. So it it gets a little complicated, but it is a it's a great way to lower your dutiable burden into The US market. Thank you for that. And, again, if you get the follow ups to that, please drop them in the comments. So question from Michael. So you talked about how, again, the the whole to simplify it, de minimis or three two one was put into effect because, again, it it costs more for you know, to do all the work on the tariffs than it did to collect it because digital commerce and the marketplaces were not really here or even close to the scale that they're at today. Now they've got the mechanisms in place, and it's it's a massive business to say the least. So now they're imposing you know, the CBP is imposing a lot of rules and regulations and documentation and everything like that. How will this affect, you know, the the cost of of shipping containers? And, you know, will we do you think we'll experience lay off some pullbacks at the docks? We're already hearing a lot of stories of what's happening overseas in China in particular, but how do you see that impacting things here in The United States? So it's gonna massively change routings. It already has. If you look at ocean carriers, they've changed their routings, fewer sailings from China origin ports to US ports. And they're they're routing some of those ships to Vietnam, India, Bangladesh. They're changing their routings and service offerings. That's gonna continue, until there's a deal. And I do anticipate there being a deal at some point, but it's gonna be after this ninety day window where we are dealing with these bilateral trade agreements with all the other nations in the world that we said you're gonna receive this reciprocal tariff. The reason for that is all of those other nations are also gonna put pressure on China. The real issue here was the sort of impact of of Chinese capacity to produce artificially low priced goods into consumer markets around the world. China is somewhat imperialistic. So instead of using military conflict in their imperialistic endeavors, they used economic conflict. And the way they did that was using their massive industrial base to push subsidized low value even forced labor goods into the rest of the world where the rest of the world cannot compete with that manufacturing capacity or price. And so, you know, someone did need to do something because in this regard, China was going against the World Trade Organization's rules and policies to be a member of that and to facilitate global trade, and they were using it to monopolize certain product categories around the world. So I agree with the premise that something needed to be done about that artificially lowering the value of goods through currency manipulation, forced labor, and some other nefarious trade practices. We could argue that the tone of what's happening maybe is not helpful, but I do think it is going to produce conversations about rightsizing global trade for the rest of the world. This could also have a benefit for the rest of the world as well as a hindrance. So we kinda have to watch it very closely. The McKinsey Institute did a great study on the volume of trade that has changed using sort of restrictive trade policy since 2018, and they used 2022 as the baseline. In 2022, global trade between eastern and western nations was about 15% of total trade. If the current trajectory continues, they estimate in the financial model. It's just a model, but it's a pretty good one, using trade data and the the shift in trade since 2022. They estimate that by 2035, the volume of global trade between Eastern and western nations will drop to 2%. And the volume between US and China is almost nonexistent at that point. That's not too far off. 2035 is, you know, ten year a ten year outlook here. That's fascinating. And, yeah, if we can get that link, we'd love to share it with the group here. So I'll I'll get to a question from Jamie in a second, but, this a question from Jeff, which is, I think in the the realm of what you were talking about again, we'll put on the the crystal ball guessing. Again, nobody nobody's sure things could change today for all we know. But, you know, the administration's working on, like, let's call it, evening the playing field with reciprocal tariffs. Do you have if you had to guess, you know, how long this will take with our main trading partners, What is what does that look like? Because, you know, we're hearing about a lot of the conversations that are happening between a lot of these nations. Last time we spoke, even, you know, the the prime minister of Italy met directly with, with the Trump administration even though she and Italy fall underneath the European Union. You know, if you if you had to make some some guesses, where do you think things will fall out in the nearest term? Well, I, like everyone, wish we had a crystal ball. Yes. And I can I I can kinda give you my opinion on what I think will happen? And I think in large part, reciprocal tariff is a bit of a misnomer because the actual rates, if you look at it I'm gonna overgeneralize here, but The US charges, like, 2.7% on imports, and the rest of the world charges nearly six and a half percent. Right? So, yes, it's a little bit lopsided. But the reality is each country has their own industrial base, and they can produce certain types of products that benefit the world. The US wants to consume a subset of those products that we need that they can produce better than we can. So there should be some sort of imbalance just because of the industrial base, perhaps what's in the soil that they have in their soil. We don't have in our soil, so we have to trade to obtain it. Right? That's a healthy imbalance. What we are talking about is what we like to call tariff and non tariff trade barriers. There are some quite unfair non tariff trade barriers that restrict goods made in The US from accessing global markets elsewhere. And that's what this administration is attempting to fix. I think the challenge becomes in the bilateral trade agreements that, you know, we gave ourselves this ninety day window to have these negotiations. There's about sixty five days left. Right? It's very complicated to negotiate a trade agreement with a with one particular country. And if any of you have have read the USTR's national trade estimate report that came out, like, a week or a few days before Liberation Day. Jameson Grier published the national trade estimate. And if you read that report, it can be read as the reasoning for imposing the reciprocal tariffs because it outlines a lot of our top trading partners and the challenges of doing commerce between the nations and some of the tariff and non tariff trade barriers that exist. So when you look at negotiating a bilateral trade agreement well, let's take India, for instance. Their industrial base produces a lot of great products that The United States could benefit from, and they produce it in a more competitive environment than we can, and our consumers want to buy it. But at the same time, we produce a lot of agriculture products and a lot of energy products that they need, but they're buying from someone else. And they're buying from people who are kind of doing some pretty horrible things around the world. For instance, they buy a lot of energy products from Russia, who is also imperialistic and obviously wants to take over the Ukraine and other nations. Right? And so what we would like to do is leverage our selling market to obtain certain non trade results. We're using tariffs to stoke the fires of diplomacy, to do some things that are not even related to trade, and this is a new world. This has not been done before. And so when you get down to trying to negotiate, what can we import from India, what can they import from us, and how can we sort of balance that trade deficit? We're gonna layer on things in that negotiation, like, don't trade as much with China. And if you want our military support, we want you to reduce that trade deficit. Well, you're almost buying our military support at that point. So I do think that's gonna happen, and the USTR said that they would address six nations a week over the next three weeks. That's only 18 trade deals if they can get it done. Apparently, we're close with India. We're close with Japan. Canada's flying in today to have a conversation in DC with the president. So we'll see how these evolve over the next sixty five days. But it is going to reshape the decisions you need to make as an importer on where you produce and procure your goods if they have an industrial base that can satisfy your product category. Well, I'm glad you call it India and Canada and some other countries. I I think we'll skip forward in a second to the actually, yeah, let's skip forward to the best cost country slide. I know we have so much in here that we're not gonna be able to cover and we're already out of time. I think we'll go a little bit over. Before we dive into this slide, the question from Jamie, which I'm sure is the top of my priority. Is there a site you recommend to best, calculate duties, taxes, and tariffs using the HTS? So there are a number of tools that you need to have as an importer of record in The United States. There's no site. There's no magic bullet for you calculating your tariffs, but you as the importer of record are responsible for what's called reasonable care. It's a doctrine as an importer that basically says, if you import, you have to demonstrate reasonable care by providing customs and border protection, correct, and accurate information on country of origin, tariff classification, and valuation. And if you don't have that skill set inside your organization, you need to hire somebody like my firm or a trade lawyer or somebody to help you calculate your tariff exposure. This is one such slide that kind of shows you how the tariff stack based on which laws and statutes are impacting your country of origin, and it allows you to kind of evaluate the calculus of doing business in a certain manufacturing origin to a certain selling country, in this case, The United States. But we could look at Germany or the EU or anywhere else in the world. You need to understand how tariffs work. So the first thing is to harmonize tariff schedule of The United States. The first six digits are governed by the World Customs Organization. And there's a, you know, an online link, for the HTS US. We can provide it for everybody. But that's your starting point. All the commodities are grouped into a, a chapter based on the type of material and product and its functional end use. Chapters one through 97 basically are your your product categories or commodities. And then chapters 98, 90 nine have different stipulations related to them. Chapter 99 is where you get all of these additional tariffs being levied. So when they impose the IEPO reciprocal tariffs, they published new chapter 99 codes that layer on top of any of the previous chapters. K? That's the harmonized tariff schedule of The United States. The second is any new executive orders that are imposed. So go to whitehouse.gov and read all of the executive orders, which are then followed by a federal registered notice. So for those of you who are working in this space, do not make supply chain's decisions based on truth social posts or tweets or x notification, anything like that. Once the federal register notice is published, that's when you have to really understand what you're doing because that's the final rule. And then following the federal register notice, customs has been very helpful because they're tasked with enforcing that new rule, and customs will publish what they call a guidance for importers. And you can read through the customs guidance on how they're gonna enforce that rule and sort of they they publish customs, they it they're it's called cargo systems messaging service, and they will publish guidance for you through that system messaging service on how they're gonna collect all these duties and taxes. Thank you for that. And then the last question before we dive into this slide, and then I know we're we've got about nine more minutes left at the most. So from Yuki and you've kinda answered this before, but I know brands are are trying to get creative in how they navigate the tariffs in the near term and the midterm and the long term. But so from cargo, origin is China. But it's sent as a small parcel, let's say, under 800 USD, from Southeast Asia, a hub like Malaysia or Singapore, let's say, into The US. And so, Yuki, if you wanna clarify, please go for it. Will the duty still be applied? I think you answered this earlier. It's all country of origin. Unless there's been major changes made to it, it is still assumed to be from China, and it'll be tariffed just like in your example. But if you can talk through that a little bit. Yeah. So it it's a country of manufacturer's China. If substantial transformation occurred in China, and then you ship to another country and there's no substantial transformation happening there, like the item didn't change, the essential character of the item didn't change, then the country of origin will still be China. However, if you import a bunch of raw materials into a third country, and then they're substantially transformed into a new item with a tariff shift, a new tariff code applied to it because you substantially transform the essential character of that item, then the country of origin is gonna be that third country. Right? So it really depends on the manufacturing process as to whether or not the country of origin is China or some third country. But if you're just shipping a product from China to Malaysia with no value being added, no substantial transformation, and then shipping to The US, country of origin will be China. Yeah. Okay. Because I I keep hearing stories and and talking to others that are seeing brands, you know, trying to get creative on basically just shipping it from China to a nearby country and then trying to utilize de minimis or or other ways to get around, you know, the the higher tariff rate or de minimis in general. And and then there, you can get massive penalties and potentially completely tank your business with no no way to call back. Good. A great point, Casey. Let me real quick say, please do not do that. Okay? Because recently and there are some open lawsuits right now. The federal government has made it very clear that if you attempt to fraudulently bring goods into the country, they will not only hit you with the civil penalties as the import of record of negligence, gross negligence, or fraud, but they can now come after you using the False Claims Act, which is a criminal penalty. So please be please be careful and do not take advice from people who are not trade professionals, who are advising you to tranship something or try to cross the border under de minimis through Mexico. You will get caught. And if you do, the penalties are much steeper. So a question that we are getting all the time is, you know, how can I approach shifting away from Chinese manufacturing partners, and what are the realistic timelines and the risks? But I think a lot of it starts with the math to really see, well, where should how should I even evaluate this? What is the current impact from China, you know, at the initial cost level versus the new landed cost? There's a lot of different variables to take into consideration. So So can you please help us think through in this example, you know, you're evaluating essentially China versus Mexico versus Vietnam. Yeah. So at Elliott Davis, we group solutions into three buckets, the short term, the medium range plans, and the long term plans. K? In the short term, it's all about cash flow. You have to understand your new land and cost. You have to understand that if you have multiple manufacturing environments, which one is the best cost country for you to produce that that product or that commodity. In this example, we have the very the exact same article can be produced in three different countries, all being impacted differently under the new tariff regime and how the tariffs are stacking. Okay? And so in this instance, you can see China here. It's normal tariff rate for this item is free, but it's getting hit with section three zero one. It's getting hit with IUPAC. It's getting hit with section two thirty two, but it's not gonna be impacted by the reciprocal because section two thirty two applies. So what was, you know, 30 some cents an item is now almost 65¢ an item. In Mexico, the very same article can be you know, it's duty free as well, but then there's no section three zero one. There is a border IEPA tariff of 25% and a section two thirty two IEPA tariff. I I had section two thirty two tariff at 25%. But what happened since this slide was published was an exemption for goods that are covered under the USMCA free trade agreement. So that needs to be part of the calculus. If your goods are eligible for duty free treatment under one of our free trade agreements, some of these tariffs do not apply. So the IAEPA border tariff and the IAEPA reciprocal tariff do not apply to this item because it's USMCA eligible. K? Then you look at Vietnam. Again, the normal rate is free. Section three zero one does not apply because it's not China. The IAEPA reciprocal tariff right now is down to 10% baseline, and the two thirty two would still apply because it's steel and aluminum products. So we're talking 25% here. But you can see best cost country, is a very complicated calculus right now. And you have to have a really good understanding of how the tariff stack as well as any exemptions that might be available to you. Each one of those tariff impositions, three zero one, two 30 two, IEPA border, IEPA reciprocal, they all have their own rules, and they all have their own opportunities for exemptions. Some of them do not have opportunities for exemptions. There's no annex published listing certain tariff codes that are exempt from the tariff, but some do. A couple weeks ago, I was on a call with one of our clients who was producing some product in India right after the reciprocal tariffs were announced. And in real time, we were able to pull up the annex of listed exemptions, and thank god one of their products was exempt. So the the at the time, there was gonna be a, I think, 46% tariff coming out of Vietnam. And they were not gonna be impacted by that because, they were exempt. It was since reduced to 10%. But you have to have a really good understanding of each statute and how it applies to your specific country of origin and your specific commodity or your tariff code. So I would love to run through an example like this in the future too of, you know, if we swapped out the, you know, the the threaded studs for, you know, something like carbon steel that might be exempted with, you know, maybe the example of, like, the polyester or cotton goods or maybe, like, some plastic goods. Because I think something top of mind for a lot of brands too is, in this example, there there there's the exemption. But with the reciprocal tariff and again, TBD on what those will look like in thirty days or sixty days, especially on, July 9, where China right now, the reciprocal tariff is at 125%. Everybody else is sitting at 10, but, you know, we don't know what will happen with Vietnam. And I believe Mexico is still at 25%. Correct? They were not Mexico and Canada were not part of the ninety day pause? They were not, but they have the USMCA eligibility rule. So, yes, there's a 25% border IUPA tariff, right, on Canada and Mexico. But if your goods qualify for duty free treatment under the rules of origin for the free trade agreement, then it won't apply. So that would drop to zero. In this case, we're saying it's not eligible for duty free treatment for one reason or another, so it does apply 25%. But if it was vertically produced or the regional value content between The US and Mexico was enough to qualify for the USMCA fleet trade agreement, then it would be entered at 0% duty. Awesome. And so I know we have less than two minutes left. So I'll try with one more question there. Thank you so much as always, and thank you for going over. This is immensely helpful. I know people will be banging on the door to to have you back. But, as as companies shift or maybe potentially shift sourcing from China to elsewhere in Southeast Asia or or around the world, do you expect capacity constraints and rising prices, in the Chinese region? Like, what do you think will happen maybe in the next year or a couple years in China? Yes. Let's take, let's so there are factories closing in China. There are factories who have received massive amounts of cancellations of orders that were already at work. So the goods are just bottlenecked at either warehouses or factories or foreign ports where orders were just canceled and ships aren't sailing. That's a real thing. So China has capacity, open capacity without any orders. That's a massive problem for them right now. In the rest of the world, let's take apparel, footwear, and textiles, for example. Vietnam is full. A lot of the production has shifted from China to Vietnam, Bangladesh. A lot of production for certain polyester performance knits, which can be sourced in the Western Hemisphere, are being produced in the CAFTA Doctor region, which is a free trade agreement with, you know, Central America free trade agreement and Dominican Republic. And so those, they are full. I spoke with one factory two weeks ago who cannot find enough sellers to keep up with the volume of orders they've received in CAFTA Doctor because there's a free trade agreement, and there's a 10% tariff, which is very low compared to China. So we're we're seeing capacity constraints start to unfold, which gives them a seller's market. Right? They can they can charge more because they're full. So it is inflationary on that level as well. They're gonna make more margin points because their orders are full and they've got a waiting list. Right? Amazing. Eric, thank you so much. Again, people, please keep the questions coming. You can follow-up with, our emails. Keep sending us more. We'll keep seeding them in advance to help shape what we present here. Any last words, Eric? Where can people find you, and Elliott Davis? Yeah. So thank you very much. I think my contact information is with the deck. If you guys are gonna get a copy of the recording, if not, we can email it out to everyone. But my email is eric dot hargrave, just like my name on the screen, at elliott davis dot com. Elliot has two l's and two t's. If you have questions, please feel free to reach out to me directly. Happy to help. We didn't have a ton of time today, but I'm really happy to be here. Happy to help you all. If you have questions, feel free to reach out. Thank you much. Oh, good to know. Thank you, Eric. Bye, everybody. Bye, guys.