Emergency News Alert – 25% Tariffs on Mexico, Canada, and China

Machine Operated Script:

Annik  

Hello and welcome to the simply trade news roundup. My name is Anik. I’ll be your host today, and this is an emergency episode that we want to get out. Today is March 4, and at midnight, Trump has had announced a tariffs on Mexico, China and Canada that went to effect this midnight. So people are kind of scrambling. We also have seen retaliatory tariffs, which we’ll go over during this episode, and kind of giving you an outlook on what’s happening, what you what you should know, what you should expect. You know, consumers, how are they affected? Businesses? How are they affected? Kind of giving you a rundown about what is happening right now and how you can navigate throughout this time. And obviously, I’m not alone, because I won’t give you the run. I won’t give you the exact rundown. I have a specialist here with me, Cindy De Leon, which she is a former CBP import auditor and owner of the Leon trade consulting Cindy, thank you so much for coming on this late notice. I know we like COVID up yesterday. We’re like, please come in. We need someone to talk on this. We need this for our listeners. So thank you so much. I also want to say hi to one of our well hosts, usually who hosts the regular show, Lalo. So thank you so much, Sydney. And thank you, Lalo, for coming on today.

My pleasure. Thank you for having me. All right. So

Annik  

I would say we’ll go straight into what is happening. So there’s been announced 25% on Canada and Mexico, with some exceptions, we can talk on this, and then the 10% additional tariffs on China. Cindy, what is this saying about the industry right now? How are people reacting? And what are you seeing?

Cindy DeLeon 

I think everybody is in shock. I think a lot of people didn’t think it was actually going to happen. And I think everyone is scrambling to figure out what to do. There are a lot of questions. I have been getting constant questions from clients on, you know, what does this mean? What does this mean for usmca, do we think this is going to last? What do we do? How do I get around these tear of some and so I think everyone’s in a feeding frenzy right now and just really trying to mitigate the impact.

Annik  

Yeah. So there is a few I saw. There’s an exception with the what was it energy, right? So energy is kind of reduced by 10% so I believe there’s only 15% of tariffs on energy. Did you? Did you see that? No,

Cindy DeLeon 

actually, no, I’m not sure that’s correct. I have to go back and reread but I don’t, I don’t know that there is an exception on energy. I think it’s straight across, but I can go back and look at that as well.

Lalo  

And Cindy, let me also cut in here, because let’s start with how these additional tariffs are going to be imposed. And also kind of like, let’s start dispelling a little bit of the not rumors, because they’re not rumors, just the confusion, because that’s more what it is we talked earlier off air. But let’s go there, where these additional terrorists were imposed by the President, without having to go through any congressional you know, formalities under the the emergency. You said it so that that’s what gives him the ability to be able to do this. But there’s still the normal business of trade and tariffs and everything that is going on in the background. So can we start there? Cindy, so that people can understand what’s going what why? Why are these additional tariffs there, and how it affects your normal business of what you would normally be doing?

Cindy DeLeon 

Yeah, I think people need to understand that there are a lot of different types of tariffs, duties and fees, right? So there are your regular ad valorem duties, so you look up your tariff number in the Harmonized Tariff Schedule, there is a duty rate that is an ad valorem duty, right? And you can claim usmca Still. Usmca hasn’t gone away, okay? So if you’re making a usmca claim, you would still have 0% duty. You would still be exempt from merchandise processing fees. What happens now is, under IEEPA, there is an additional 25% IEEPA tariff, and so you would still pay the 25% for goods that are country of origin, Mexico or Canada. China is even more complex, right? And I don’t know if you want to go into China, because with China, you have. Of ad valorem. You’ve got section 301 then you’ve got IEEPA. And so you still have your ad valorem duty. You still have your 25% section 301, duty. Then Trump started with a 10% IEEPA, additional China duty. And then, as of today, we have an additional 10% for a total of 45% when you combine 301, and I bought you’re talking about 45% plus your ad valorem duties. Add, add to that, if you’re in steel or aluminum, you could have section 232, duties as well. So, so this is really just this compounding duty. I think, I think IEEPA is really interesting. Because, you know, you’ve heard, I asked myself, Why? Why is Trump doing this? What’s the end game in all this? I try to look beyond just what’s at face value. And he has to keep drumming his fentanyl drum, right? Because that’s, that’s what gives him the ability to use IEEPA is, is the the national security threat, right? Which is the fentanyl threat? Um, interestingly enough, Mexico hasn’t announced any retaliatory, uh, duties yet, which is very interesting. And I think we should look at the psychology beyond that a little bit. I think President sheinbaum mentioned that she has another conversation scheduled with Trump later this week, I believe maybe Thursday, and then she has another press conference, and she’s assembling her governors on Sunday. So I think the Mexican government is still trying to be very diplomatic in their response to this, in hopes that they’re able to bring resolution to the issue, which many of us believe will hopefully go away within a 30 day or less time frame and

Annik  

that, and that’s so interesting because it I would have expected the opposite. You know, Canada was really quick to say, All right, well, we’re doing the same thing. It’s going to be 25% and we’ve talked to a lot of people from Canada and and they said, you know, once Trump is actually going to announce this, then Canada is going to have to scramble and say, we’re going to have to do the same thing, because it’s it’s just not going to work for us, like and and really, after all, it’s not, it’s not Canada, the ones that are affected, well now they are, because they put on the 25% as well. But the US is really going to struggle with these 25% and what we’ve been seeing is that the prices, we want the prices to go down, and suddenly we have these 25% on all these goods that are coming into our country that are going to be more expensive. And here we come to a different problem. Is that importers kind of need to look at their supply chains and determine how these tariffs impact their cost structures, because I don’t think some of these businesses can handle 25% or, you know, if you didn’t prepare for this and thought that this wasn’t happening, which we’ve talked to so many people, and they said, act like this is happening, you need to be prepared. Well, if they are not, then I don’t, I don’t know how they’re going to move forward with these 25% because that’s a significant number. Absolutely,

Cindy DeLeon 

I think that a lot of people aren’t prepared, even from a cash flow perspective, you know, to pay for these phenomenal duties at the border. I think of pharmaceutical companies, for example, like some of these duties, and some of their products are coming in, and they’re bringing in billions of dollars of these very expensive pharmaceuticals. What’s going to happen when Trump levies these duties against the European Union, where a lot of pharmaceuticals come from? I think it’s going to be really the national security crisis is going to be right here in the United States, and it’s going to be because, because of these tariffs, to be honest, so

Annik  

and so quick question like, when they when we’re well, when Canada or Mexico imports these things and it comes across the border, what is the, what is the process like? Like is, is there, are they’re going to be denied right at the border? Or is there going to be a denial before? Or, like, there’s obviously paperwork and involved. But how does the process really work? Well,

Cindy DeLeon 

first of all, you know, we’ve been kind of telling everybody to have their customs bonds in place into so a bond is kind of like your insurance policy. It it lets the goods flow through the border without any interruption, but it’s the importers kind of promise to pay customs, the duties and fees that are owed. And a lot of companies are going to have to greatly increase their bonds, because their duties are going to increase significantly. And so the. The goods come through the border, most importers now have a periodic monthly statement account or an ACH account, where those duties get pulled right from the importers account on a monthly basis. And so if those, if those reserves aren’t there in those accounts, when, when that money gets pulled by customs on a monthly basis. A lot of companies are on these periodic Monthly Statement programs. It’s going to be a problem. They’re going to have, you know, revocation of importer rights. They’re not going to be able to import if their bonds and their accounts can’t support the duties that have to be pulled from those accounts. Okay?

Annik  

So that. And again, let’s, let’s just put this on the table real quick, kind of

Cindy DeLeon 

like running, running out of extending your limit on your credit card, you can’t keep charging if you’ve reached your limit. Yeah.

Annik  

And then so again, the importer is on this side of the country, correct? So the the money is really happening in the states like this is where the real problem is the states, because they’re paying it, they’re having to pay it 100%

Cindy DeLeon 

I mean, some of the statements that have been made in the past about the Chinese government paying these duties, or now, let’s say the Mexican or Canadian government’s paying these duties, is laughable. I mean, the US importer of record, absolutely, is on the hook to pay these duties. Now, who ultimately pays these duties? It’s the consumer, right? Because those duties have to be passed on to the consumer, or companies are either going to take, you know, lower their profits or incur losses or eventually go out of business because they can’t sustain selling goods at that at that lower price point, when their costs have gone up by 25%

Lalo  

Well, Cindy, I want to also add also the idea that’s been floated that in case Mexico does decide to do any retaliatory tariffs or duties they these are theories, I guess, have been floated around Mexico. And I want to make this very clear, nobody has ever said this in Mexico yet, not not in the government anyway, where they will impose 25% duties on on the imports into Mexico if they do that. But that includes even the the ImEx program, or the maquiladora program, as we all know, whoever practices in the maquiladora program, we all know that those are temporary imports going into Mexico, and they are, pretty much, are duty free. You know, they’re there. You don’t have to pay duties. You pay, perhaps taxes or or, you know, processing fees, yeah, the value add tax and the DTA, you know that, which is the equivalent of our MPF, right? But other than that, they’re duty free, but they’re there, there’s talk or, you know, when you look at LinkedIn or other places, there’s talk about like they might eliminate that, which is pretty harmful, if you look at it, for the United States importers into Mexico, because they’re importing into Mexico on a temporary basis to assemble a product, and then they export it back out to the US. So, I mean, we’re looking at 25 plus 25 plus 25 going in and 25 going out. I mean, that that would really, really hurt someone. I mean, don’t you think that’s like, also, like, in Donald Trump’s words, who’s holding the cards there? I guess you know, because Mexico could actually probably do that. I mean, what have you heard that, or have you seen that?

Cindy DeLeon 

Absolutely, a few. Let’s dispel a few misconceptions. I agree with you wholeheartedly, Lalo and honestly, the ImEx program, the maquiladoras, the goods, the finished good that ultimately a US consumer buys can go back and forth across the Mexican or Canadian border multiple times before the good is completed. Think of an automobile. You know, there are multiple sub assemblies that are coming back. You might send it to Mexico. They work on it a little more. Then it comes back to the US. They work on it a little more. It goes back and so forth. So if 25% is getting levied each time that product is going back and forth, the price point when the good is completed is just catastrophic, right at that point, I think also, you know, we talk, let’s talk a little bit about reciprocal tariffs. You know, you know, when goods come into Mexico, they’re coming in duty free, like you said, a value added tax that gets assessed gets refunded when, when the goods come back out and come to the United States. So it’s really, it’s really just an inventory control program in Mexico to make sure the goods come back out, but really, the goods are duty free coming into Mexico as well under prose. Under regular under the ImEx program under usmca. So there are multiple regimes in Mexico for duties as well as fees like VAT and and DTA to be to be refunded in order for us to have a more level playing field.

Annik  

And I do have another question, which it’s a little bit of complex to explain. I feel like so now that the 25% are proposed and they have to comply, obviously these businesses, importers have to comply. You know, you mentioned these might be gone in 30 days, or we don’t know when they’ll you know, they could say next week, okay, we’re not imposing these tariffs anymore, so you can operate as before. And obviously there’s goods coming in right now, which should be on these 25% but you said that they’re not paying this immediately at the border, they’re, you know, there’s a certain fund that goes monthly. So would they still be paying it, even if he announced next week. Oh, no. These tariffs are not implying anymore, but they did come in right now on these 25% so does this still have to be paid? Even though he said next week, yes,

Cindy DeLeon 

unless he were to come back and say, let’s say a week from now, Trump were to strike a deal with Mexico and eliminate the 25% or take back the 25% I mean, he could just as easily say, We’re retroactively going to, you know, eliminate the 25% as of March 4. He could do that. We just don’t know. As of right now, they’re dutiable. As of today, they’re dutiable, and those duties are going to have to get paid and they’ll get pulled out on a broker’s daily statement process or on an importer’s periodic Monthly Statement process. Either way, those duties are assessed as So,

Annik  

so behind the scenes, this is a problem, not just for, you know, the importers or like on just kind of, everyone’s scrambling inside of the business, right? Like, how are we doing this? How are we paying for this? Like, where, you know, where is this money coming from? Or what do we do with the consumers? Are we pricing high? I mean, you can’t, you know, set the price higher to the next day, but you still have to pay the duties. I don’t. It’s just so complex for industries to be scrambling from one day to the next?

Cindy DeLeon 

Yeah, and I don’t think that there’s any one answer for any particular company. There are companies who have been preparing for this for a long time and have the contractual language in place to pass on these duties and fees to the consumer. I’ve talked with some clients who are literally adding a line on their invoices to their customers here in the US, saying this is like a duty surcharge, and they are being very transparent about it. It’s a line on the invoice, and they are passing those costs on to the US wholesalers, let’s say, and some companies don’t have that contractual language. Have established contracts that say, this is our price, this is what we’re buying from you for, for this, for 2025, let’s say, and that price really can’t move. And there they they might even have the contractual obligation to fulfill those quantities. And so it’s a really big problem. I think it’s going to put several, you know, companies out of business here in the United States.

Annik  

Do you think that, um, some of these businesses might even halt their their imports, or, you know, whatever is coming in, and say, you know, we’re not we, we can’t import right now like this. We don’t have a set, I

Speaker 1 

think, that might happen for do you think? I think I don’t know a couple of things

Cindy DeLeon 

on that. I think I think that might happen for the short term. I think maybe for a week or two weeks, well, while we figure out what’s going to happen with the conversation between the Mexican government and the US government later this week, what’s going to happen when Mexico speaks to the press on Sunday? I think some people are some companies are going to maybe try to slow down. I think some companies are going to put their goods in a bonded warehouse here in the United States to be able to wait and see if, if these 25% tariffs come off, but some companies can’t. And I mean, there’s, there’s a lot of produce coming across the border that you know, have a shelf life, and there are contracts in place with delivery scheduled demand forecasts and delivery forecasts that have to be fulfilled, and they simply cannot wait. So you, you know, if you’re importing fresh strawberries or fresh bananas, you can’t, you can’t sit and wait two weeks on those, they might not be good anymore.

Annik  

Yeah, no. I mean, wow. And what are do you think, to wrap this up, what, what do you think are the biggest things like right now that. Importers need to know, or, you know, that is crucial to kind of make this work for I know there’s no, not a one way answer for all businesses, but what are the things right now that pop in your head, man like you, you need to get on this. You know,

Cindy DeLeon 

I’m really glad you asked me that question, and I’m going to take a little bit of a deviation and be myself as I normally am. Lalo has known me for a little while when I think about this, and I really sat and kind of meditated, I thought about everything that’s going on right now, and I think a couple of things, I think people need to analyze data that impacts them. Okay, so whatever, whatever is impacting you, whether it’s the price of eggs, whether it is the price of raw materials for your manufacturing facility, just run the numbers yourself. Stop listening to all of the press and all of the bad information that’s out there, and actually start gathering some data, metrics and statistics yourself to be able to analyze the impact on your company, on your personal life. And then the other thing is, I think we need to, as Americans, take a really close look at ourselves and our contribution to this crisis that we’re in, and the consumption of fentanyl here in the United States, and how many people who are American citizens that are apprehended bringing the fentanyl across the US Mexican border into the United States? A lot of those people are US citizens. So I think before we are too quick to point a finger at Canada or Mexico, that we should take a look at ourselves in the mirror and and that brings us back down to the family unit. That’s I kind of want to end on the family unit. And I think there’s such a breakdown in a family in the family unit, parents need to parent. You know, families need to be good families, and we need to. We need to do more. Each and every one of us need to do more to be able to truly combat this crisis that we’re in.

Annik  

I don’t think we’ve ever had such a closing. I love, I loved your closing. I love, you know, I just came from Pilates. I think it’s giving the same vibes we you know, you I was like, Okay, this is the calm before the storm. Because she tells us, she’s like, close your eyes, you know, relax, breathe. And then I come here, and it’s like, tariffs, oh my god, everyone doesn’t know what to do. And I’m like, and I’m kind of all over, I mean, not all over the place, but, you know, it’s kind of exciting in a way, because there’s so much going on. And obviously we get to cover this, but at the end, when you sit down, you’re like, Okay, there’s a whole thing happening here in the States and and it is something you need to sit back and really realize what is happening. Because, yeah, we’re being fed a lot by the media. And, you know, it’s one side or the other, and you don’t really have your own opinion, because you’re being fed your opinion really. So I loved your closing, and I think we should all be doing a lot more of that. So thank you so much. And, and, yeah, so that’s really it. I want to thank you so much for coming on just because this, I think this will truly help our listeners, because everyone is not understanding right now, what is going on? And yeah, so thank you, Lalo, too. Do you have any closing remarks? Lalo, no, I just want to thank can you top hers? Just

Lalo  

kidding. No, there’s no way. She kind of blew mine out of the water because I was gonna say, I anxiously you talked about what affects you personally. Cindy, and I was looking through, I was actually looking through the list to see an exception for tequila. Unfortunately, there isn’t. So anyway, but anyway like yours. So thank you so much, Cindy for coming in, like super last minute. This is, I mean, everybody so y’all know, we did record this this morning, March the fourth, and we’re releasing it right after we’re done here mark the fourth. So we’re hoping to get this and we’ll get more updates as they come, you know, later in the week and on to next week. But Cindy, again, thank you so much, and we’ll get you on a regular episode when we’re not so rushed and you can plan more content better. Absolutely,

Cindy DeLeon 

guys, thanks for all you’re doing. You guys are doing amazing work. It’s really just everyone seeing your work. So I’m so proud of you guys, and thank you for what you’re doing.

Annik  

Well, thank you. Well, it wouldn’t work without you, know, specialists like you, I would say. But again, thank you guys for listening, and I hope you enjoyed or got something out of this very last minute emergency episode, and we’ll be doing this for you guys moving forward. I actually love these more than maybe our regular episodes, because I’m like, this is, this is exciting. Anyways, we hope that you have a good week and get this figured out again. Sit back, breathe and really, um. Take in what Cindy is was really closed out for you, and we’ll see you on our regular episode on Monday, and we’ll also be at icva. So let’s talk there, if you’re if you’re at the conference or not, we’ll have stuff on our LinkedIn going on. So again, we’ll see you on Monday, and have a great rest of your week. Bye. Bye.