Presidential Powers and Trade Wars

Machine Operated Script:

Annik  

Music. Hello everybody. Welcome to the simply trade podcast. We are back with an exciting episode, which may have been exciting for the past few weeks, because obviously the United States has a new president, Donald Trump, and there’s been lots of things happening and new changes, so there’s a lot to say, especially in the recent weeks. And I want to know that today is Presidents Day. So you might be off work, listening, just at your home, or maybe you are at work, which I am. I will be at work, even though we’re recording this a little bit ahead of time. Today is Valentine’s Day. So maybe you had a great Valentine’s Day weekend. Weekend. Hope you did. And yeah. So anyways, getting to the good of good of the story today, we have a guest, and she has not been on the podcast, which I love. I love that I’ve been really enjoying having new people on the podcast, which, oh my god, I’m gonna botch your last name. And it’s okay, because everyone watches my name too. So I feel, now, I feel the pain of doing it. You can, you can tell me 

Nicole Porpiglia  

Nicole Porpiglia.

Annik  

Where is it from? Italy?

Nicole Porpiglia  

I’m Italian,

Annik  

American. Oh, it’s like, Yeah, cuz you know what? It reminded me of Puglia, yes, yes. Talk a little bit about you just really short so you obviously come from KPMG, correct, yes. And, and, what is it? What is it that you do so people know exactly where they’re getting their news from today.

Nicole Porpiglia  

Yes, yes. So well, it’s great to be here. Thank you for having me. So I am a manager, managing director in our trading customs practice based in New York, and I focus on everything trade. So we’ve got a large team of over 300 people in the US, and over 800 people globally, and we all are dedicated and focused on trade. We’ve got export professionals, we’ve got import professionals, we’ve got duty savings professionals, we’ve got everyone from everywhere, so all over the state and all over the country,

Annik  

I love that. Yes. I mean, when I researched a little bit, you guys have a huge team, like, huge they’re global, worldwide. I mean, worldwide, that’s kind of awesome. That’s that’s a lot you know, of traveling you probably have to do to, like, figure out all your bases and whatnot. Actually met someone that lived in Luxembourg, and he was working at KPMG, but he was doing marketing, and I didn’t really know much about KPMG, so I’m like, Oh, it’s a marketing firm, I think. And then, and then now, you know, I’m like, I understand the scope of the whole thing, which is, that’s awesome, and you know that’s so exciting that someone like you is on the simply trade podcast. So we’re very grateful for that, but I’m even more grateful for the information you’re going to give us today, because there’s been a few things that are happening. So there was one well, so let’s just start with the steel and aluminum tariffs that Trump just recently announced. There’s been a lot of back and forth, and people not really understanding what this what this tariff means, because, okay, this is how I got it explained. Is that usually, like, you have, like, something, I don’t even know, like a certain item, and it has a little bit of steel or a little bit of aluminum on it, and it’s not really classified as that, so they can just, they won’t pay any tariffs on it. But now Trump said, if it even has a little bit of aluminum, like just the tip of it, like a nail, nail or something, they do have to pay tariffs on it, which changes. I mean, I don’t know how many items there are that probably have aluminum steel on something like this, and they have to change their entire processing and supply chain. And I this is just from coming from me, and so I kind of want to tell us about it, tell us what you’ve been hearing about it, how people are reacting to it, and what really they can do to comply now.

Nicole Porpiglia  

Yeah, so first of all, I guess it’s first fair to say that everything is changing so so quickly. So even depending on when you hear this podcast, things could have changed over the weekend, and could leave this out of date, but I will say this, we don’t have all the answers yet, but we have some theories, right, and I guess how we’re seeing it so far, and what we’re hearing from our clients and what we’re hearing from the industry. Three is, there are, there’s section 232, in place. It’s, you know, he invoked the expansion of you know what has put been put in place. So we know the products of aluminum and steel that are subject to the additional 25% or, sorry, 25% not so much additional, 25% 25% then we’ve got, what are these derivatives, right? Like, what are these parts? And how will, how will companies keep track of them, right? And how will companies declare these two customs, especially if they’re, you know, manufacturing a machine or something with these components in it. So I think it goes back to the spirit of what the administration, even the last administration, to some extent, is, you know, really focused on, and it’s traceability, right? So they want you to be able to trace your components, your raw materials, all the way back to the source, and be able to do that compliantly, and be able to, you know, share the details on that on demand or in a reasonable time frame, so that they feel that you’re compliant with them. So you know what, what could happen is similar to when you have a cut, make trim, CMT transaction, where you have to, you know, you have a secondary sheet that itemizes, you know, the different costs and components inside your you know, your cost. You know, I think what we could see is companies are going to have to trace back all to those aluminum derivatives and steel derivatives and now figure out how to segment them and, you know, declare them as part of the import process. Now how that will happen, we’re not sure of yet, because, you know, when he, when they came up with these ideas, and they, you know, decided to put them in a into effect, they acknowledge the fact that it’s going to take some time to get the process up and running. So it’s a big effort on the industry and on, on trade professionals and supply chain professionals to have to get back to this level of detail and and companies are like, Oh my gosh, that’s a lot to do in a short in a short amount of time.

Annik  

You know what? Also something I’m, like, worried or not worried, but like, confused is how CBP will know that some of these things are going to be classified as steel and aluminum if they haven’t been so, like, they’ve been doing this process without paying these tariffs, and suddenly they’re going to have to classify them. You know that there is aluminum and steel on their product, and who’s to say that there is, like, who’s gonna know, are they gonna be checking all these kind of things? I know we’ve had CBP issues because there’s not, you know, there’s not enough people. So, like, they’re worried about the borders, they’re worried about immigration, and then we’re getting this whole new tariff that is, you know, like some things you can’t even just spot, probably, by looking at a product, you’re going to have to take it apart to know that there is steel and aluminum. So how is CBP going to know? Like, is there anyway?

Nicole Porpiglia  

I mean, they’re going to lean on things like Bill of Materials. They’re going to ask. I mean, if we’ve learned anything being in the industry, it’s, you don’t mess with CBP and you don’t try to get one over on them, you know, because it’s, you know, on the day to day, they’re not going to be monitoring every shipment. They’re not going to be, you know, going and opening the box and going into every shipment that that somebody has, right? But once they do, decide they’re going to do a spot check or an audit, they’re going to ask for things like, Well, show me the bill of materials. Show me the support behind the bill of materials, you know, and prove to me that that you know, that that bill of materials, materials is accurate. And they, I mean, they have, they have the ability to do that type of audit, and it’s going to be up to the importer to have all of that stuff readily available. So I think what’s going to happen is companies are going to have to really do this expensive traceability exercise in order to be prepared in case of an audit, which it’s almost like insurance, right? You’re some people don’t like to pay for insurance because they’re like, I never get sick. Well, you know, it’ll be that one shipment that turns into, you know, a massive exercise that you know, company might end up paying. I mean, they’ve already stated that they’re willing for misclassification, they’re willing to offer the maximum penalty. So they’re taking it seriously, as seriously as they, you know, took all of the sustainability and efforts around the traceability on that side as well. Question

Annik  

I was actually going to ask, like, what is the penalty? And because, just to scare people, you know, to make sure they’re complying, I don’t want to scare anyone. I’m sorry, but I just also don’t want you to get billions, millions, what, trillions of dollars? Of, you know, payments that you you’re gonna have to make or, I mean, you’ll probably go out of business. You might just if that happens to you. I don’t know to what extent like, it just depends. To the extent, probably, but yeah, so what do you think people now like, how can they prepare, or how can they do because obviously, it’s like a shock to some people, and it’s, it also might be expensive, right? Yeah. So,

Nicole Porpiglia  

I mean, there’s going to be, have to be some sort of prioritization exercise to start, right? So you’re going to probably want to tackle the highest volume products that you know, you’re importing, those you know. And obviously, some folks import finished goods. Some folks import just components and parts. Just, depending on what your product is, will be the level of effort you’re going to have to take. But let’s assume you’re importing a machine with a ton of parts, you know, you’re going to want to prioritize those, those bills of material, and those in those products that you’re importing at the highest volume. And then, of course, you you want compliance in the totality of your, you know, supply chain. But, I mean, you got to start somewhere. And, you know, taking classification seriously is a is a big piece of this. Of course, origin is but given that 232, has been expanded to cover all origins, obviously, with a little bit of exception around Russia, because there’s different rules in place for Russia. But you know, you have to be able to, you know, classify accurately. And then as these rules and as this guidance comes out, hopefully, of how you comply with it, you know, whether it’s they’re going to, you know, give an upload form, and you’re also have to lean on technology. I think that we’re going to start to see some of these technology providers come in with, you know, ways to record these details once the rules are set. So I think there’s going to be a lot of effort prioritization, you know, applying everything to your full scope, and then, you know, leveraging technology once, once the rules are set to to try to minimize the burden.

Annik  

Yeah, that sounds and ultimately, I think this plays out on the consumer too, right? We’re gonna see some increasing prices here just because they’re gonna have to pay tariffs on something that they didn’t have to pay tariffs on before, which ultimately makes things more expensive for them.

Nicole Porpiglia  

So one thing we’re seeing now on that is there’s going to be a big focus on valuation. So that’s going to be where companies really look to, because they’re not going to get around the tariffs, with classification and origin and things like that. I mean, we’re going to see a big focus on, is the value Correct? Is this the most optimal compliant Of course, valued for for what we’re doing before, if they were duty free, or they didn’t have a huge duty exposure, the scrutiny on on value might not be a big important, you know, exercise for them. But now, given that value is the basis of what your duties are applied to, they’re going to say, Wait, is that number right? So I think that’s how companies will try to offset the increases to the ultimate customer, by making sure they’re minimizing the duty exposure the best way that they can.

Annik  

Oh, okay, well, we’ll have to see what happens. I know it’s like, we don’t know, like, what’s gonna happen. We’re so early on this, you know, thank God we’re early on this, because we need to talk about this. This is, this is good stuff. I don’t know if it’s so good for a lot of people, but it’s, it’s good stuff to talk about. Yeah, it’s interesting. Okay, well, we have have another topic which this one might interest a lot of people as well. That’s the minimus rule Chase. So we’re seeing recent changes to the minimum the minimus rule under President Trump’s administration. Can you explain kind of what the changes mean for E commerce? Because I’ve seen a lot of news on She in and Temu, which are, like the biggest one, that are using the demand, which have been using the diminish rule, because they’ve been sending in so many shipments under, I think it was the 800 mark, right, which is so easy for them, because the things were so cheap, even though I heard that they were not even doing it correctly in that sense, because they were, I don’t know it’s a whole thing. Don’t want to get into that. I just want to kind of get into the I get into the the minimalist role, and them not being able to use that anymore, right?

Nicole Porpiglia  

Yeah. So, you know, in when the new administration took took office, you know, we thought there was going to be a bunch of day one actions. Those actions were several days weeks later. I. And then, as expected, we saw, you know, the tariffs being imposed on Canada, Mexico and China. Right. As part of that, obviously, Canada and Mexico have been put on hold. But as part of that, in all of those executive orders, they address de minimis, and they said, We’re going to remove this exclusion, to bring goods in duty free, and we are also going to say that everything has to come through on a formal entry. Because, you know what, we we’ve had this effort. Both administrations actually have felt this way, and there’s a ton of bills out there in Congress that both, you know, have want some reform around de minimis, but we were so this wasn’t a surprise, right? So we came in we saw, Oh, wow. You know, no more de minimis, um, so once that started to unfold, especially for China, because those are where the additional tariffs went into place in what we saw was, oh, wait, there was a lot of discussion around from these parcel carriers out there, right? That says, Wait a second, like, we’re not equipped to make this big of a drastic change. Or maybe they’re equipped, I shouldn’t say not equipped. We’re not, you know, in the moment, ready for, for that. Um, and there was a lot of news articles, you know, between all of the the parcel carriers and customs, right? And, you know, as a result, they’ve temporarily paused this, you know, exclusion of de minimis um, we’re expecting to see. And they use similar language as they did with, actually, the 232, um plans for the derivatives, right? And the different annexes, they’ve used similar language, what? Essentially, once you’re up and once we’re up and running with the process, this will go back into effect. But we want to build, you know, put the infrastructure in place in order to be able to be equipped to handle the volume of transactions. So it’s been a journey. We call it the trade or tariff whiplash right now, because they’re saying, Well, one day we were talking about it, the next day, what I said to my team, I said, there’s so many double negatives in this sentence. Are they implementing it? Are they not? So, yeah, we’ve, we’ve been on a journey, and I guess how it’s going to impact importers and and these e commerce companies is that there’s a lot of strategies that all of these, you know, e commerce companies are using, whether it’s to route the goods through, you know, maybe from China or from other countries, through Mexico, you know, through warehouses in Mexico or Canada, to supply to the US consumer, they’re going to say, Wow, not only are we going to be subject to duties, or these additional 10% duties, for now, we’re going to have to pay the regular duty. We’re going to have to pay potentially, the 301 duty, if they’re if that product is subject to 301 and we’re going to be subject to the additional 10% and these companies are like, wow, that’s another that could be another 40 or 50% tariff that I wasn’t paying before. Now, my product cost has gone up. I have to rethink my distribution chain, because maybe if, if I’m no longer able to use a tool like this or a program like this, I have to think of an alternative way to bring goods into the country, where I minimize the impact, not eliminate it. Because, you know, unless the tariffs went away, you know, there would would be no eliminating those tariffs. But so it’s got a big impact on E commerce companies. I

Annik  

also think that, like for small businesses in the United States, right? Or and especially for consumers, we don’t really know either. I always tell like before, I feel like this podcast was strictly, you know, for trade individuals, and now that we’ve kind of had the new administration, this podcast is also for consumers. I mean, it’s always for consumers, really in my eyes, but now really it’s for consumers. Because if you want to know what’s going on, if you want to know why prices are the way they are, then you need to listen to to know exactly what’s going on behind the scenes, so you can have a better eye. Because I think, like so many people, make judgment of certain things, and then in my in, in the back of my head, I’m always like, it’s just trade. That’s all it is. It’s trade. You can’t really blame a person. You can not blame, yeah, you know you’re blaming certain people, but it’s literally trade that’s, that’s what it is. And we’re in such a weird spot right now, like you said, like so many negatives, so many just weird situations that I mean, it’s, it’s just difficult, like, it’s a difficult situation, right, for any, for everyone involved,

Nicole Porpiglia  

100% and I think, I think the root, and, I mean, I’m good at connecting themes through things, right? The the root of this is also traceability, right? It’s, it’s getting visibility. Yes, there’s the duty implications, right? But it’s understanding what’s coming into our country, how it’s coming in. And really, like, you know, thinking about the steel, going back to the steel and aluminum derivatives, it’s about getting back into your supply chain. This is in the main goal of customs for, you know, for many years now, to bring, you know, traceability and visibility to what’s being brought into the US. So I think there, there’s kind of two initiatives happening with the same actions of just making sure there’s more visibility to the supply chain, as well as whatever the other motives are around, around the implementation. I think

Annik  

that’s the root of trade. Like, we’re trading, what are we trading? What is coming in? Like, that’s every, I mean, that’s just, I think, the basics. And I feel like that’s what we’re doing a little bit here. We’re going back to the basics, and then we can’t quite go back to the basics, because we’ve done so much, so we’re kind of going this back and forth all the time, and we’ll see. I mean, that’s kind of the fun of trade right now. Yeah,

Nicole Porpiglia  

we speaking of it. We were sitting on the edge of our seat, and

Annik  

you’re like, I don’t even know what to say exactly.

Nicole Porpiglia  

Well, it’s fun. It’s fun talking about trades, unless you you’re saying, well, you’re giving the typical consulting answer, which is, it depends, and maybe we’ll see, you know, yeah, because that’s the environment right now. We were waiting on the edge of our chair yesterday at one o’clock, waiting for some action to happen. You

Annik  

must. You probably were disappointed a little, I

Nicole Porpiglia  

mean, I mean, I don’t, I don’t want to see any, you know, major disruption, right? But if there’s going to be an action, I’d love to see it, right, so that I at least can be informed. So when I come on this podcast, I could, you know, say, Oh, this exciting thing just happened. Yeah, exactly, yeah. But you still have some things to say on this, because a lot of things, yeah, yeah. So, so he mentioned, obviously, the reciprocal tariff like, the spirit of what he talked about was around unfair trade, right? And he announced his trade agenda for this year and how they were going to be deploying those investigations to determine what actions to take around the world, right? So I think the message around global tariffs have kind of paused, not paused, but they’ve been waiting for this April 1 report to be released. So he further doubled down on that April 1, you know, deadline, um, that he mentioned, and he, you know, I think someone asked in the audience of his speech, you know, well, when can we see tariffs after that? And he said, Oh, well, they can be seen as soon as April 2, right? I don’t know how long that report will be and how long it will take to digest the report. I think what it tells us now is that actions that you know he intends to take will be based on this report that he reviews, so that he doesn’t impose tariffs prematurely on a jurisdiction or or sorry on inbound shipments from those countries, unless the the data is there to back it up. That’s how, how, you know, we take it so far. And

Annik  

I just kind of want to talk on the stance regarding steel and aluminum tariffs. In that sense, how is China reacting right now? What? What is their kind of outlook on this, these indifferences that are coming from the United States right

Nicole Porpiglia  

now? So I’m, you know, from my understanding, you know that China submitted their complaint against the US in the to the WTO, and that is it is under review. I think they have about 60 days to review those those and discuss and negotiate. I think it opens up a discussion for negotiation. So my understanding is that these discussions are happening over the course of of 60 days, and then from there, the Committee will make some some decision on what they they believe the outcome to be. So I mean, as far as speaking on behalf of China, I don’t really, you know, with not being there and not being the place I’m from, I’m not sure what their I guess, perspective is on the matter, but at least from their actions, what I can say is, you know, these are the things that they’ve they’ve put into action so far. They’ve obviously implemented some retaliatory tariffs in response to some of our actions in the US. But, I mean, every country has the right to, you know, question our actions, right? We just have to

Annik  

Yeah. And, you know, I just want to mention we don’t see that just from China, so, like it recently, we, you know, Mexico. So Canada, like, we’ve seen it from all countries, which makes sense, because they’re allowed to do that, right? But we’ve also seen a lot of negotiations coming from Mexico, Canada, you know, and China, I would say, kind of put it all in a category, because it’s all the people we trade with, right? There, there’s trade negotiations, there’s teletor, well, I can say that word, retaliatory. I can’t say that word, oh my god, tariffs coming from either of the places, like we recently just saw a big negotiation happening with Mexico, with the Mexican president. Like the Mexican president was not happy. She was she’s not happy with a lot of things, and so she kind of has to come forward and and she seemed like a strong woman who said, you know, putting her foot down and saying, Look, you’re doing this, we’re going to do this like you can’t just play us. And I don’t want to say that America is playing anyone. I’m I’m just looking at both sides. You know, we can’t just look at America doing all those things and then thinking that the countries are just going to take it because, I mean, why? Why would they, they also have a country to care for? Um,

Nicole Porpiglia  

yeah, and I think, I think that’s what comes with, you know, they’re having negotiations. You know, we that none of us are privy to until the results come out, right and then, and then the outcomes are, every country will act on their own behalf, which, you know, America right now is acting on its own behalf. And you know, there’s going to be cause and effect to all of it. The only thing we can do now is, you know, as a trade professional, is to monitor, is to put, you know, things into place, to allow you to keep up with the latest. Like, like, I said, I’m I’m catching up. I’m watching every night, every morning. I’m double, you know, I made sure this morning of our we were chatting, that I, I was up to speed. But that’s a lot, considering we all have day jobs, all have things to do. So it’s making sure you’re, like, monitoring this information and, you know, modeling out the implications and the best and the worst state case scenario, right? Because you don’t know what’s going to happen next, so, you know?

Annik  

And then that’s the beauty of it. I’m like, next on the podcast next week, and I just pause because I don’t really know what to say, because we really every day is different, you know, sometimes i i message all and I’m like, oh my god, did you see the news? And then I’m like, let’s cover that right as we get in the office. And then right as we go into office, it’s like, oh, like, things didn’t work out. We reversed it. And I’m like, No, this was so good, but so, so that’s why you said it before. You’re like, you know, whatever I say today might not be in effect on Monday anymore. It might be worse. It might be better. We don’t know. We really have no idea, but I’m still so glad that you got to talk on these things, because I think people just kind of need to understand a deeper way. Because sometimes when we read the news, it just seems a lot worse than it actually is. Like, obviously, these news outlets want to make their buck and want to make sure that, you know, they’re kind of controversial, or, you know, saying things that are make people, you know, really alarmed. And I like to bring peace to all of it, what’s happening around the world. And I feel like that’s what we did today, and that’s kind of the outlook you gave for everyone just to understand what’s going on. And yeah, I mean, uncertainty will always be there, unfortunately, but

Nicole Porpiglia  

absolutely. I mean, at this point, we’re all we’re all in it together. So lean on your partners, lean on your trade professionals. Lean on your your peers and your and business you know, business partners. I think we’re doing a lot of educating right now, because this isn’t just affecting the trade professional right now. It’s affecting your supply chain and procurement professionals. It’s impacting your legal teams and their contracts. It’s impacting your transfer price and your tax professionals, right? There’s so many downstream effects of tariffs that the only way for us to, you know, navigate through it all is, you know, to stick together to create innovative ways for, you know, up for folks to stay on top of it and to be prepared for it. You know, every day I’m getting questions from companies like, how do I model this? And can we model that? And I said, Yeah, let’s keep running those models. Let’s keep keeping your boards and your executives informed on where this is headed. Because if you need to be nimble, you need to be able to say, today, it’s this, tomorrow, it’s that, you know, the next day, it’s this, and this is our impact. So, you know, just stick close to your friends. I love

Annik  

that, you know, I love that you just said that because someone actually told us they’re like, Oh, I I had to send this podcast to my boss, to my CEO, just because he was wanting to know what’s going on. And you know, you know people that are not really in the trait like that do the new. Gritty of this job of this industry, they don’t really get it, and it’s hard to it’s hard to get it right now, because there’s so many things happening, and uncertainty for CEOs is something that they never want to have right so they kind of want to understand, and they want to find clarity. And so he’s like, I had to send it because I couldn’t even explain it better anymore. And that was just so sweet to hear and to know that this podcast is kind of affecting or like helping people in this especially in these times. So thank you so much for coming, and I can’t wait to see you at icva Next month, March, right. Yes, yeah, I know you’ll be traveling all over the world, still, you probably go back to New York, then back to Orlando. I mean, wow, you’re, you’re flying a lot.

Nicole Porpiglia  

Yes, yes. Got my frequent flyers. I was

Annik  

gonna say, I was gonna say, I hope you have your frequent flyers, and I hope you have sky miles on deck. That’s always great. Gives you good points. You can fly to Europe for free, maybe at one

Nicole Porpiglia  

point exactly. That’s that’s the strategy to get places for free when I’m on my

Annik  

own time. Yeah, that’s awesome. All right. Well, thank you so much for coming on to the simply trade podcast. Maybe we’ll have you back soon. If you know there’s something crazy happening, and you can give some light to it, but for now, we really appreciate it. Everything you’ve shared with us so far. And yeah, so again. Happy Presidents Day. We hope that you have an amazing week. And yeah, we’ll see you back next week for some, I don’t know, maybe some crazy news. We’ll see. All right, bye, bye.