"There will be a cost and transition problems, but in the end, it will be something wonderful," assured Donald Trump yesterday about the future of his tariff policy. "We are working with a lot of countries, and everything will be fine," he said with a statement that deliberately ignores the economic recession that economists are increasingly warning about.
By now, the reader is probably familiar with the story: Trump threatens, postpones, and threatens again to raise tariffs on his trading partners. Tariffs are traditionally part of the international trade system; in other words, Trump has not invented anything new. He has only enhanced it, and as a result, the possibility of an economic crisis becomes increasingly tangible. This has worried companies, markets, and keeps the planet on edge.
In this context where they threaten to take down the global economy and daily impact the stock markets, it is relevant to clarify some concepts about these tariffs and their "wonderful" effect... present.
What are tariffs and how many types are there?
A tariff is a type of tax (like VAT) applied to products crossing borders. There are three types: ad valorem, applied as a percentage; specific, applied per unit (such as kilograms); and mixed.
Most tariffs are ad valorem, and are applied to the value of the goods under CIF conditions (which include the cargo value, transportation cost, and insurance), explains Antonio Llobet de Pablo, president of the General Council of Customs Agents and Customs Representatives of Spain.
A practical example: a Spanish company imports t-shirts from the United States. The cargo value is 10,000 euros; transportation cost is 1,000 euros, and insurance cost is 50 euros. Therefore, the tariff will be applied to a total of 10,150 euros, and a 10% tariff would amount to 1,015 euros. The subsequent VAT would be calculated based on the total sum of the goods' value and the added tariff.
The tariff is paid by the importer of the goods. In the current situation where Trump imposes tariffs on European products, it is the American entrepreneur who pays for them when buying foreign products. Conversely, the Spanish entrepreneur will pay the counter-tariffs imposed by the EU (common for its 27 members).
This explains, for example, the stock market decline of major tech companies: if the US raises tariffs on tech components imported from other countries, they will face higher costs and see their profit expectations decrease. It is also expected that these costs will be passed on to consumers.
Tariffs are paid at the customs of each country, when the goods arrive, and in cash (unless in exceptional cases where a guarantee system is used).
With the focus still on the US, it is important to highlight where the collected funds go: the US Treasury. In Spain's case, being a tax, the amount goes to the Tax Agency, through Customs.
Where does the difference in tariffs impact?
The price of a product takes into account the purchase, transportation, and import costs. If tariff prices increase, and the importer has to bear additional merchandise costs, that difference will eventually raise the product price.
"Tariffs affect both countries [exporter and importer], which is why Europe has tried to create a list of specific products that are most harmful to them but less so for us," points out Jaime Albors, lawyer and partner at Albors Galiano Portales, who exemplifies this with the tariff on Harley Davidson compared to essential products like food.
In summary, tariffs negatively impact countries, both at the beginning and end because the Spanish exporter no longer reaches the American market, but also the importer, as they will see an increase in the prices of the products they need.
What happens to goods in transit?
This is particularly relevant for goods subject to additional tariffs during transportation and must face them upon arrival. The 90-day truce announced by Trump will accelerate transportation processes to reach the destination country as soon as possible and avoid tariffs. Consequently, commercial traffic in the coming months will intensify.
If an importer refuses to pay the cost difference, a long and arduous process begins: goods not imported incur storage and delay costs, as well as the return of transport containers. All delays generate costs and "significant logistical problems," as well as return costs. Although it depends on contract conditions, generally, it is the importer's responsibility to bear the costs, which can also affect companies and transport agents. "Potentially, the entire logistics chain can be affected," explains Albors. And at the end of this domino effect is the consumer.
It is also worth mentioning long-term contracts, affecting companies that had agreed on distributions for months or even years, and will need to resort to specific legal mechanisms, such as those developed due to the Covid-19 pandemic, to manage this change in conditions (which are not yet definitive).
How do tariffs affect Spanish companies?
For now, as Albors explains, the immediate effect of these tariffs on trade is the mass cancellation of orders, even those already agreed upon, due to the uncertainty (economic and legal security) of what their final price will be, which not all importers are willing to bear. "Many orders are being canceled because the importer of shoes in the US now faces a higher cost to import and sell there, so they may end up with no margin," the expert points out.
The only possible solution to try to make a profit is to raise the price of a product, but this opens the door to the possibility of it not selling. This effect is already happening in the automotive sector, where tariffs are already in place, affecting not only cars but also components. "This causes the Spanish company to lose that American customer, as it is no longer profitable for them to buy," Albors emphasizes.
Do tariffs apply to all products (and all companies)?
Yes. Tariffs apply universally to all products, regardless of the type of transport or company size.
"All products are assigned a tariff code, and a tariff is assigned to that code," explains Llobet de Pablo.
How do I know which tariffs apply to my company?
The European Commission automatically publishes all tariff variations, which are systematically updated annually, as explained by the Tax Agency. Therefore, commercial operators know the applicable tariff in real-time.
According to the agency, the negotiations between the EU and the US have left the definitive tariff rate unresolved because they have mutually given themselves a three-month break to escalate this tariff war.