What Tariffs Mean for Small Businesses – Darrel Hulsey and Mark Collier, UGA SBDC

On today’s episode of The Atlanta Small Business Show, guest host, Mark Collier from the UGA Small Business Development Center welcomes guest Darrel Husley. Darrel is a consultant from the UGA SBDC’s International Trade Office and is a certified global business professional.

In this video, Mark and Darrel discuss what tariffs mean for small businesses, how they are impacting small businesses, and most importantly, how Darrel and his team at the UGA SBDC International Trade Office assist businesses with strategies relating to tariffs.

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Video Transcript

Mark Collier:
Hi everyone. I’m Mark Collier, guest host of Today’s Atlanta Small Business Show. The ongoing trade wars are at the forefront of most business news today and certainly at the forefront of any small business who is involved with importing or exporting.

Mark Collier:
I am joined today by my UGA SBDC colleague, Darrel Hulsey. Darrel is a consultant from our International Trade Office and is a certified global business professional. Darrel is going to share his wealth of knowledge on what tariffs mean for small businesses, how they are impacting small businesses, and most importantly, how Darrel and his team at the UGASBDC International Trade Office assist businesses with strategies relating to tariffs. Welcome into ASBN, Darrel.

Darrel Hulsey:
Thank you. Good to be here.

Mark Collier:
All right. Tariffs are a hot button issue today and businesses are anxious to find out ways how to mitigate their impact and they’re seeking information, clarification, and answers on what the challenges of tariffs present. So before we get into the specific challenges that tariffs present, let’s start with some tariff basics.

Darrel Hulsey:
Sure.

Mark Collier:
The textbook definition tells me that tariffs are actually taxes, called duties, that are imposed on a particular class of imports, such as lumber or soybeans or any other kind of physical product. So with that basic definition on the table, we can kind of next differentiate between the two types of tariffs. We have a unit tariff, which is a fixed dollar amount on a specific item. And then we also have an ad valorem tariff. Kind of discuss for the viewers of the difference those two tariffs present.

Darrel Hulsey:
Okay, well on ad valorem tax is pretty much a tariff that’s imposed upon a volume of sale. Whereas a unit tax is just simply a tax based on the number of units brought into a particular county.

Mark Collier:
Okay, we’re going to get into to some specific questions about tariffs, because most businesses who are facing them, they are not sure what the challenges are going to be. So essentially who pays tariffs and who sets the tariffs?

Darrel Hulsey:
So technically the importer of a good into a country is the one who pays the taxes and that applies for most circumstances.

Mark Collier:
All right. Now, in terms of the World Trade Organization, most businesses have heard of the World Trade Organization, what role do they play, if any? And kind of how should businesses manage their… Or leverage the resources that they have to offer?

Darrel Hulsey:
Sure. The World Trade Organization is an organization that exists to help facilitate international trade. It does things like negotiate trade relationships, helps with trade agreements, disputes, et cetera. But what it does do though, is set tariffs. It does though, however, track tariffs for each individual country. And that information is available through their website.

Mark Collier:
Okay. Well, very good. Now I’m going to play the role of a small business person who’s looking to export some goods and I’ve got to build a budget. So how would that business, particularly if they’re looking at a particular good or service, how would they find out exactly how much tariffs they’re going to pay in terms of exporting that good?

Darrel Hulsey:
Okay. Well, if you’re exporting a good, then the tariff is going to be assessed by the country where that good is going to. So you would need to check through either the World Trade Organization or the individual sites for that country to determine the exact import duty. If it’s coming into the U.S., then that… We actually track it here in the U.S. through what’s known as the Harmonized Tariff Schedule, which is a schedule that is published online by the International Trade Commission.

Mark Collier:
So in order to access that schedule, you’d go to the International Trade Commission and that schedule would be readily available to any small business person who needs that information?

Darrel Hulsey:
Yeah. Exactly. You can either go their site or I always suggest just Google the HTS schedule and you’ll get it there.

Mark Collier:
Excellent. Now how should small businesses kind of manage the changing landscape with reference to tariffs? What challenges should they be looking at? And as they look further down the road, what type of strategies should they be putting in place?

Darrel Hulsey:
I think a small company, number one, just needs to be aware of what tariffs are.

Mark Collier:
Okay.

Darrel Hulsey:
And they need to be aware of what the rates are. And please realize that small businesses, businesses in general, are usually incorporating imports into their business in some fashion. That might either be directly they’re importing goods or they’re importing components. So being aware of what the rates are for the particular goods is probably the best strategy you can employ. Other suggestions might be that you, if you’re importing goods from other countries, you maybe build up an inventory of goods that are imported if you think the tariffs are going to be increasing soon.

Mark Collier:
That’s a very good point. And I’m glad you brought that up because tariffs, they affect domestic markets in different ways. So kind of a share with the viewers, some of the ways that those tariffs can impact domestic markets here.

Darrel Hulsey:
Sure. Tariffs, obviously, if it’s a good you’re importing to either resale or incorporate into a product that’s being sold back into the U.S. market, then an increasing tariff is obviously going to raise your cost.

Mark Collier:
Okay.

Darrel Hulsey:
So you need to be able to incorporate that additional cost into your process and ultimately into your profitability schedule. Now, another way tariffs can be used is a lot of times governments impose tariffs to protect domestic markets. So if we have products that the government thinks is being maybe unfairly facing competition from abroad, then they impose a tariff to actually help a domestic market.

Mark Collier:
Very good. Now let’s talk briefly, the Coronavirus is also something that’s been in the news lately. And would you say that the impact on China production may be a good thing for U.S. manufacturing capacity in the future? I’ve heard rumblings that some companies are looking now to reassure their manufacturing because they don’t like the uncertainty anymore.

Darrel Hulsey:
Well, I think if it proves one thing, it’s that you have to look at diversifying your supplier base.

Mark Collier:
That’s a good point.

Darrel Hulsey:
You can no longer just maybe depend on one particular country or one particular factory to supply good. It’s always good to have a secondary source.

Mark Collier:
Sure.

Darrel Hulsey:
And the second thing I would think about is, long range it’s, I think, changing the way U.S. companies look at sourcing from abroad and perhaps we do start sourcing more things here in the U.S. But that might take a little bit of time.

Mark Collier:
Okay. And if China’s going to start to kind of ratchet down the scale in terms of manufacturing hubs, what are some of the countries that are potentially looking to move up that food chain, other than the United States?

Darrel Hulsey:
Well, I think Vietnam is obviously moving up in terms of suppliers. A lot of the Asian rim countries are also moving up. So there’s a lot of other alternatives out there.

Mark Collier:
Okay. Now I’m working with a couple of clients, personally, who are looking at North Carolina. North Carolina is a big manufacturing hub. They do a lot of work with small businesses. If companies are starting to kind of hedge their bets in terms of international manufacturing, would North Carolina, Georgia, or what are some of the other States that you’ve found that are active in the manufacturing business currently?

Darrel Hulsey:
Well, actually a lot of states out in the Midwest are showing some revitalization in terms of manufacturing. I think manufacturing as a whole is increasing here in the U.S. and that’s a good thing for the U.S.

Mark Collier:
All right. Well, very good. Now, how do businesses find out exactly what tariffs rates may be applied to products that are coming into the United States?

Darrel Hulsey:
Sure. For products coming in, as I mentioned earlier, how the U.S. government does that, is it’s all the Harmonized Tariff Schedule. Lists all products by what’s known as Harmonized System Codes or HS codes.

Mark Collier:
Okay.

Darrel Hulsey:
Each product is assigned an HS code. Based on that HS code, this Harmonized Tariff Schedule will list the tariff that will be applied to them.

Mark Collier:
All right. Very good. Now let’s get into some of the meat of the work that you do at the UGA SBDC International Trade Office. Kind of share with me kind of some of the strategies that you have shared with clients or are sharing with in terms of minimizing the impact of tariffs on their organizations.

Darrel Hulsey:
Sure. Again, the first thing I always suggest is just awareness of what the tariff rates are currently. A secondary thought is to look at countries where we have a free trade agreement. And a free trade agreement is an agreement between the U.S., and right now we have 20 countries in which we have free trade agreements, where tariffs are either reduced completely or significantly reduced on products. Usually the trade agreement says the product must originate within the partnering countries in order to qualify for free or low trade tariffs rates.

Mark Collier:
Okay. Well, very good. So now Darrel, I’m going to ask you to kind of look into your crystal ball and kind of forecast for me where this is all going. A couple of facts that, as I see them, I mean, we’re truly a global economy nowadays. There’s no two ways about that. And the United States and China that they need one another. We need them to buy our debt and they need the largest consumer country in the world to buy the goods that they produce. In my view, it’s a true symbiotic relationship. So kind of forecast where do you see all this going? And how do you think it’s going to shake out in the end?

Darrel Hulsey:
Oh, wow. I’m not sure I have the crystal ball, but my thought is global trade is here to stay. We’re all part of this global economy to some extent or another. So what I would foresee is these issues with tariffs are probably not going to go away completely ever.

Mark Collier:
Okay.

Darrel Hulsey:
It’s going to be always tariffs placed by one country or another. I think what I would suggest to my companies, the companies I work with rather, is that we maintain working knowledge of what rate may be applied. We always look for secondary sources. And we try to trade with those countries that really have significantly reduced tariffs.

Mark Collier:
Excellent. Darrel Hulsey, Business Consultant with the UGA SBDC International Trade Office. I want to thank you for coming in and sharing some immensely valuable information on tariffs and the great work that you’re doing on behalf of Georgia businesses. And I hope you will come in and share more with us in the future.

Darrel Hulsey:
Great. Thank you, Mark.

Mark Collier:
All right.

Speaker 3:
This has been a JBF Business Media production.