Sarah Max continues her discussion of the financial implications of a second Trump administration. In this post, she unpacks some of Trump’s economic policies with respect to China and how those impacts are expected to affect the international financial industry.
US Tariffs on China
U.S. President Donald Trump has made no secret of his intention to impose steep, new tariffs on China, Canada, and Mexico in an effort to generate federal revenue. China stands to bear the greatest weight of Trump tariffs: a 60% tariff on Chinese imports. Trump and his team expect that China will come to the table willing to work with the US as a means of stabilizing both their economy, with respect to anticipated exports to the US, and their relationship with the US.
The initial cash grab at the border for the US Treasury from Chinese goods alone is expected to bring in over $360 billion in new tariff revenue in 2025. It is unknown how much China is willing to pay to continue to play in the US economy. The US has certainly demonstrated a large appetite for Chinese goods; and if the proposed tariffs are implemented, US consumers will ultimately bear the brunt of the increased costs of goods, reduced access to goods, or they simply will no longer be able to acquire the good if the Chinese company that provides the good isn’t willing to pay the tariff. Chinese businesses have plenty of attractive market opportunities elsewhere in the world, such as Latin America and Africa.
Global supply chains can anticipate major reshuffling and disruption from a US-imposed tariff on China because the Chinese suppliers that normally ship to the US will look for other markets to sell to; and the companies that rely on source material, particularly for manufacturing materials from China, may have to seek out new suppliers. All this shuffling around culminates in a bottleneck around the few tariff-free suppliers that have the capacity to accommodate the needs of suppliers.
The Impacts of Chinese Tariffs on Global Clients
If much higher tariffs are imposed on China, law firms can anticipate their corporate clients will feel significant impacts across several industrial sectors. These effects will be both direct and indirect, potentially leading to a need for legal advice about how to comply with new tariff rules, avoid penalties, and renegotiate contracts. Here are some suggestions for how you can prepare your firm to seamlessly support your clients through a changing economic climate.
Planning for Compliance
Before advising clients in a meaningful way, corporate law firms must first familiarize themselves with Trump’s proposed plan. After gaining a foothold in the subject matter, briefly assess your client pool to see which clients have the greatest potential to be impacted by the regulatory changes of imposed tariffs on China. Since the clients who are most likely to be affected are also the most likely to conduct business in the manufacturing and technology sector, firms should ensure their clients are prepared to stem the following economic reverberations:
- Encourage your clients to inventory those products/services that could experience supply chain disruptions.
- Based on the proposed tariffs, encourage your clients to calculate the “worst case scenario" cost increase for those imperiled products.
- Encourage your clients to explore alternative supply chains to gain materials or alternative markets to which their materials can be sold.
- Encourage your clients to create company-wide policies that explain what the changes in regulation are and why your company must comply.
- Encourage your clients to implement company-wide procedures to track compliance and reduce the risk of penalties.
- Finally, encourage your clients to create employee training to ensure they understand how the changes in procedure affect their day-to-day work.
Companies will require legal assistance to know how to navigate the complicated and changing landscape of regulations. Your firm can best support your corporate clients by walking alongside them as they develop administrative infrastructure to comply with new rules and avoid potential penalties.
Customs and the Border
If your clients compete in the international business sphere, your firm should prepare to provide strategic advice on how US policy changes will impact their ability to import goods to the US and what rules they must comply with to conduct business with the US.
Of greatest concern is keeping abreast of the cost that will be associated with Chinese tariffs imposed by the US because these costs will apply to both goods coming directly from China and companies importing goods on behalf of China, though they are not Chinese themselves. Massive supply chain disruptions could result; so it is imperative that your clients stay well-informed about the US’s intentions as early as possible.
For any of your clients seeking to import goods from China, whether through a direct or indirect funnel, they should be ready to undergo increased scrutiny from Customs in the following ways:
- Anticipate more rigorous border inspections of goods. The more rigorous process is expected to delay the actual receipt of goods, so suppliers and distributors should plan for delay.
- Exclusions for some duties may apply to some goods. Clients will need assistance preparing and submitting exclusion requests to the relevant government agencies on their behalf.
- The country of origin a good is determined from will affect the duty amount assigned to it. Be ready to assist your client in determining the good’s country of origin so the appropriate border docs can be prepared and associated costs accurately calculated.
- The increased tax will also apply to small parcels and packages, not just large exports. Again, anticipate increased cost and delay of receipt.
- Providing information about the shipment in advance will help expedite the review process at the border. Check with your local border office about the type of information that an importer can supply to assist with this streamlining.
Clients importing goods from China should expect higher costs due to tariffs. In addition to preparing for regulation changes, your clients should also expect that the contracts or negotiation agreements they hold will need to be amended to restructure expectations between parties or establish new supply chains.
Contract and Service Agreement Preparation
Your firm should be ready to draft new contracts with suppliers in other countries or establish operations in alternative locations for your firms that conduct business on a global scale – even small businesses with an international market. When rewriting an agreement on your client’s behalf, remember to cover the following areas in the terms:
- Verify tariff classifications of imported goods affected by the agreement. China’s classification code is complex and multi-layered. Consider assigning a member of the team to learn and brief your firm on the classification system to better understand which categories your clients fall into.
- Determine which parties will be responsible for preparing the documents to pass customs and how the parties will share increased costs.
- Law firms may need to review and update contracts to include or modify force majeure clauses to reflect an expanded definition. Governmental actions and major regulation changes could be incorporated into a force majeure clause section to offset major disruptions to established agreement terms.
Business Negotiation
It is reasonable to anticipate disputes will arise if the extensive tariff-related changes are enacted as proposed. Law firms should be ready to represent clients’ interests in increased administrative hearings, including reviews with customs authorities.
Assign a point person within your firm to master international dispute resolution techniques to support your clients through administrative proceedings, which differ significantly from litigation. Minimizing the financial impact on your clients to shore up their corporate solvency is possible through administrative hearings, but you must be prepared to navigate the process:
- Understand the regulatory changes.
- Understand the key terms that are in dispute between the parties.
- Identify and propose clear business-based alternative solutions to achieve, to the extent possible, the purpose of the original agreement.
- Know, before coming to the table, what threshold your client will not cross; have other options for engaging in business if the original purpose of the agreement breaks down.
Conclusion
By understanding these potential impacts, law firms can better prepare to assist their clients in navigating the complex legal and business challenges posed by tariffs on China. This may require firms to bolster their expertise in international trade law, supply chain management, and cross-border transactions and mediation to meet the evolving needs of their clients.
Walker Clark also recommends you take the time to prepare. And we are here to support you! Contact us today for a complimentary 30-minute consultation on how you can begin to prepare your clients to navigate potential changes if steeper tariffs are imposed on China.
Sarah Max
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