Shifting Policies and Complex Trade Agreements: the Forces Shaping Global Trade, Part 1 of 2

Welcome back to Womble Perspectives. Today’s episode is the first in a series focusing on the complex world of international trade. From shifting tariff policies to trade agreements, we’re exploring the forces shaping global trade. Whether you’re a seasoned economist, business leader, or simply curious about how trade impacts your daily life, this series will bring you the insights you need to stay informed. 

About our guests

• Alan Enslen
• Rob Jenkins
• Peter Snaith

About Womble's International Trade and National Security practice

About Barbourne Brook

Transcript

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PODCAST INTRO

Welcome to Womble Perspectives, where we explore a wide range of topics, from the latest legal updates to industry trends to the business of law. Our team of lawyers, professionals and occasional outside guests will take you through the most pressing issues facing businesses today and provide practical and actionable advice to help you navigate the ever changing legal landscape.

With a focus on innovation, collaboration and client service. We are committed to delivering exceptional value to our clients and to the communities we serve. And now our latest episode.

EPISODE INTRO

Welcome back to Womble Perspectives. Today’s episode is the first in a series focusing on the complex world of international trade. From shifting tariff policies to trade agreements, we’re exploring the forces shaping global trade. Whether you’re a seasoned economist, business leader, or simply curious about how trade impacts your daily life, this series will bring you the insights you need to stay informed.

And now, on to the episode.

Peter Snaith

Hello and welcome to our new podcast series in which we'll be diving into a topic which is rarely far from the headlines these days. The shifting sands in relation to tariffs and international trade create challenges for importers and exporters across the globe as businesses struggle to find certainty for their supply chains and routes to market. I'm Peter Snaith from the International Trade Team at Womble Bond Dickinson in the UK and I'm joined today by fellow contributors who bring a mix of legal, strategic and operational insight to the table on these issues.

They are Rob Jenkins from the UK-based customs duty consultants at Barbourne Brook and my partner Alan Enslen from our cross-border trade team at WBD in the US. 

WBD and Barbourne Brook have been working together since before Brexit, helping businesses with their customs compliance and duty planning, using a range of solutions to help clients mitigate the tariff costs attaching to the import and export of goods. And with the US being the single biggest market for the UK businesses after the EU, it's invaluable for Rob and me to be able to link up with Alan and his team in the US, especially since the beginning of the second Trump administration, to try and keep up to date with the seemingly constant changes in trade policy.

So, between us, we can help businesses decode what's happening and more importantly, what to do about it. And with the backdrop of the evolving EU-US trade deal and the ongoing movements we see in the application of tariffs on goods imported into the US and from the UK and rest of the world, we hope this podcast series will help businesses keep on top of the changes and take steps to protect and potentially improve their position.

So, let's start with the big picture. What are the key themes we're seeing right now in the world of tariffs and trade? Rob, over to you first. What are you seeing and what are the businesses you're working with focusing on currently?

Rob Jenkins

Thanks Peter. I think key themes first off, I see two real core themes. First one is there is increased volatility, uncertainty, materiality in this space at the moment, which is causing quite a lot of pain. And, you know, going into that in a bit more detail from the UK side, we were just getting over Brexit, then we had COVID-19, which changed all the different working practices, and then along came the Trump administration two, which you just alluded to there with the additional tariffs and things going on, and reciprocal action. There's a lot in this space which is causing quite a lot of confusion and pain with the people we talk to. 

Things used to take months and weeks, now they're taking days and hours to change and that's having its own particular difficulties. I think the second theme I see coming through, and I know we'll come back to it and talk about it a bit more, is the greater use of technology in this space helping to resolve some of these problems. This isn't just a customs issue or a tariff issue. We're seeing a lot in power BI and AI and things like that at the moment. Some of those tools are increasingly useful in this space. So the two themes, uncertainty and technical advancements.

Peter Snaith

And Alan how about you? It's pretty complicated on your side. I know there's a tendency for people to lump all tariffs together, but they're not created equally, are they? Can you help us unpack the different types, maybe with examples from sectors like defense, steel, pharma, and also some of the more general tariffs covering low-cost manufacturing hubs like China?

Alan Enslen

Sure. But before even doing that, I'll say, you know, to build on kind of what Rob just said, I think that in terms of the big themes that we're seeing, I think the most overriding one is the reality that the chaos doesn't stop when the tariff deal between countries or between, you know, at least from the U.S. perspective, between countries or unions or when a tariff program is rolled out.

It really just enters a new phase of negotiation. And so, whereas companies were hoping to get and are hoping to continue to get surety from tariffs being announced to say, okay, now we know where the water line is and we know what we need to do, everybody's realizing that the negotiations are going to continue. 

So, we're not going to have certainty, you know, at least from the U S perspective, most likely during, you know, the majority of this Trump administration. So, that I think is a major reality that has affected business planning and, the, you know, from what we're seeing so far, it's caused a lot of people to stay on the sidelines. So, which you can't do forever. 

So that's one big theme. The other thing that I'd like, I think it's good to mention upfront is what's driving all of this, at least again, from the U S perspective is Chinese overcapacity.

So a lot of the moves that you're seeing the US do are designed to address the Chinese overcapacity issue and to minimize its impacts in the US. And the reality for us as folks who deal with global companies and global supply chains every day is that, you know, we liken it to squeezing a balloon. You know, when you squeeze it, you make pressure in one area and you may reduce the volume of it, but it pops out somewhere else.

And so right now, one of the challenges that companies are going to continue to face in the big picture planning is where are those surges going to be? In other words, you know, if the U.S. is clamping down as having a little bit less China trade, which is an arguable point, but let's assume that's the case, that those goods are going to flow to other markets and then disrupt those markets in the same way. So I think Chinese overcapacity is one of those big picture themes that companies have to keep in mind as to how are they going to be impacted by that as they do certain supply chain, you know, tweaks or adjustments.

Peter Snaith

On that point Alan, about the certainty during the Trump administration, I mean there's only however many years there are left which actually for business planning is not that long. So even if there were certainty during the administration, which there almost certainly won't be right now, there's only X years left and then you've got a, well possibly Trump three, but then what's the best you could possibly hope for in terms of certainty?

Alan Enslen

Well, I think that even this administration, mean, I mean everybody knows Donald Trump, you know, President Trump likes to have chaos and considers that leverage for him in dealing with things. And that's not just in tariffs. You're seeing it in play right now with Ukraine, Russia. You're seeing it in a bit more political way with the U.S.-Brazil relations. The hope is that over time they're going to be, decisions are going to be made that are going to force some certainty into the pathway. And so I think that, you know, that said, businesses can't stand on the sideline forever because they're, you know, missing opportunity. I mean, I know we're seeing a bit of an uptick now already in M&A activity and things like that, that are signaling that, you know, businesses have stood by. Now they see that chaos is a bit of the reality. It's a little bit more predictable chaos now. And so I think that that is, that's helping businesses maybe come off the sidelines a bit.

Rob Jenkins

Alan, it was interesting that you were saying that signing the trade agreement isn't the bit where all the clarity comes because it's something we're seeing our end is what is announced with these trade agreements is too high level for people to take action against a lot of the time. It's not really providing the detail which is actionable for our clients to embrace.

Alan Enslen

Right. I think that's a great point, Rob. I mean, you know, it's case in point, the U.S.-UK trade agreement is the details, the nitty gritty, as we say, is being negotiated right now. And so one takeaway for that for kind of getting out of cycle here a little bit, but one takeaway from that for, you know, for companies is that you might have the ability to influence a bit of that, you know, whether on the UK side or the U.S. side to make sure that folks that are negotiating those agreements, understand what the ramifications might be for certain businesses, certain companies, certain sectors, and can make some decisions that don't have any unintended consequences.

Peter Snaith

So, I guess an impossible challenge for you, but trying to simplify the different types of tariff on products and on markets, and then you reference to stackability, etc. Sort of to try and unpack that a little bit in a sort of what's the how can you explain that to people who may not be familiar with the different types of tariffs?

Alan Enslen

Well, I would say that's probably the most challenging part of this from my perspective as a, you know, as a trade lawyer, you have to get a bit nerdy to get in the weeds to differentiate between the tariffs, but it is helpful for any kind of business analysis. And that's because the tariffs are created for different purposes. And again, this is not unique to the U.S. It's just that it's more flamboyant right now, I think, from the U.S. perspective because that's, it's what's kind of driving a lot of the train, but really looking at, you know, in the legal context, we'd say the underlying statute, the underlying authority that gives, you know, that the president uses to do certain things, but with, you know, not saying that, you know, everybody has to get into the legalese, but really it's trying to break down the tariffs in a way that shows what, what their purpose really is because in addition to looking at what the purpose is, it's really an indicator as to how long they're going to hang around. And so I would say that, you know, if you want to look at the U.S. tariffs here, the best way to break them down is to start with which tariffs are under the International Emergency Economic Powers Act. IEPA is the term you probably will hear in the news. That is what gives the president the ability to do a lot of things through executive order very quickly. And it doesn't require an investigation and, know, so those IEPA tariffs can come and go overnight or multi-times in a day, as we've seen sometimes. 

And, just to break that down a little bit further, understand that under IEPA, that's where you have the very original tariffs that you first started hearing about back in February were the ones against Canada, Mexico and China and it related to the fentanyl trade and the migrant issues and immigration crisis and that kind of thing. So that's one prong of IEPA. That one doesn't get talked about very much anymore, even though it's still in place. It really only hits Canada, Mexico and China right now. The one that we all hear about multiple times a day is the other prong of IEPA, which is the reciprocal tariffs.

And we'll spare the argument that they're not really reciprocal. They were in theory based on a reciprocity when they were first formulated. If you remember in early April, liberation day is called by some in the US. Those tariff rates for countries there was a US trade representative USTR investigation that was a report that under was underlying those.

But really, as it appears in hindsight, that was a watermark for negotiations to begin. So those are the tariffs when you hear what are the, what is the U S tariff against, you know, in certain name of country. Um, you know, those are the reciprocal tariffs. That's, that's what they're known as. So understand if you're talking about reciprocal or now we'll shift to the other major group of tariffs that's in play right now, are the section 232 national security tariffs in the U S.

And as it says, mean, those are targeted toward things that have national security implications in the US. Those do require a fairly extensive investigation by the US Commerce Department, Bureau of Industry and Security. And underlying that report, then there's action taken and tariffs are assessed. This is not a new concept. 

If anybody remembers the fun of tariffs from back in 2018. This is what under is underlying the steel and aluminum tariffs or shall I say aluminium tariffs, that are that are still in play and they're a little bit more narrowed. But you know the 232 tariffs tend to be more sector focused or commodity focused and and so those there is more certainty with those typically because there is a there's a line drawn but they have become one of the most complex tariff arrangements I've ever seen because of the injection of derivative products and that concept into those. That's what I see really making companies frustrated is trying to determine how to even determine the tariff for a section 232, you know, relevant product. Because it's, it's, we won't, won't dive into exactly how you calculate that, but it's a complex arrangement, but again, back to the major big point, that's why it's important to know if we're talking about a tariff. Is this an IEPA tariff, reciprocal tariff, or is this section 232? Because again, you can think about it, if you want to think about the major differences, the IEPA tariffs are typically done more to affect, it may not be a short-term problem, but it's more of a specific issue. Think fentanyl trade, think migrant crisis. You know, think trade imbalances between countries. Those are the main things that it's done for. Whereas the Section 232 tariffs are much more focused on trying to drive production back to the U.S. and, you know, and trying to affect that aspect of the balance of trade.

Peter Snaith

You used the word or there is this this either or or is this we talk about stackability Is there a double whammy effect on some do they do they sort of you get both in some cases?

Alan Enslen

Yeah, that's a great point. Really, You mentioned the term stackability. And that's where it's another issue that gets very complex, very fast. But it's a very relevant issue to companies as they're trying to assess what is our tariff risk for this course of action versus that course of action. And the stackability concept is that in some cases, these tariffs, as the word indicates, would stack on each other.

And you would have a cumulative tariff. So it's not just, Oh, I'm under the reciprocal soI'm not under 232 depending on what the product is. Um, that's coming in, you know, the merchandise that's being entered into the U.S. through customs. You know, you could have, you know, multiple tariffs applying because. You know, when I talked about IEPA and section 232 a minute ago, there are particularly for China still section 301 tariffs in play from 2018. And depending on what sector you're in, there might be section 201 tariffs from safeguards. We're really not getting into that today because those are more isolated situations. You know, if you know, you know, kind of things in terms of those things apply. But the stackability Peter that you mentioned is really important again, because we have seen some companies that are like, hey, I'm good. You know, I'm dealing with, you know, this country and I've got a 15% tariff rate, but they're not looking at the fact that yeah, but what you're bringing in is actually subject to another tariff regime. And it also has an impact, I should say, this is kind of stepping aside of the stackability issue, but back to the major differences. Another reason to know differences, if you're a business, manufacturing business, is that some of the tariffs allow duty drawback, for example. Some do not. So those are key distinctions to look at that I know Rob and you and your team are dealing with every day, I'm sure. So really, that's the way I look at that. You're to have to edit a good bit of that, I think.

Peter Snaith

So this isn't just UK-U.S. trade albeit there's a big emphasis on that around Trump tariffs at the moment. But I guess Rob, we've talked a lot about the fact that businesses are leaving money on the table. And we see, we talk about tariffs and you think that that's all negatives for businesses. actually, a lot of work that you've done has found enormous savings and reclaims, et cetera.

Some of the work which can be done around tariffs can be positive as well. So what do we mean when we're talking about changes that businesses have or haven't made and what savings can that deliver for them?

Rob Jenkins

It comes back to this concept of leaving money on the table. We see millions of pounds worth of unnecessarily paid duties or dollars in the US sense. And that could be for lots of different reasons. So it could be that there's a lack of understanding of the core elements that make up the customers’ duty costs, such as tariff classification, the origin of products, what has to be included or should be excluded from the value. There's a lot of confusion around that. It could be because people aren't using all the free trade agreements out there. It's becoming a bit of a tangled web. 

There are so many of them and they interplay with one another. It could be with regard to people aren't using or availing themselves of the customs duty release that are out there. Again, there are lots of different releases which apply in various different circumstances.

Going back to Alan's point on the differences between the U.S. tariffs, he picked up on drawback, that's one of the key bits there. We have lot of success with UK clients who send things over to the U.S., they're not needed there, they can come back and that might be a potential drawback claim in the U.S. It's also a potential return of goods relief in the UK, you're effectively removing two customers' tariff hits.

So there's things like that and people just aren't aware of them. There are a number of reasons I think they're not aware of them. One of the key ones is the information or the data to sort of understand what's going on is sometimes a little opaque. For example, customs tariffs aren't necessarily listed as a separate item in the account so you can pick up the cost of what's going on.

A lot of the data that's involved may sit outside of the business in brokers software systems rather than importers or exporters systems. So it's difficult to get to the bottom of. And I think there's also some confusion as to where does the responsibility for this or the availability to reduce those costs sit within the business. Now, is it a finance issue because it's a tax? Is it a logistics issue because they're dealing with the brokers? Is it a procurement issue because they're dealing with the suppliers and trying to, to drive down those costs. 

And I think sometimes it falls between those buckets. So when we're talking about money being left on the table, it's addressing all of those issues, Peter, and sort of saying, well, what are we spending at the moment? Should we be spending that much? And are there any levers that we can pull to actually reduce those costs? And the nice bonus is we can go back in time as well. So we're seeing a lot of customs duty reclaims that we're doing with clients at the moment because they've missed these opportunities.

We can often correct that and get the money back in the UK and the European Union. We can go back three years. Alan, think it might be longer in the US. you go back up to five years for reclaims in the US? 

Alan Enslen

Yes, in most cases.

Rob Jenkins

So obviously that money left on the table could have been historic money as well as current money and that snowballs into into rather large amounts. And that's why, as I say, we're finding millions and getting those back for the clients.

Peter Snaith 

Turning to what everyone wants to know what they can do now. Talking about action, if I'm a business leader listening to this, what can I actually do now? I are there such things as quick wins and about rethinking your supply chain or are there more tactical things like reclassifying products or exploring alternative sourcing? Rob, what's your thoughts around that?

Rob Jenkins

I think my take on that, Peter, is if we're sort of talking in the context of the UK, US at the moment, we're seeing more interest in tactical decisions, things that can be done quickly because it's so volatile out there, it's quite difficult to make long-term decisions as to moving your supply chain around. But there's all sorts of things you can do tactically. So looking at those customs elements, looking at whether the duty release are there. But from very pragmatic point of view, I think the first thing to do

is establish how much customs duty people are paying and what have they been doing at the moment because you usually when we have those conversations they're just often a blank look and that's the place to start really is this something worth attacking we think it is because the numbers are are escalating as these tariffs increase and the retaliatory measures are taken but the first step is getting your head around what's there the some more tactical issues

approaches to this rather than leaving the supply chain. We have businesses at the moment. You might be sourcing from all over the world and if those goods were going direct from say Vietnam to the US, they would be subject to higher retaliatory or reciprocal tariffs than they would be coming through the UK. So our clients are asking, well, if we bring them to the UK and we send them on to the US, does that get us around this problem? And it doesn't because it doesn't change the nature or the origin of the product. So then the follow up question is, OK.

What would we have to do to change the origin? So it's a UK origin rather than a Vietnamese origin, for example. And there's plenty of planning people can do around that. So they need to understand the rules, but how much work has to be done in the UK for them to change that origin from Vietnam to the UK and enjoy a 10 % tariff into the US, rather than a 30, 40, 50 % tariff.

Peter Snaith

Just on that point in terms of changing the origin, that doesn't just mean manufacturing, that could also mean R&D and sort of investment in other ways. Is that right? Or is changing origin just around processing and actually physical manufacturing and processing of goods?

Rob Jenkins

It's very nuanced. I'll let Alan talk to the US origin rules in a second, but it's not a question of just

putting a margin on something and saying, okay, we've got profit now in the UK. There are basic rules which say you have to do more than minimum processing to change an origin rule. But from our side, that origin rule could be anything from changing the tariff, having a classification of the imports to something different on the exports. It could be something around that. It could be something with regard to a stage of production something has to go through. It's very nuanced and it does tend to depend upon the product which is coming in and going out.

Peter Snaith

But in some ways, though, sounds like there's potential for the UK to be the right place to manufacture goods because actually you can then take advantage of preferential tariff rates potentially in the longer term.Rob Jenkins

I think so. mean, you know, because of the difference in the duty rates, Peter, you know, you're not looking at a 2 % saving here. If the duty rate is a 25 % difference into the US, then you've got a lot to play with really. So how much do you have to do here? And it is making it increasingly attractive to do this, that sort of work in the UK. And Europe is only 15%, I know it's 5 % higher than the UK, but they're much lower trade tariff rights in various other countries.

Peter Snaith

Great, so Alan in terms of quick wins or things to do right now, do need to add on to that?

Alan Enslen

Yeah, I would just build on what Rob said. I mean, there are certain things that companies can do that no matter what the tariff situation, no matter what their global opportunities are, are going to be things that are really threshold issues. And that first and foremost, as Rob said, is the harmonized tariff system classifications, making sure that those are solid. We've run into a number of times companies will say, when they relook their HTS classifications, they'll say, well, that's just what we've always been using because somebody determined that that was right, you know, eight years ago and nobody's looked at it since then. And, know, the harmonized system does change over time. So it's always a good, you know, it's, would expect a trade lawyer to say this, but it's always a good time to look at those HS classifications to make sure they're correct. And then to build on what Rob said about the country of origin, that really, we always say, country of origin is king. I know that has different ramifications to say that in the UK, but it's a, it's the, is something that really that like the classifications, it's a really more in depth look to determine, you know, before a company invests money into shifting a segment of the inputs or a segment of manufacturing to another jurisdiction. Is that really going to move the needle when it comes down to country of origin and, and get you a lower tariff rate?

Because, you know, and that's a very complex analysis that has to go in that. And it's oftentimes something that people will make assumptions about that are just not correct. so we do recommend country of origin relooks. 

And I will say, here's another reason why country of origin is now even more important than ever. If you look at some of the US tariff regimes, particularly on Southeast Asian countries, where you'll see, you know, a tariff rate of X, let's say it's 15%. however, they'll have a trans shipment rate of 40%. And what, what the U S is trying to say is, Hey, we're going to go ahead and draw a line in the sand to make sure that, you know, your jurisdiction doesn't become a backdoor for Chinese over capacity to flow into the United States. and I think other countries are doing the same thing or likely to kind of do that. So, you know, transshipment to be able to prove that you're not transshipping the first thing you're going to be looking at is country of origin and the analysis there So that's what another reason why you know, even though that's getting in the weeds that's a that's a tactical issue that makes it very important to You know to really weigh in on your country of origin determinations and give them a relook if you haven't

Rob Jenkins 

Just on that tactical point as well, Alan, I mean, this really is getting into the weeds. But when you were talking about the different types of tariffs in the US, I mean, some are very much driven by origin. But some of those 232s, they look a little bit more classification based, that if you could classify away from what's covered in the 232, there might be an opportunity there.

Alan Enslen

Yeah, I think there is. that's also where that's a great point, Rob, because it also brings into calls into point one of the other tactics that companies can use. And that is on the policy side. A lot of times the scope of these 232s starts off at one point. And then they morph over time to have more exemptions, more exceptions and that kind of thing. It's one of the reasons why the Trump administration, the Trump 47 administration has been very clear that from the outset, they're saying no exemptions, you know, and things like that to 232s because they don't want to, you know, create a, create an opening in it. But, in the absence of a, of a 232, exemption process, companies can try to go to their officials, their elected officials, uh, the public officials that are weighing in on what should be in scope, what should be out of scope of the 232s. And that goes back to like one of the first points made where, you know, when a program is announced, the negotiations just start. That makes more sense when you're talking about between countries, but we really mean that in the, in the context of the section 232 programs as well, because companies with, you know, lobbying or, or, you know, just putting it on the radar of their, of their elected officials, are definitely making known, you know, the, the unintended consequences. And that's something that I think is going to cause these programs to, to, to not ever look the same. If you took a snapshot from one month to the next.

Peter Snaith

We touch on what can people do now with also planning ahead and what should businesses be preparing for. I don't know whether this is a do now or prepare for, but we hear a lot about global supply chain hygiene. What does that really mean in practice? Are we talking about shoring up suppliers, finding safer alternatives or building more stable trade relationships? What's your view on that?

Alan Enslen

Well, I would say that, you know, it's in terms of looking up, you know, it's causing people to look further up their supply chain and further down their distribution chain really, I think is what the impact of a lot of this is. And so, you know, for example, if you want to go back to that, that analogy that I used early on about squeezing the balloon, if you suddenly realize that, you know, one of your supplier countries, which you thought of as a safe and stable economic situation for you, it may be the benefactor of some overflow or some new injects or some new concerns like that. so that's why it really, I think one of the main takeaways from this is that companies with global supply chains can't ever do anything based on a snapshot. You have to do a continual rolling analysis to really determine where these effects are happening within your supply chain.

Rob Jenkins 

It's very interesting thought, isn't it? If you just take any product to see how many borders it must have crossed before it gets into the final market, when you've got the raw materials dug out the ground, you've got them turned into commodities, perhaps in a different country, turned into components somewhere else, subassembly somewhere else after that, moving to and throw to and fro. There could be an awful lot of different borders crossed and tax points incurred from a customs point of view before the things get there, and any sort of unexpected costs in any of those legs can compound over time and freeze things up really. So I guess that's what you're talking about as well there Alan with supply chain hygiene.

Peter Snaith

That’s great. Okay, so thanks so much to Rob and Alan for joining me today. This is a complex space, but hopefully we've helped break it down a bit and give listeners some practical ideas to take away. So until next time, don't be too pessimistic, stay informed, and don't let concerns about tariffs hold you back.

EPISODE OUTRO

Thanks again for joining us for the first part of our episodes on international trade. Stay tuned for next week when Peter, Rob, and Alan talk Brexit, borders, and potential bear traps when it comes to cross-border trade.

POCAST OUTRO
Thank you for listening to Womble Perspectives. If you want to learn more about the topics discussed in this episode, please visit The Show Notes, where you can find links to related resources mentioned today. The Show Notes also have more information about our attorneys who provided today's insights, including ways to reach out to them.

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