The United States has a history of imposing tariffs and other trade restrictions on imports from many other countries. These taxes, originally designed to protect American manufacturers from foreign competition, often unfortunately result in prices for commonly imported domestic goods being driven up, putting the squeeze on low and middle class families.
In this article, we will take a closer look at the import taxes and other trade barriers businesses importing from Mexico can expect.
What are import taxes?
Import tax, also known as customs duty or import tariffs, are taxes placed on goods that are brought into a country from another country. The duty levied depends on the classification of the good as well as the country that it originates from. This levy is paid to the customs authority of the country imposing the tariff – in the United States, import duties are imposed by the U.S. Customs and Border protection.
The purpose of import taxes is to protect domestic industries from foreign competition by making imported goods equivalently priced or sometimes even more expensive, and can thus discourage people from buying them turning instead to domestic producers. Import taxes are also used to raise revenue for the government.
In some cases, import taxes are imposed as part of a trade war, as countries attempt to undermine one another’s economy by raising import taxes. This almost always has a negative impact on the global economy in the long run, and can lead to higher prices for consumers.
Import taxes may also hurt domestic manufacturers
Some industries with more complex assembly structures make use of processes like production sharing or co-production, where the manufacturing process is split between two or more different countries. This allows US firms to use worldwide resources and the lower cost of labor in other countries to reduce the cost of production of the upstream components.
This means that technical components of a passenger vehicle can be manufactured in other countries and imported to be assembled in the United States. This cooperative activity can be beneficial to all countries involved by creating manufacturing jobs in all nations.
Through this shared production, unfinished parts are commonly transported across the border several times during the manufacturing process. With import taxes imposed virtually on each step of manufacturing, the cost of goods would rise significantly. In the worst case scenario, it could completely shut down the cross-border co-production efforts.
How can import taxes affect business owners?
As we have discussed, import taxes can have a significant impact on businesses. When import taxes are imposed, they will affect and increase costs at every stage of the supply chain. Instead of being protective, it might even hurt local communities and reduce job opportunities locally.
The higher cost of goods hardly benefits anyone. As the cost of production climbs, this increase in price will almost always be passed on to consumers or absorbed by the business. Ultimately, it will eat into your profit margin and may affect your competitiveness in the market.
Fortunately, there is a way that businesses can avoid getting tangled up with import taxes. As a business owner, a competitive strategy would be to import your goods specifically from the partner countries which the US has signed free trade agreements with. This will allow your business to pay fewer tariffs for similar goods exported from other countries.
Among these free trade agreements, the United States-Mexico-Canada Agreement (USMCA) stands out the most. While eliminating the tariffs on most goods imported from Mexico into the United States, it also allows businesses to take advantage of the lower cost of goods from Mexico.
Take advantage of the free trade agreement with Mexico
The USMCA is designed to promote free trade and boost economic activity between the partner countries. Under the free trade agreement with Mexico, most goods imported from Mexico would be eligible for free or reduced duty rates.
By leveraging these agreements, business owners like yourself can capitalize on lower production costs and shorter shipping routes. With much shorter lead times on goods, you’ll be able to react quickly to market trends and beat your competition to the market consistently.
To qualify for tax-free imports under the USMCA, imported goods have to meet certain origin standards that are defined in the agreement. Since the USMCA is set up to encourage economic activity within the region, a majority of the product has to be made with North American content in order to be considered eligible. By working directly with one of our vetted factories, you’ll be able to ensure that this is the case.
Mexico’s lower cost of labor and its geographical proximity to the US make it an attractive proposition for many companies. Combined with the various tax benefits the USMCA offers, importing goods from Mexico will allow your business to gain a serious strategic edge over competitors who rely on overseas suppliers.
At Zipfox, our team has selected trusted Mexican producers with decades of manufacturing experience. Why not click below to see what they can offer your business, and get started importing your goods today?