Tariffs 2.0: How strong trade-compliance strategies help avoid costly errors
David Mannarino
All right. Well, welcome to our tariff roundtable. Now that we're past the July 9th deadline for the tariff pause. Businesses are facing critical decisions about sourcing, pricing, and liquidity. And they're also looking for expert advice on the topic of tariffs. So today, we're going to break down the latest tariff situation. We're going to talk about its impact and share practical strategies to help you manage your business and answer any questions you have.
At the end of this we'll also send out a recording of the webinar. So with that, I'd like to ask each of our panelists to introduce themselves. So let's start with Mollie
Mollie Sitkowski
Hello! So I am Mollie Sitkowski. I'm a partner at Faegre Drinker Biddle & Reath LLP. I'm based out of the Chicago office, although currently I'm in Wisconsin, and my parents live in Michigan. So I have all the Upper Midwest covered. I practice in Customs, so import work, and then also export controls and sanctions. And I've been doing this about 14 years. So I lived through the Trump one, and this makes that look like it was easy. So.
David Mannarino
All right. Thank you, Mollie. Let's move over to Bonnie.
Bonnie Kersch
Hi, I'm Bonnie Kersch. I am the founder of Magnolia Global Trade Solutions. We're a global trade compliance consulting company. Mollie has the Midwest covered. I'm in Baton Rouge, Louisiana. So I'm the opposite end of the country. I guess I've got the South covered. So yeah, looking forward to being here today. Thanks, David.
David Mannarino
Great. Thank you. And John.
John Elias
Hi, everyone! My name is John Elias. I'm the director of compliance for Cabinet Works group a manufacturer of, as you guessed it, cabinets. I've been in customs and trade compliance for a little under a decade, now started cutting my teeth with Trump one back in 2018, and it's just been a roller coaster since then. So happy to offer any advice and expertise that I can offer.
David Mannarino
Thanks, John, and my name is Dave Mannarino. I am the moderator for today's webinar. I'm a regional commercial executive, leading teams in Michigan and Ohio. Majority of my career has been spent in the EMEA region, focusing on European companies that have operations in North America.
I also led the private equity and commodity trading platforms in London, England, before moving back to the United States to join KeyBank about six years ago, and I am absolutely honored to moderate this panel of experts. This is going to be a lot of fun, and I hope that you find the content useful for your business, and I also want to remind you that at the end there's Q&A. So you'll have your opportunity to ask any questions that you have.
So with that we'll get into the agenda. Let's take a quick look at what we'll cover today, so that you know what to expect and can get the most out of the discussion. So first, we'll start with a breakdown of the latest tariff updates post July 9th and then what it means for your business. Then we're going to share some insight on our recent KeyBank pulse survey and how executives are responding to the current environment.
Then we're going to look at some real-world examples of successful adaptation and financial solutions. And then, finally, we'll close by answering any questions you have. So you can drop your questions for the panel in the chat anytime during the roundtable.
Okay, so let's get into the headlines. Where are we today? There are a ton of moving parts leading up to yesterday's announcements and things continue to evolve. I mean, I woke up this morning, and it was like the news just keeps coming in. In particular, Brazil and Copper were the 2 most recent things, at least, as of this morning, which probably has changed a bit, which we'll talk about in a minute. But before we do that, let's just put a little bit of framework around the current situation.
So, as you know, the administration's 90-day tariff pause expired yesterday. Some countries have received letters; some countries are in negotiation but there is quite a bit of confusion across the board. Yet when you look at the overall stock market, it's recovered the majority of its losses. Despite the tariff volatility. The U.S. Dollar has also declined around 11% for the first half of 2025. Exporters and importers are still waiting for clarity given all the policy volatility.
And most recently there's a lot more heightened concern around the U.S. debt levels. Given the passing of the big, beautiful bill. So, against that backdrop, I thought we could start with Mollie. Could you just walk us through what yesterday's news really means. And how organizations are really thinking, or should be thinking about this.
Mollie Sitkowski
So I would say, between Monday and yesterday we had all these countries receive letters that President Trump posted on social. So just as a reminder. These letters are not binding; there's no legal effect to them. President Trump did say, these rates here on the right are going to take effect. August 1st but there's been no actual legally binding notification of that.
The only legally binding thing that has been published was on Monday when President Trump issued an executive order, formally moving the July 9th — yesterday's deadline — to August 1st. So, we know everything's going to remain at 10% until August 1st, and then it's possible that these countries will have these rates. But there's basically time allowed for negotiations between now and then. So these are not final. It's not the final answer.
Same with the copper. On Tuesday, during a press conference, President Trump mentioned that he would be imposing tariffs of 50% on copper imports as well as their derivatives. Now this is pursuant to a investigation that was announced in late February or early March. I have a lot of dates, but that's not one of them.
And so he announced that in a press conference, and then he announced it again on social last night, once again, not legally binding yet. He did say the effective date was August 1st, so people will have a chance to kind of get used to that. We do think that that 50% will likely be the rate that people end up with, because the section 232 rates, which is what the copper was announced under is like the aluminum and steel, and the auto tariffs, and those rates don't change. There's not as much negotiation now.
Different countries may have different rates depending on their negotiations. But right now, we think the 50% copper tariff is likely, however, it has not been announced in an executive order or in the Federal Register. And so, as of right now, it's not legally binding. So that's just some important things to remember. The news makes a lot of a lot of noise out of this. But a lot of times we wait for the actual, you know, executive orders or Federal register, even customs implementation instructions known as CSMS.
Before our clients really take this to heart, another thing to note in the letters, there was three important kinds of additional information besides the tariff rates that were listed in there. The first is that if a company, if a country retaliates that we will increase our rates correspondingly. So let's say Europe retaliates with a 10% tariff on things, then we'll add 10% to their rate.
The second is that these reciprocal rates may stack with future 232 actions. So currently we have the 232 actions of auto and auto parts and aluminum and steel, and the reciprocal rates initially didn't stack with either of them. They currently don't stack with the auto tariffs but they do sort of stack with the aluminum and steel, ie. Aluminum steel rates are based on content. So if I import, let's say, a structure like a shed of steel, but it also has plastic. It has other things in it. I'm only going to pay the 50% tariff on the steel content.
However, if I import that from China. Then I also stack it with the China reciprocal rate of 10% as well as some other tariffs that maybe we'll talk about. But I also then pay the 10% on just the non-steel content.
So, stacking with 232 is not something that has been done in the past. So, the fact that the letter left that open was important for everyone to know because during his press conference on Tuesday, he mentioned the copper tariffs, which will be 232, so they could stack. With these he mentioned a pharma, 232 investigation to be released at the end of July, so they could stack with these, and a semiconductor 232 investigation which could stack with those. The final note in these letters, which we are taking big notice of was that in the letters he said that if an importer transships through one of these countries, they are not going to receive this rate. They will receive the rate of the country that they were trying to avoid the duty for.
That's kind of already the law because of our country-of-origin requirements. If you are just sending something from China, let's say you're sending powder of some sort in 1,000 kg bags, and you send it to Vietnam, and they just put it in 10 kg bags and send it. That is a transshipment that doesn't change the origin, and so you would already receive the China rates. So, the language in that is a little confusing, because if you're familiar with trade law, you know that that's already the law.
And so our questions are, is this going to change something about the law? So that's kind of my update. And I'm happy. If John and Bonnie want to chime in about other things.
David Mannarino
And the other point I'd like to just bring up with them like, but — transhipping is that illegal.
Mollie Sitkowski
Well, yes. So, if you say that the country of origin is Vietnam from those bags, and it's actually China and customs discovers it. They can issue civil penalties of anywhere between two times the loss of revenue. So two times the loss of duties up to the value of the products depending on the level of culpability. And there's also false claims, act cases now that are alleging transshipment. And in those cases, you get 3 times the duties, or, like you, have to pay three times the duties that customs lost, as well as the duties owed, and false claims that cases have a 10-year statute of limitations, while customs actions only have a five.
David Mannarino
Well, it seems like it's getting more and more complex, that's for sure.
Mollie Sitkowski
I can't remember the name of my children, but I remember the dates of all the tariffs.
David Mannarino
Yeah.
I mean, I guess in that in that same light, you know, Bonnie, I mean, how do you see these decisions really affecting overall the overall trade landscape, I mean tariff classifications, custom, valuation, you know.
How does that? How does that all kind of come together.
Bonnie Kersch
Yeah, that's a really great question. You know how it affects the overall trade landscape is interesting, but also I find it interesting how it sort of permeated the whole like — everyone is now talking about tariffs. People who didn't even know what the definition of the word tariff was. I mean, we saw Lizzo appear on Saturday night, live with a shirt that said, “I'm terrified right?” I mean the way that this has like permeated pop culture is fascinating. But as far as what companies, you know, Molly gave a really great update. And there's gosh! There's so much more we could all talk about. You know, of everything that's happened since January 20th right? But the way that companies should think about how to deal with this Dave is effectively right now. Your tariff classifications and your valuation are so much more critical and important than they were before, because you know, higher tariffs mean that even a small classification. Error can really have, you know, cause very, very expensive mistakes. So now is truly the time for companies to scrutinize their classifications and also their valuation methodologies to ensure accuracy.
So not only to mitigate tariff exposure right? Because there are some things. If you're thinking about valuation, there are some ways, some legal ways to declare a lower value than what you may have been declaring in the past. There's a concept called 1st sale that you could maybe qualify to use. There are also legal deductions from your valuation. That you may not be able, you know, may not be currently taking advantage of that you should look into right. But there are also a lot of let's say, tricky valuation schemes that are popping up right now that you want to make sure that you're vetting with a professional, a trade compliance professional before you're just saying, “Oh, yeah, that sounds great.” And going with it, right?
Because right now, and John and Mollie, I'm sure you're both seeing this as well. I'm seeing much greater scrutiny from customs authorities on how goods are classified, how they're valued, how the country of origin is being determined. We're seeing a lot more what we call CF 28 and CF 29. These are basically notices from customs that are saying, “Hey, something doesn't look quite right here, and we need you to respond to us immediately and tell us, you know, why did you use this valuation? Why did you use this classification?” So you know, choosing the right classification isn't just about compliance anymore. It's also about cost savings keeping your landed costs competitive.
So those are definitely, you know, things that companies should be looking at as well as exploring tariff engineering right? And along with the section 232 tariffs on steel and aluminum, and upcoming on copper and pharmaceuticals and all kinds of other things that Molly was mentioning earlier? You might ask yourself, can I replace the steel and aluminum in my products with something else?
Right? Is that possible? Or can I reduce the amount of steel and aluminum, or can I start, you know, using steel or aluminum that's like cast and smelt in the Us. Instead, and avoid some of those costly tariffs. So it's where you really need to spend that time looking at the raw materials that go into your products and questioning your sourcing, your manufacturing the items, the components that go into your products, you know.
Look at whether you can source them from a USMCA partner country, right, like Canada or Mexico, where you may be able to take advantage of some lower tariff rates there. So, there's all kinds of things to think of classification, valuation, country of origin being the top three and not just now they've always been the top three. But now is the time that they make so much of a bigger difference than they did before, because of these additional tariff rates.
So I would definitely, you know, my biggest recommendation for clients for companies — don't wait for a customs audit to reveal a problem, right? Go ahead and work with a global trade professional now and start performing internal audits. Now, if you're not already doing that and proactively document your classification decisions, keep records on how you calculate your customs value. Get some binding rulings if you need to, John, we were talking about that earlier today. So those are all great strategies that you want to take advantage of.
David Mannarino
That's great. Yeah. And I see I see John over there shaking his head. And I thought we could transition to John. I mean, John, you're in the trench, I mean, you're dealing with trade coming in from global supply chains. I mean, from your perspective, I mean, how are you preparing operationally for these changes on the tariff side.
John Elias
Yeah, and something that I'd like to piggyback off of what Bonnie mentioned is that it is extremely important to not be kind of reactive to this. I have been at companies where a compliance department or a trade compliance department did not exist until a multi-million dollar audit occurred.
And so, it's extremely important to be proactive with how your business is structured to include compliance within the lifecycle
in kind of addressing the kind of the supply chain of cradle to grave. Where you start with an idea, I want to make a water bottle. So you ask yourself, “Okay, where am I going to get it. How is it made? What are the materials out of this and things like that?”
And so you have to include compliance in every aspect of that cradle to grave lifecycle where, when you're kind of having conversations about the idea of it all? What is it going to look like? What are the engineering folks trying to make into kind of reality. You can have conversations with those engineering folks about the material composition of what you want to do how it's designed. The thicknesses and tolerances I work in the lumber industry with making cabinets, and the thickness of the plywood can have monetary differences between at the millimeter level, if it's above X millimeters, and might be y tariff rates if it's below, it might be duty free. And so you really have to ask yourself when you're designing just on paper, what are you? How does compliance fit into that conversation so that we can advise engineering and be a part of that entire life cycle to get to a most cost, effective outcome. And then with procurement and supply chain, it's like, who are you going out to and getting those RFQs, RFPs. Where? Where you're asking them, is it? From a specific country?
Especially now prior to this year, it was unless it was China. It was very agnostic. You could make something in Tunisia. You can make something in Thailand. You could make something in South Africa. It didn't really matter as much as it does now. And so, we're looking at things way more from a global supply chain. And the biggest issue with these larger scale companies that aren't as agile and aren't making just a single item. A single water bottle. A single book is that you don't have the ability to quickly pivot your sourcing anymore, especially when you're dealing with specialized materials.
For instance, in our industry, many of our products rely on a specific type of wood like rubber wood that aren't really available domestically or available in the countries that have the least amount of duty impacts. You can't suddenly start sourcing rubber wood from Kansas. It's a tropical species. You're going to have to look at places like Indonesia, Malaysia, Thailand places like that. And so when you're shifting suppliers. It's not simple, it's not fast.
And you also have to think about what it takes to get the product that you want. Are you thinking about tolerance testing? Are you thinking about the calibration of the colors? Are you thinking about durability and wear and tear testing? All of that processing has to happen and takes multiple months. And so we're looking at things from, you know, even April to July. That's only a few months.
We would have any idea that we would have had on April 3rd April 4th. It's we're still in maybe stage 2, stage 3. We're nowhere even close to the finish line. And so, whatever happens in the background, with these tariff changes, with things like that, we have to think more strategically in the sense of what do we want? Regardless of the tariff shifts, because these are happening here, here, here, here and here. And so, it's about resilience. There's a lot of unpredictability of the nature of tariffs right now. And so, we're not making rash decisions. That's my responsibility to explain to our leaders at our company.
We are regardless of the tariff impacts. We need to look at other things that even if any of these situations just disappeared overnight, we would still be looking at reducing our landed costs, looking at a for sale program working with customs to request a a binding ruling where the customs officers tell us, you know, this is what it should be classified as because of your arguments, because of your kind of explanation of the goods that you're trying to import. And this is the classification and the duty rate it's assigned to if we can even get from like a 3.5% rate to a duty-free rate, regardless of these 2530, 50% rates. That's still a benefit in the long term. And so we're looking at things that go beyond this administration beyond the administration after us. How can we look at it from like a 10-15 year point of view, where we make decisions now that will benefit us. Decades along the road.
David Mannarino
Yeah, that's very interesting. I guess. Just one follow up question on that is, you know, imports to the U.S. have declined while our trading partners continue to trade. They're just not trading with us. So I guess the question is, has this tariff strategy really changed the trade environment for good, I mean, can you still go to suppliers in those supply chains and say, “Hey, we still want the goods?” or do they just say, “Hey, John, Look! I mean, we have someone else buying it. It's just not available where it's kind of forcing companies into looking domestically.
John Elias
I think so. I think it's really important to think about the partners that you currently have. And, you know, how good of a relationship those are. Trade is one of the oldest professions in the world and within that comes the kind of obligation and expectation of a relationship with that partner, that trading partner. And so, when you're developing those relationships with your suppliers, I would hope and I would implore everyone to have it be more of a a human experience where those people over there are making something for you, and you want to kind of maintain that that long term relationship, regardless of whatever administration, is at the helm of the country you want to ensure that, you know, you will still be making those purchases from them.
If there's, you know, some additional overhead. That's going to happen. If it’s Trump, if it's, you know, a president 10 years from now, these things are always going to happen. But it's the relationships that matter the most and so you can work with your suppliers to see you know. How do we weather the storm together?
And I think the biggest one is those assurances where, like you said, are they going to sell to someone else? Or are we able to make those purchases? I've seen some companies already request a quote for a purchase of materials, and the supplier overseas declines to make the sale because they are scared that the buyer in the United States cannot kind of handle the tariffs on top.
And so, they're kind of concerned from a financial point of view. Can you afford the goods that you're about to purchase from me, or are you going to, you know, hightail it and disappear.
David Mannarino
Got it. No, that's great. Two more quick questions, and then we'll move on because we could talk about this for hours. I guess, for Mollie and Bonnie either one, I guess. You know July 9th kind of came and went, and now we're hearing August 1st.
Why does it really matter? I mean, which date actually matters? Because then all of a sudden, you hear, well, China has their own date, you know, so does everyone else have their own date like, why does the date matter? Is it just negotiation.
Mollie Sitkowski
So I mean, technically, the July 9th pause was in the initial Federal register. So from A, from a like customs, legal perspective, the Executive Order is issued, the Executive Order is published in the Federal Register and then, whatever agency the Executive Order directs to take action has to take action pursuant to that executive order, and they publish their action in the Federal Register. And then, from the Agency's exact Federal Register publication, customs has to come up with implementing instructions for people to actually make entry into the United States. And so, the July 9th pause was in the Federal Register as of April 10th basically. And then customs had to change its implementing instructions.
Actually, April 9th, the evening of April 9th, so based on that, we had to have some sort of official notification that the July 9th pause was extended until August 1st, which we did last week, and so customs didn't have to change its implementing instructions, because people are still using essentially the April 9th ones. But when they do that, you know, when they do have to change their implementing instructions, say, to take account for any of these additional tariffs. They're going to need a formal guidance from basically the President to do it. And so that's why we need to have like these legalistic, formal things in order to implement these tariffs.
But in terms of like actual trade policy, I'm not sure if it matters.
Bonnie Kersch
Yeah, I mean, Dave, you're going to see a lot of companies try to ship a whole lot of stuff between now and August 1st right. And so it's gonna matter to these companies to make sure that their goods are hitting the U.S. before August 1st.
Mollie Sitkowski
Entering date of entry.
Bonnie Kersch
Entering.
Mollie Sitkowski
Yeah, it's a question I get frequently, yeah, exactly.
Bonnie Kersch
And there was a lot of we get very deep in the weeds on this stuff, Dave. We're all, you know, self-proclaimed trade nerds right, and we had lots of spirited discussions about the definition of the word vessel over the last couple of months, because it was, you know, once goods are put on a vessel destined to the U.S. or once your vessel, you know. So then you argue well what it's a vessel, right? So there's, it's all going to come down to exactly what the wording says in the messaging from the President to CBP, and then customs and border protection is going to have to take that messaging and turn it into what Mollie was referring to earlier. Those CSMS messages that are what we are looking at as trade professionals to understand. You know, exactly what dates mean and what tariffs are going to apply on what dates and that sort of thing. So, the dates are very, very important, and subject to change all the time. Unfortunately.
Mollie Sitkowski
Although the vessel thing that Bonnie was talking about was for an on the water exemption for the April tariffs.
Bonnie Kersch
Yeah, that was in the we — yeah, it doesn't matter anymore. It's probably gonna be the data.
Mollie Sitkowski
Country, although we don't know for sure. But.
Bonnie Kersch
Believe.
Mollie Sitkowski
Date of entry. And people have been asking, is there going to be a similar like on the water exemption? So if you shipped your goods before a certain date. You won't get assessed. The higher tariff rates. We don't think so because we've had, we have so much leeway between now and August 1st that we don't think that's going to happen. But it is a possibility. And these are things that will be in all these formalistic legal documents that you know I was talking about.
Bonnie Kersch
That we don't have yet.
David Mannarino
Yeah, no. And that makes sense. I mean, we're at the bank, you know. We're seeing a lot of our middle market clients, you know. Utilizing lines of credit to, you know, fund a lot of that inventory coming in. We're doing a lot more letters of credit. Our trade, finance and foreign exchange groups are doing more trade on that side as well. So, I kind of foresee that coming in here shortly. So, well, let's transition over to this survey spotlight.
I think. I think you know, we could chat about that that topic for for hours and hours. So the survey spotlight. Yeah. Key, we poll our middle market executives on market sentiment. And really, what we're really trying to do there is get a pulse on what's going on. So our latest KeyBank, Middle Market Sentiment survey was as of May, and there were some interesting pieces that came out of this, 91% of companies said that managing tariff impacts is their top priority. Sixty percent of companies reported passing on increased cost either to consumers or vendors. Forty-nine percent of companies polled saw an actual upside in tariffs while 51% didn't.
So if you're on the upside, you would really be looking at opportunities to grow, increase revenue gain, market share. You know, those types of categories. Those that didn't see an upside were really concerned about increased cost, lower demand, and sales and increased volatility.
In my opinion, I think what companies are really looking for at this point are two things, and that's clarity and predictability. I think it's really hard to have clarity and predictability when the playing field is constantly changing. And the one thing that I do know for sure is that markets certainly do not like the uncertainty of it. So you know, with that, Bonnie, I'm curious. Are you seeing companies adapting to, you know, adapting sourcing, and compliance strategies in light of all these findings. Are there any strategies that you can think of that you can talk about.
Bonnie Kersch
Oh, yeah, definitely. I'm sure you know, Molly and John would say the same, and I know they both kind of spoke to this a little bit. But clients are definitely, you know, looking for new procurement sources like John was talking about. I mean, he can't go to Kansas for that tropical wood. But maybe he could go to Malaysia as opposed to Indonesia if one had a lower tariff rate than the other. Right? So, people are making procurement decisions based on that. But they're also looking at where their manufacturing is taking place. So, I've submitted several binding ruling requests to customs for clients who are looking well. If how much of my operation do I need to move out of China so that my goods are no longer Chinese origin, because there's a concept that we could spend a whole webinar on. But we won't. But there's a concept called substantial transformation, which means that your country of origin of your product depends on where it changes in name, character, and use. So, where John's, you know, just 2 by 4 of wood changes from a 2 by 4 into a cabinet is where substantial transformation took place right? So maybe he can still get his 2 by4s from China, but he can make those into cabinets in Vietnam, and now he has a Vietnam country of origin product as opposed to a Chinese origin product. So, people are looking to move certain steps of, if not all, of their manufacturing away into different countries, you know, to try to mitigate their tariff exposure.
I'm actually a little surprised that the 53% figure on this slide. I thought it would be much higher. I know that I can't think of very many of my clients who aren't passing increased costs, at least a portion of it onto consumers. Many companies are trying not to pass the entire cost on to consumers, but they're certainly not eating all of the cost of the tariff. So that's definitely happening. But a lot of the questions I get answered regularly like I get asked regularly and answer are, I don't even understand what my tariffs are. Can you help me like? Here's my HTS code, or help me figure out the HTS code and then tell me all of my tariffs, and how they stack, you know, like Molly was talking about stacking earlier.
I get that question more, you know, very, very frequently. So, it's very hard to make supply chain decisions for the future. If you don't understand what tariffs even apply to your products, and it's also hard to pass the right amount onto your customers if you don't even understand what that amount is. Right? So that's part of the battle, and that's something that you know, Mollie or I, you know, could help you with if you needed that help. So.
David Mannarino
Yeah, no, that's that's great. And I mean, we're going to talk about that a little bit on the other on the other segment here, but I think it's a good point, I mean. Can you quickly kind of go through just high level? I mean, there's reciprocal tariffs. There's 232s or stacking tariffs. Is there any kind of just high-level framework that you want to talk about? Just talk about how that works.
Bonnie Kersch
Yeah, I mean, there's your base tariff rate, right? Which is just based on your HTS code, which is averages probably around 8% depending on, you know, your product might be closer to 6%. Right? It just kind of depends. And then you might have a IEPA Fentanyl tariff.
If you're coming from like Canada or Mexico, you might have a section 301 tariff. If you have Chinese origin goods, those are the tariffs that President Trump put in place during his last term, that are still in effect, and for which there are very few exclusions still in place, a very, very few, very small number. You then have the IEPA reciprocal tariffs, which are the ones that we've mostly been talking about today. And let's not forget about all the section 232 tariffs that we've already mentioned.
There's steel, aluminum, automobile parts, and then copper pharmaceuticals, all of those. There's several other cases potentially coming. But don't leave out anti-dumping and countervailing duty tariffs as well, that have always been around.
John. I'm sure you deal with that a lot, knowing that there's 1 on lumber. And there's several anti-dumping cases that affect your products.
So you know, there's lots and lots of tariffs it can be. I understand Lizzo's shirt of being terrified right? There's lots of them. And frankly, it can be very confusing and very difficult to figure out everything that applies to your goods, unless this is something that you do all day long every day. Right? So that's where it's super helpful, and to understand how you can stack them and how free trade agreements might be able to work in your favor or not work in your favor. You know the different like. How can you mitigate some of those tariffs. There are ways to mitigate some of them. Molly, did you have something to add.
Mollie Sitkowski
Yeah, I was gonna say if people like really want to see kind of a a good applicability that they might have to do a little interpretation of, is the Federal Register or you can Google CSMS and Customs, and June 3rd and then you'll see the June 3rd notices that they issued, and they issued one on stacking tariffs.
And so that'll show you at least related to steel tariffs that if you have auto tariffs. You stop there. If you have aluminum and steel tariffs, then you pay those, and then you pay the reciprocal on the remaining tariffs. If you have aluminum and steel of Chinese origin, you pay section 301 and IEPA China fentanyl on the whole value. And then, if you don't have auto and you don't have aluminum steel, then you go to the Canada and Mexico IEPA tariffs and that is not a substantial transformation analysis. That's a 19 CFR part 1. 0, 2, analysis. So just keep that in mind.
And those don't currently stack with the aluminum and steel tariffs. And then, if you don't have any of those, then you're just subject to the reciprocal tariffs currently. And that's kind of how and that kind of feels like a little.
Bonnie Kersch
Puzzle.
Mollie Sitkowski
Yeah, more confusingly in the CSMS. But at least that should Google, CSMS, June 3rd CVP or customs, and you should be able to find that in those notices.
Bonnie Kersch
And Molly, those CSMS messages are free for people to subscribe to. So if you want to go, get a subscription to them where they just appear in your email inbox every day. You can certainly do that. Just go to the customs website and look for Google CBP, you know, CSMS messages. Just be aware that some days you get quite a few of them. So if you don't like your inbox filling up, maybe don't subscribe to those.
David Mannarino
Yeah. And I guess in just taking that a step further, I mean. Molly is there. I mean, there's regulatory risk, right? When shifting from suppliers or sourcing locations, right? So there's legal and compliance risks on that correct.
Mollie Sitkowski
Yes. So part of that transshipment language is that during the last administration a lot of people moved manufacturing from China to Vietnam to Cambodia to Thailand.
And that's technically okay. As long as you're meeting that substantial transformation test that Bonnie mentioned, it's technically okay. So, from a legal perspective. Right now, moving manufacturing because of tariffs is okay with the transshipment language. In the recent letters we don't know. Maybe it won't be okay, because Europe has a rule that says, if you transship to avoid tariffs, you're subject to penalties. And so, if we kind of adopt that rule, then moving, manufacturing, and changing suppliers to avoid tariffs might not be okay. I would also note, when you change suppliers to John's point, you might have to educate them about U.S. country rules. Because let's in a lot of parts of Asia, all they require is 35% content.
And then they get a country of origin certificate from their government. And then your supplier is like, well, it's Vietnamese origin. That's not always the case from U.S. customs. So, when you do switch suppliers, you have to think about. Okay, what is their familiarity with our rules? And how do we make sure that our goods are actually a Vietnamese or Taiwanese origin?
David Mannarino
John,what do you think? I mean this is right up your alley when it comes to not only the topic, but you're the type of person that we would poll for our survey. I mean, what's your view?
John Elias
I think what this is kind of showing is that you really need experts that are working with you to handle this. I think something that when I explain to my family what I do, the best analogy is you could always do your taxes by yourself, you could file it online, you could use the software, you could submit it. When it gets to be complicated, that's when you hire someone. That's when you get your CPA to kind of work with you in the same regard.
You could always kind of file a customs declaration by yourself. If it's a simple thing. If you're just bringing, you know, 10 water bottles in from Indonesia. By all means go ahead and look at the paperwork and try to fill it out to the best of your ability. But when you're, you know, like you said a middle market company, who's, you know? Got, you know, a significant staff that are all working together to produce a finished product.
It behooves you to look into finding those experts hiring those experts and developing those teams. When we're looking at these things from a compliance point of view, we're looking at the duty rate, the applicability, the tariff classification. Whether or not any kind of transactions qualify for something like for sale and for sale is where you know you have a a multi-tiered transaction where you're buying from the middleman, and then that middleman is sourcing from a 3rd party.
And so, what for sale offers you is the opportunity to, instead of declaring at that middleman rate. As long as you're working with your suppliers, you can instead make the declaration at the lowered non-marked up cost from that 1st sale vendor. And so, we need to verify a lot of these things. There's a tremendous amount of record keeping and verification. And all of this is related to the possibility of being audited by a customs officer, and it's as scary as you could think where a customs officer unprompted, knocks on your door.
They are an officer of the law, and they will show up, and they will tell you I need to know everything about these specific transactions. Do you have the record keeping for that you're making a specific claim. How are you substantiating that claim? And so, what we have to do is ensure that any declaration we make as the importer of record. We are the legal entity responsible for bringing those goods into the country. We are responsible for it wholeheartedly.
How are we ensuring to U.S Customs that it is the appropriate item. It is the correct amount. It is the correct value. It is correctly claimed from a specific country. It does what it says it does. If you're bringing in a chair and you're claiming it as a table, that's a problem, you have to specifically declare what you're declaring at all times. And so we all are looking for ways to ease the pain.
And so I would implore anybody on this call to make sure that you're hiring the right individuals for this and what I would look for is individuals that have the specific credentials. And so, in the United States somebody could be licensed as a licensed customs broker. And so that is somebody who has taken an exam through U.S. Department of Homeland Security and have maintained their license through the duration of their career.
They are these experts; we are those experts where we've taken that exam. We've been licensed under the purview of the United States, and we live, breathe and talk this day after day. And so, if you need some help, look for those folks, they are your CPAs in this regard. So those license customs broker, they're going to be your best friend for the next three and a half years, so treat them well.
David Mannarino
No, that's great. That's great advice. Let's move on to the case study playbook. So just as a lead in the U.S. dollar. As I mentioned earlier. It's weekend, the dollar index which reflects really the U.S. Currencies performance against a basket of six currencies. So think Japanese yen, Europe's euro. It suffered its worst first half since 1973.
Compliance is getting more complex as you just heard about lots more volatility out there. So let's talk some real-world solutions. I thought we could start with Bonnie. Can you share an example of where a company successfully mitigated duties, or, as you mentioned, engineered around tariffs.
Bonnie Kersch
Yeah, for sure. I mean, there's lots and lots of examples out there. But like, I said, you know, I'm dealing with this with clients, you know. Every day I had a recent client who was importing a kitchen product, and it was classified under a tariff heading with a 25% tariff. And after a thorough product analysis, including reviewing lots of documentation, engineering diagrams, product specs like looking at past, you know, binding rulings and court cases for legal arguments, we were able to determine that the product could be classified under a different heading with only a 3% duty rate. So this, and CBP agreed with us through a binding ruling that we got from them, so this saved them almost $2 billion dollars a year.
So, something as simple as just digging into your classification is super important and very small words in a tariff classification, or an explanatory note can make a big financial difference. So, if you haven't reviewed your tariffs in a while, say 12 months or so. It's definitely worth doing that with an expert.
And again, thinking about valuation companies forget that assists like tools or molds provided to overseas suppliers to help manufacture your products should be included in the dutiable value of your item, so it can trigger like Molly was talking about earlier some of those large penalties, if discovered by CBP in an audit. So just like John, Mollie, we've all said definitely, partner with experts, those licensed customs brokers.
John was talking about trade attorneys where necessary, and a lot of times it is necessary. Make sure you're investing in training for your team. Have a team. Let me say that as well make sure that you have a global trade compliance department. If your business is large enough to warrant that a proactive approach again to classification, valuation can really create competitive advantages in this volatile trade environment that we find ourselves in.
David Mannarino
Got it. I know we're really tight on time, but I do want to get this question over to Mollie. You know, I loved your post that you had yesterday about the Trans shipping and and the higher tariffs, and what was going on with Korea? Are there any lessons we can draw from any recent cases of forced labor or sanctions slash tariff compliance? I mean, it's getting more and more complex. So like what happens when you do make a mistake.
Mollie Sitkowski
Well, I mean in terms of the export and sanctions side, the recent penalty cases on that side they have been rather outrageous penalties. And so, we are seeing just heightened enforcement from BIS and OFAC, especially when it comes to China exports on the import side. We're seeing the exact same thing. We are seeing customs issue what are known as requests for information just, and mass. Two importers like one of them, got one with 46 different entries on it that they had to answer, which is insane.
We're seeing customs initiate penalty investigation like we've had two in the past month, whereas I couldn't tell you the last time we had an official penalty. Note previous penalty notice come to one of our clients was probably 2014 to be honest with you. So, we are just seeing a lot of increased enforcement from the agency, and on things that you would think would not be an enforcement priority.
One of our clients is getting an audit on their claims for the generalized system of preferences which they do preference program, which is not actually active right now, but you can make claims. You can make claims to kind of keep the duty refunds. If Congress does reenact the duty preference. And so right now they've been making claims. There's no loss of revenue associated customs with it at all, and they're being audited on it.
So that's kind of an example of just customs is getting very enforcement minded, and a lot of people have taken a lot of the packages or taken early retirement, because a lot of this is very difficult to keep up with, and frankly, if I could retire right now, I probably would. And so, a lot of the people who are dealing with that customs are very green, and you're kind of helping them understand the regulations which makes things fun.
David Mannarino
All good points. Okay, we're going to move into the Q&A side. But last question for John. Two seconds. You're in the trench. Are there any publications that you can recommend? I mean, how do you stay up to date on it? And then we're going to go right into the Q&A.
John Elias
Yeah, I would say that if you have a customs broker, subscribe to kind of what they are publishing, that's first and foremost. In addition to that, there are a lot of consulting firms that publish, and you can subscribe to trade law firms. Mollie's, for instance, you can subscribe to firms like Sandler Travis Gdlsk.
I'm part of an association called the International Compliance Professionals Association, ICPA. They have a free membership for your first year, and they have a treasure trove of information past webinars, past PowerPoints, a Q&A repository going back decades.
And then the last one. This is a paid subscription. I highly value it. It's called International Trade Today. You get basically a daily newsletter. That just fills you with as much information as you can get for all trade news, both import and export. So, lots of good information out there.
David Mannarino
That's great. And for the audience, if you're not following Mollie and Bonnie, I mean, their Linkedin is loaded with information. So if you if you're not, you should be. So, okay, I'll hand it over to Travis on the Q&A.
Travis Durkee
Thanks. Dave got a good one here. A registrant said we are seeing tariff charges being levied by our shipping companies and are unclear how these fees can be validated. Another attendee actually happened to offer an example. They said DHL charged us a China tariff on radios from Finland UPS, charged us a China tariff on computers from Australia, both made and shipped in those countries. So, the question is, where can we look to validate the current tariff rates.
Bonnie Kersch
The Harmony Tariff Schedule is the best way. But if you're not familiar with that, that can be tricky. So, I definitely would reach out to a professional to kind of help. You understand that. But if you know your HTS code classification, you can figure it out that way. But I would honestly reach out to a professional. Unless, John or Mollie, you have different advice. It can be a bit confusing, so.
John Elias
I would just say, while I love the guys at both UPS and and DHL, they would be what I would consider to be similar to like H&R Block, where you get what you pay for, and they're not always right. And so, when it comes to these, you know, quick service kind of large-scale companies, you're not always going to get the right information, and you have every right to argue against it if you can kind of substantiate that and say like, no, this is country of origin, Australia. This is country of origin, Finland. That's, that’s kind of how you argue it. You tell them, like I have substantive evidence that that tells us that this item is from this country of origin. This item should be declared at this HTS Code. You are acting as the importer of record. As long as you're not doing it under DDP terms. If you are, you are the one driving the car. So you make those determinations. So, if it ever happens like that, just argue against it because you are the one responsible.
Travis Durkee
Good stuff. I got another one here. It's a two-parter, are we thinking the August 1st date will be a hard date. Also, if goods are on vessel, or already on water? Will those be excluded from new tariff rates?
Mollie Sitkowski
So we don't think there will be a vessel exemption, because there's plenty of time before August 1st. I'm thinking August 1st will be a hard deadline. I don't know that the rates will be the ones that have been published in these letters on social but it will definitely be a hard deadline if anyone, if President Trump gets challenged on any of the tariffs, because when people challenge him, that's when he tends to keep to his promises. So yes, I'm thinking August 1st and no on the water exemption.
Travis Durkee
Fantastic another one here, how is content from material tarifs calculated? Is it percentage of the finished product by value for volume?
Mollie Sitkowski
Bonnie, I can take this, and then you can respond.
Bonnie Kersch
Go for it.
Mollie Sitkowski
So Customs has issued a FAQ on this. So, if you Google, CBP FAQ. Aluminum and steel, you'll see it. It is not at all helpful. They are supposed to provide more guidance. As a result of the increase to 50% last month. But they have not yet. But what custom settings FAQ. Is that you can calculate content based on the valuation statute which is found at 19 Usc. 14. 0. 1. There's basically five methods of valuation. And so the first is transaction value. So if you purchased, let's say you're buying your aluminum steel product from a related party and it consists of less than a hundred percent aluminum or steel. Then you can ask your related party for their purchase price of the aluminum and steel.
If you're buying from an unrelated party, they may not be willing to tell you, and if you don't know the purchase price, then you can kind of go down the other methods of value which are identical or similar items which you won't have, because you don't know where they purchased the aluminum steel from, etc, and then the next would be deductive value, which is the cost of sale in the U.S. minus certain additional costs. But you don't have that, because there are very strict requirements for like 90 days in the Us. etc. So you don't have that value. The next is computed value where you build up the costs and then you add a reasonable profit that might be available to you.
But you wouldn't know the actual amounts, so you might have to fall under fallback method and fallback method. Is any one of the above methodologies or anything other that's reasonable as long as it's not a nominal value. So, a lot of our clients end up in fall back method because they may be purchasing from unrelated parties, and they may be unwilling to get the actual cost of the aluminum or steel.
In that case there are a couple of customs rulings about metals where people used the value on exchange on the exchange for the metals and kind of come up with different ways of using that. But basically, it's very difficult.
And if you're not getting the exact value from your supplier, then consult a professional. And someone asked, who is a professional, and I would say, it's Bonnie. It's your customs broker. It's a lawyer, but consult one of those for assistance, because it is very difficult, and it is going to be an enforcement priority of customs.
Travis Durkee
Great another one here, a lot of acronyms. So stick with me. What are we expected to hear from the En Banc Review, July 31st from the CAFC regarding IEPA legality. Is this going to eventually make its way to Supreme Court in the fall?
Mollie Sitkowski
Yes, it will make its way to the Supreme Court. We anticipate the opinion from the CAFC. Will be released either at the end of July or mid-August, which would be very quickly. But it will go to the Supreme Court.
Travis Durkee
This will probably be our last one. So how does this all end? Will we see a wave of new deals? Will this go to courts? Will there be umbrella tariffs? Is this the new normal.
Bonnie Kersch
Is this like a how does this all end? Like a just, broad, sweeping.
David Mannarino
Yeah, what happens on the tariffs?
Bonnie Kersch
David Mannarino
Does everyone settle at 25%, and everyone goes away and.
Bonnie Kersch
No, no, unfortunately, I think you know, I wish I had a crystal ball. I keep threatening to make like a Magic 8 ball with like orange hair on the top of it, you know, like a magic Trump with like Trumpisms in it. So, when people ask these sorts of questions, we can just ask the Trump 8 ball. I probably should have patented that before I said that. But you know, how does this all end?
It all depends. I mean, we have midterm elections coming up right so that can play some sort of part in how this goes and President trump is going to be in office for another, you know, three and a half years. So does this end when he gets out of the office? It kind of depends on who gets elected next right, but I think, at least for my crystal ball would tell me that for the next three and a half years this is sort of going to be the new norm. It's going to be a volatile trade environment. But, John, I don't know if you agree with that, or Mollie, or what your thoughts are.
John Elias
I think you answered it. Well, it really just depends. We don't know. And as we've seen over the past three or four months it changes daily, so it ends when we finally get off this roller coaster. Who knows when that'll be? But it'll be a ride.
David Mannarino
So the takeaway is, stay close to your bank. Stay close to your advisors and we'll figure it out together, right?
Bonnie Kersch
Yeah, try to prepare for the unexpected the best that you can.
David Mannarino
All right. Well.
Mollie, Bonnie, John, I can't thank you enough. Your insights, your practical advice. I'm grateful that you took the time for everyone that joined. I hope the discussion gave you more clarity or confidence to navigate the next stage of this volatility. If you have any questions, you could email me, you could reach out on LinkedIn to John, Bonnie, or Mollie. And I really appreciate everyone joining us today. Thank you.
Mollie Sitkowski
Thanks for having us.
David Mannarino
Thanks.
Tariffs have emerged as the topic of 2025. The constant cycle of uncertainty around trade policy has dominated the headlines and even permeated pop culture.
For business leaders, the unpredictability, stepped-up enforcement, and complex stacking of new and legacy duties is understandably raising questions and concerns.
KeyBank recently brought together a panel of trade and compliance experts and finance leaders for a roundtable discussion that provided insights to help you understand the critical issues, and solutions, for addressing the volatile trade climate.
“I think what companies are really looking for at this point are two things, and that's clarity and predictability,” moderator David Mannarino, commercial sales leader at KeyBank, said.
Despite the uncertainty, there is optimism among business leaders that the situation could actually create a competitive advantage for them. In a recent KeyBank survey, 49% of respondents said they expect to gain market share as a result of tariffs and only 17% expect to lose market share. This underscores the need to strategize effectively.
The takeaways from panelists in the webinar are clear — to navigate this new environment and protect their margins, C-suite leaders and executives must align their legal, compliance, and financial strategies while remaining nimble to quickly respond to the changes ahead.
The new enforcement reality
Although trade policy continues to shift, one significant change is already in motion: Customs agencies have sharply increased penalty investigations. As a result, business leaders should prioritize assessing their current processes and documentation and take time to evaluate their tariff exposure.
From ‘tariff pause’ to penalty surge
The panelists noted they’ve seen increased scrutiny from U.S. Customs and Border Protection officials on how goods are classified and valued, and their country of origin. Officials are sending notices and asking questions that require an immediate response.
Panelist Mollie Sitkowski, partner, Faegre Drinker Biddle & Reath LLP, said she’s seen a spike in requests for information from Customs and penalty investigations that are typically rare.
“That’s an example of how Customs is getting very enforcement-minded,” Sitkowski said.
In this environment, it’s crucial to work with experts on an internal audit and proactively document information around classification decisions and valuations. This can help uncover issues before they’re found in a costly audit.
Why small errors now carry outsized cost
Classification is a big factor in today’s tariff environment for both risk mitigation and cost. It’s not just the risk of audit and penalties that’s a concern for businesses. Higher tariffs mean even a small classification error can be costly.
“Now is truly the time for companies to scrutinize their classifications and also their valuation methodologies to ensure accuracy,” said panelist Bonnie Kersch, proprietor and principal consultant, Magnolia Global Trade Solutions.
Kersch shared an example of a company that classified a kitchen product under a 25% tariff. After a thorough analysis by experts — including documentation, engineering diagrams, product specs, and legal review — it was determined the product should actually be classified with a 3% duty rate. That difference amounted to a savings of almost $2 billion per year, according to Kersch.
Involving compliance experts in conversations across the lifecycle of your product can help determine actions to take throughout the process. They can review what raw materials you’re using, your sourcing and manufacturing processes, and the components going into your products to uncover ways to optimize for more favorable tariff rates.
“It's extremely important to be proactive with how your business is structured to include compliance within the lifecycle of the supply chain,” panelist John Elias, director of compliance, Cabinetworks Group, said.
As you’re considering supply chain changes, you must also be prepared to navigate the far-reaching financial implications for working capital, cash flow, and access to credit.
Learn more: Tariff challenges: Supply-chain scenarios that help keep goods moving and costs in check
A moving deadline and moving policies
Since early April, deadlines, policies, and rates have shifted multiple times. That’s why experts say it’s important to understand what’s legally binding and what isn’t — wait for the executive orders, federal register, and implementation instructions from Customs, which are communicated through the Cargo Systems Messaging Service (CSMS).
In addition to keeping up with changing laws and deadlines, the complexity deepens when other factors come into play, including stacking tariffs. On June 3, Customs released detailed guidance related to aluminum and steel tariffs and reciprocal tariffs that showed how these tariffs could stack, as one example of the complexity of determining which tariffs apply in various scenarios.
Origin shifts vs. illegal transshipment
The president sent letters to more than 10 countries in July with new tariff rates. Those letters also specifically mentioned penalties for transshipment. That means if goods are shipped through another country in an attempt to avoid the tariffs from the country of origin, companies still have to pay the rate for the country of origin and face steep civil penalties.
Sitkowski noted because transshipment is already illegal, that raises questions as to whether this is an indication of an upcoming change to the existing law.
Building a future-proof compliance and finance team
The increased enforcement and audit risk stress the importance of working with experts and shoring up compliance before a costly audit hits.
“My biggest recommendation is don't wait for a customs audit to reveal a problem. Go ahead and work with a global trade professional now and start performing internal audits now,” Kersch said.
Elias likened licensed custom brokers to CPAs. They are true experts who can help you navigate compliance, duty rates, applicability, and classification. They also handle the intensive documentation and verification required.
“If you need some help, look for those folks; they are your CPAs in this regard,” Elias said. “Those licensed customs brokers are going to be your best friend for the next three and a half years.”
Finance alignment: Liquidity, LOCs, and hedging
Along with trade experts, working closely with your bank and finance team is crucial to access capital and liquidity when needed. KeyBank’s middle market clients are employing lines of credit to fund inventory that is coming in ahead of the new tariff deadline. The bank is also seeing an increase in letters of credit. Trade, finance, and foreign exchange groups within the bank have also seen an increase in activity, Mannarino said.
“The takeaway is, stay close to your bank, stay close to your advisors, and we’ll figure it out together,” Mannarino said.
Key takeaways for C-suite leaders
As uncertainty around tariff policy continues, it’s critical for business leaders to build cross-functional teams and processes to respond to tariff shifts. Close relationships and regular dialogue with trade compliance experts, legal counsel, and banking advisors will help leaders stay ahead of potential issues.
Along with the uncertainty, audits and custom inquiries are also on the rise, raising the importance of proactive internal auditing and documentation. This will better position your business to respond with confidence and lessen the chance of a costly surprise found through an audit.
Supply chain agility is a crucial part of your business strategy to mitigate shocks and capitalize on opportunity. Companies are diversifying suppliers, moving final transformation operations, and embedding compliance deeper into the procurement process to ensure their processes are both cost-effective and follow established policy.
Finally, to maintain stability through all of this, work with your banking advisors to secure liquidity and employ hedging products. Financial experts can work with you to determine the best solutions and tap into dynamic cash flow modeling, hedging, and trade finance products that can support your business strategy through volatility.
Resource list for ongoing support:
- U.S. Customs and Border Protection (CBP) CSMS subscription
- International Compliance Professionals Association (ICPA)
- KeyBank Treasury Solutions
- KeyBank Trade Solutions
To see how we can help you reach your goals, contact us or visit key.com/commercial.