Bunnie Huang
COLUMN
SPARK
any readers of this
journal may have
already felt a direct
impact from the rapidly
escalating trade war, as
distributors like
Digi-Key have started passing the cost
of tariffs directly to customers located in
the US. Being on the front lines myself,
I already have a couple of war stories to
share in case they
might be helpful.
Tariff codes
(also known as HS
codes – essentially
a numbering
system to describe
every imaginable
product) are
often ambiguous.
While one should
always endeavour
to pick the most
appropriate code,
multi-featured
devices often
fit several tariff code descriptions. For
example, I’ve seen a Raspberry Pi classified
as everything from a computer to a circuit
board, which can have significantly
different tariff outcomes for certain
jurisdictions. Thus, it pays to study the
tariff lists to try and find a tariff code that
accurately represents your product, that is
also not taxed. My observation is that the
more ‘finished’ a good is, the less likely it
is to be taxed by the US. So, circuit boards
and components are taxed, but as of
writing, certain toys, A/V appliances, video
games, and mobile phones are not.
You may have also heard news
commentators quip that it’s futile fora single country to engage in a trade
war. This is because the 1974 Kyoto
Convention specifies that the country
of origin can be set by the last country
where a product’s HS code has changed –
known as the ‘substantial transformation
criterion’. So, even if 99% of the value-
add could occur in country A, as long
as the last 1% value-add in country B
legitimately changes the HS code of
the product, the
country of origin
is B.
This is why ‘last
screw’ operations
are getting so
much attention
now. China can
still produce the
circuit boards and
plastic case for a
typical consumer
electronic product,
but the country
where these get
screwed together- a simple, low-value operation – can
be legitimately claimed as the country
of origin under these rules. Ironically,
the tariff policy, as implemented, makes
it extremely unattractive to move
‘last screw’ operations into the US,
because taxes are highest on the parts,
components, and tools necessary to
implement a last-screw operation.
If you’re planning a new product, I’d
encourage taking a deeper look at these
trade rules, as tweaking your product’s
function or packaging, or perhaps a small
adjustment to your supply chain, could
significantly alter the cost structure for
your product.
Trade war stories
Bunnie Huang
Andrew ‘Bunnie’ Huang is a
hacker by night, entrepreneur
by day, and writer by
procrastination. He’s a
co‑founder of Chibitronics,
troublemaker‑at‑large for the
MIT Media Lab, and a mentor
for HAX in Shenzhen.
M
I’ve seen a Raspberry
Pi classified as
everything from a
computer to a circuit
board, which can have
significantly different
tariff outcomes for
certain jurisdictionsPicking your way through red tape
@bunniestudios