How Co-Production Manufacturing Can Help You Mitigate Chinese Section 301 Tariffs

With the trade war between the United States and China looming, manufacturing companies that are being affected in some way by the imposition of escalating additional tariffs on imported Chinese goods under Section 301, are looking for effective ways to avoid or reduce these tariffs to remain competitive.

A number of manufactures, importers, and exporters know that these additional costs will cut into their profit and are now evaluating a co-production model as the best way to protect their bottom-line profitability.

On May 13, 2019, the Office of the United States Trade Representative released a list to start the tariff process of up to 25 percent for remaining goods from China (goods that were excluded from prior lists in response to public comments) that, if implemented, will affect approximately $300 billion in yearly import value (on which USTR is proposing to impose Section 301 additional tariffs).

As a way to respond to the rounds of these excessive additional Chinese tariffs that have been proposed, U.S. manufacturing companies are considering alternate sourcing with a co-production model.

This concept, which works for many different types of products, allows U.S. companies to change the country of origin of the finished goods by sourcing the most important assembly or processing operations from a country other than China, from which the additional tariffs would not apply, while still incorporating some Chinese materials and processing.

However, trade experts Sandler, Travis & Rosenberg, P.A., suggest that thorough record-keeping is essential for companies utilizing co-production to answer to any U.S. Customs and Border Protection requests to isolate the most important processes and operations that take place outside or inside of China to determine country of origin.

U.S. tariff hikes on hundreds of billions of dollars' worth of Chinese goods are not going away any time soon. Now is the best time to leverage the expertise of alternate sourcing locations.

Due to its proximity, experience, and well-suited manufacturing and export operations to the U.S., many companies have identified Mexico as the top sourcing location for co-production. In addition to this, Mexico remains the top competitive country for major factors like labor and facility costs.

Co-Production International has assisted hundreds of companies to set up manufacturing facilities and analyze co-production options in Mexico. Contact us at (855) 480-0837 to discuss your business needs and analyze if a co-production manufacturing model is a right fit for you. We are here to help!