229: The Trump Trade Tariffs – Everything You Need To Know With Nathan Resnick

Podcast: Download (Duration: 43:11 — 59.6MB)

The single most misunderstood thing about import tariffs is who pays them. Tariffs are paid by the American companies importing the goods, not by China. If you import from China and your HTS code is affected, that cost lands on your business.

Nathan Resnick is the founder of Sourcify, which helps companies find manufacturers, and previously ran two ecommerce companies. He spoke at my Sellers Summit and has appeared on CNN, CNBC, and in Forbes discussing tariffs.

This episode was recorded in 2018 as the tariffs were expanding, so specific rates and dates have changed considerably since. The structural advice about supply chain diversification and sourcing outside China has aged well.

Key takeaways

• Tariffs are paid by the importing American company, not by the exporting country.
• Ask your freight forwarder whether your HTS codes are affected. They will know immediately.
• Sourcify saw a 30% to 40% increase in companies requesting production outside China.
• Production capacity in Vietnam and India books up far in advance once demand shifts.
• Parcels under $800 were exempt from duties, which drove interest in direct-to-consumer fulfillment from Asia.
• Free economic zones in countries like the Philippines carry little or no import and export tax.
• Labor is the dominant cost after raw materials in categories like apparel and bags, which is why India and Pakistan compete well.
• Falsifying country of origin or undervaluing invoices is customs fraud, and Nathan does not recommend either.

Who actually pays a tariff

Nathan opens by stating he is not political and that the economics here are not ambiguous.

The claim that China pays billions in tariffs is wrong. Tariffs are paid by American companies importing products from China, which means the cost sits with the importer and ultimately the consumer.

His view on the stated goal of moving production back to America is that it will not happen at scale, because producing most of these products domestically is far too expensive.

Why production happens overseas in the first place

His explanation is currency rather than anything more complicated. When a dollar buys 6.8 renminbi, your dollar simply goes further.

His ground-level version: in Guangzhou or Shenzhen, dinner costs a fraction of what it costs in the US.

At the time of recording, the renminbi sat near a year low, which increased American buying power in China and partially offset the tariff increase.

How to find out if your products are affected

Ask your freight forwarder. They should know immediately whether the HTS codes you import under are affected, even if you are importing at small scale.

You can research it yourself, and the freight forwarder will have the most current knowledge.

The escalation pattern is worth understanding. Early rounds targeted industrial and agricultural goods like steel and soybeans, which did not touch most ecommerce sellers. Later rounds covered electronics, cosmetics, clothing, home furnishings, and televisions, which hit ordinary consumer product importers directly.

That matters most for sellers running on thin margins, where a tariff increase moves you from profitable to not.

What large companies did in response

The response at enterprise scale was speed. Hasbro stated on an earnings call that they would move production out of China as fast as possible.

Nathan’s illustration of the stakes is a soybean exporter that missed a tariff cutoff by 30 minutes and paid $12,000 a day to hold a container ship off port, because landing the cargo would have triggered $6 million in new tariffs.

The consequence for smaller sellers is capacity. When large companies diversify quickly, production lines in Vietnam and India book out for a year, so finding a supplier with remaining capacity requires real work.

Companies like Nike and Adidas had already been producing outside China for a long time.

The consumer cost

Nathan cites an estimate from London School of Economics students that each American would pay roughly $127 more per year across ordinary purchases like televisions, clothing, and washing machines.

Legal ways to reduce tariff exposure

Negotiate with your existing factory

The immediate short-term move is negotiating with your factory to share the increase, since a currency advantage may partly absorb it at a 10% rate.

Factories outside China began actively pitching Sourcify using tariffs as the sales angle. Inside China, the more sophisticated factories pointed to the weak renminbi as an offsetting factor.

Payment terms also matter. Sellers with favorable terms, whether 30/70 or 60-day terms, can spread cash against production and feel less immediate impact.

Produce outside China

Nathan’s recommended approach is exploring other manufacturing countries. Sourcify works with companies selling into Walmart and Target that produce in India and Pakistan at better rates than China.

The driver is labor cost. In apparel, bags, and similar categories, labor is the dominant cost after raw materials, so half an hour of labor per unit makes lower-wage countries meaningfully cheaper.

Chinese labor costs have risen substantially with economic growth. Nathan’s marker for the change: ten years ago a factory would collect him in a rundown car on unpaved roads, and now it is a Range Rover or Mercedes.

Free economic zones

The mechanism most sellers do not know about. Countries including the Philippines operate free economic zones, such as Clark and Zamboanga, with no or very low import and export taxes for companies established inside them.

Working with a factory inside one of those zones means importing materials into the zone and exporting the finished product with little or no local tax.

These zones exist specifically to attract trade, and the relevant trade organizations are findable through ordinary research.

Direct-to-consumer fulfillment from Asia

At the time, parcels valued under $800 were exempt from customs duties entirely, which prompted factories and fulfillment companies to offer direct-to-consumer shipping from Hong Kong and Shenzhen.

Nathan named Floship among companies operating this way.

His caveats are practical. Shipping rates are higher, individual international parcels carry more risk of loss or damage, and delivery takes a week at best against Prime expectations. He observes it suits dropshipping-oriented businesses more than brands competing on customer experience.

De minimis treatment for low-value imports has changed substantially since this was recorded, so verify current rules before building a strategy on it.

How to find suppliers outside China

There is no Alibaba equivalent for Vietnam or Pakistan, so Nathan’s answer is network and trade shows.

Specific routes he names: the gifts and premium show in India, which coincides roughly with the Canton Fair, and the trade organizations each country operates to promote local manufacturing, including those running the free economic zones.

He had personally visited Vietnam, Thailand, and the Philippines that year with India planned.

His aside on the experience: he does not go to China for the environment, while a factory he visited in Zamboanga in the southern Philippines sat directly across from a beach.

The illegal methods, and why not to use them

Nathan describes two evasion methods circulating among importers, and disclaims both. They are customs fraud, and I am including them here so you recognize them if a freight forwarder or supplier proposes them.

Falsifying country of origin

Transshipment itself is legal. A container moving from Guangzhou to Long Beach may legitimately stop in Malaysia or Thailand.

What some freight forwarders began offering was changing the declared country of origin during that stop, instructing importers to omit “made in China” labels so the goods appear to originate elsewhere.

Falsifying country of origin is illegal, and no currency or margin argument changes that.

Undervaluing the invoice

The second method is declaring a lower value than actually paid, so a $10 per unit product is declared at $1 and duties apply to a tenth of the real value.

Nathan notes suppliers sometimes do this without being asked, because it also reduces their Chinese export tax. My own experience matches that, and it made me uncomfortable.

His assessment was that enforcement rarely reaches importers at the $10,000 to $100,000 level, with fines concentrated at larger scale.

Low probability of detection does not make it legal. Undervaluing an entry is fraud, penalties can include seizure and substantial fines, and the exposure sits with the importer of record rather than with the supplier who prepared the paperwork. If your supplier is doing this on your behalf, you carry the liability.

Planning around the timing

Nathan’s advice on inventory timing is that well-run companies plan long term regardless.

By the time tariffs hit, a company should already have holiday purchase orders placed and production underway, with enough inventory to cover Chinese New Year and the Spring Festival shutdown in February.

Missing that window means running out of stock, or making an unplanned trip to Vietnam, India, or Thailand.

Whether to wait it out

I asked whether sellers should hold off on large inventory purchases until the situation resolved. Nathan’s prediction was that it would escalate rather than resolve quickly.

His reasoning was that the underlying assumptions driving the policy, that China pays the tariffs and that production returns to America, were both wrong, so the actual outcome would be American companies and consumers paying more while supply chains relocated elsewhere in Asia.

That is broadly what happened.

You can find Nathan at Sourcify.

Frequently asked questions

Who actually pays import tariffs?

The American company importing the goods, not the exporting country. That cost is then typically passed to consumers through higher prices.

How do you find out if tariffs affect your products?

Ask your freight forwarder, who can tell you immediately whether the HTS codes you import under are affected. This works even if you import at small scale.

Should you move production out of China?

It is the most durable legal response, and capacity is the constraint. Once large companies begin diversifying, production lines in Vietnam and India book out well in advance, so acting early matters more than the decision itself.

Why are India and Pakistan competitive for manufacturing?

Labor cost. In categories like apparel and bags, labor is the largest cost after raw materials, and Chinese labor rates have risen substantially with economic growth.

What is a free economic zone?

A designated area with no or minimal import and export taxes for companies operating inside it, such as the Clark and Zamboanga zones in the Philippines. Working with a factory inside one can eliminate local trade taxes on both inbound materials and outbound finished goods.

Can you avoid duties by shipping direct from Asia?

At the time of recording, parcels under $800 were exempt from customs duties, which made direct-to-consumer fulfillment from Hong Kong and Shenzhen attractive. De minimis rules have changed substantially since, and delivery times of roughly a week remain a customer experience problem.

Is it illegal to change the country of origin on your products?

Yes. Transshipment through another country is legal, and relabeling goods to declare a different country of origin is customs fraud regardless of where the container stopped.

What happens if your supplier undervalues your invoice?

You carry the liability as the importer of record, even when the supplier prepared the paperwork without being asked. Undervaluation is fraud, and penalties can include seizure and significant fines.