Trump Administration Tariffs Impact Bonds Covering Imports
If your business imports goods into the U.S., the tariffs recently imposed by the Trump administration have likely created some uncertainty:
- Are they simply a negotiating tactic, and will they ultimately be rescinded?
- How long will they be in place?
- How will that impact your costs?
- Can they be passed on to your customers?
- Is there an alternative available?
These are some of the questions that may be running through your mind as you try to decide how to react to the current trade reality.
While it’s probably not an immediate issue, if you use a customs bond to cover your imports, you will need to assess whether it is sufficient under the new tariff rates. Customs bonds guarantee that the importer will comply with customs regulations, including the payment of any duties, fees and taxes that may be due on the imported goods. This allows the goods to leave the port while the paperwork and payments are filed and settled. Customs bonds are typically either “single entry” or “continuous” bonds.
Single entry customs bonds cover a single shipment with the bond amount determined by the shipment value and duties, fees and taxes on the goods being imported. Since each bond covers a specific shipment, these bonds are easy to adjust to reflect the rapidly changing tariff situation. However, filing them is time-sensitive, administratively burdensome and often much more expensive than a continuous bond.
Continuous customs bonds cover any shipments that come in as long as the bond is in place. The bond amount is typically set at 10% of the trailing 12-month total of duties, fees and taxes incurred on imported goods. The value of the goods is not a factor. Continuous bonds have a minimum bond amount of $50,000. Larger bonds are issued in increments of $10,000 from $50,000 up to $100,000 and then in $100,000 increments above that.
If you use a continuous customs bond to cover your imports, the sufficiency of your customs bond may be impacted. If the new tariffs remain in place for an extended period, your customs bond may be deemed insufficient by U.S. Customs and Border Patrol (CBP). Once deemed insufficient, you will have 15 days to replace it with a larger bond. If the CBP finds that the bond is grossly insufficient, they could terminate it immediately, and you’ll need to file a new bond before shipments can be processed. It can take as long as 15 days to get a new bond process, during which you may need to use single-entry bonds.
It’s worth noting that with continuous bonds, the bond liability “stacks.” Each 12-month period the bond is in place is treated as a separate obligation. The CBP usually has 3 years from the entry date to settle the duties and taxes due on an import shipment, so you potentially are liable for up to 3 times the bond amount. If a new bond is required and the surety requires collateral, they may require additional collateral to support the new bond and hold onto the collateral for the insufficient bond until all shipments under it have been settled.
Since the required bond amount is based on the prior 12-month period of imports, there may be a delay before the tariffs create the need for a higher bond. The substantial increases in some countries’ tariffs make an insufficiency notice likely to come sooner rather than later for importers from those countries. We recommend that you review your expected imports and how the tariffs may affect the bond requirement so that you’re prepared if the CBP notifies you that a larger bond is needed. It’s worth considering proactively increasing your bond in excess of the minimum required increase to help avoid multiple increases, leading to stacking liability.
The tariff issue is constantly changing, and the long-term impact is unclear. However, by monitoring projected duties, fees and taxes compared to your importer bond amount, having a shipment held up in port due to an insufficient bond doesn’t need to be a concern.
If you have any questions, please contact a Scott Insurance Surety Advisor.
