[Cindy’s Version] Tolerate It: Is The Administration Redefining Country Of Origin? (Podcast)

Tolerate It: How New Trade Rules Could Rewrite Country of Origin

Taylor Swift’s “Tolerate It” wasn’t written about supply chains. But according to Cindy Allen on this week’s episode of Simply Trade: Cindy’s Version, the song captures exactly what the trade community is feeling right now watching foundational rules potentially get rewritten in real time.

New Section 232 Duties on Drones

Cindy opens with newly announced Section 232 duties on certain advanced drones a 100% rate for much of the world, with different treatment for select trading partners. Additional component-level duties could follow in February 2027.

What This Could Mean for Importers

If this approach becomes policy, the data burden on importers could grow substantially. Entry declarations could require component-level detail rather than finished-good classification alone, and trade-remedy exposure could need to be assessed part by part, not just product by product.

Transcript

Cindy Allen – Trade Force Mult (00:05)
Hello, today is Friday, August 14th. I come to you from Portland, Oregon, where I am visiting with family and friends, but wanted to take a minute to come on. I’m Cindy Allen, CEO of Trade Force Multiplier, also known as the Taylor Swift of Trade. Welcome to Simply Trade Cindy’s version, where I base an international trade update on a Taylor Swift song. Today’s song is Tolerate It, and I’ll get into that in a moment.

This is brought to you in association with Global Training Center, who is my great partner. If you don’t know who they are, check them out. They’re the ones who put on Simply Trade every week. And I want to talk about a couple of things. But first, the biggest thing that happened this week, two big things. The first one was that there was a new Section 232 duty that was announced on some advanced drones, and it’s a hundred percent duty rate.

these are for the most advanced drones that could be used for military applications. So it’s not your average run-of-the-mill toys that your kids have or to play with, but there are 100% duty rates, except there’s a 15% all-in rate for South Korea, Taiwan, Switzerland, Liechtenstein, and the EU. And the UK will have an all-in 10% rate.

Now that means that the MFN rate and the 232 would equal 15 or 10%. For the rest of the world, that’s 100% duties. And they also indicated in the 232, there’s a later assessment of 25% on some component level articles, but that’s not going to happen until February of 2027. So again, with the component level articles being included. The other big thing that I wanted to talk about.

Today was there was a New York Times opinion column that was actually published on August 13th by Peter Navarro. Now, Peter Navarro is in the administration as the senior trade advisor to the Trump administration, and he is seen as the person who is really crafting the international trade policies and the tariff policies to a great degree. And he had an article titled, It Was a Great Scam.

While it lasted. Additionally, the White House published an additional paper outlining the approach. Now, what is alleged is really alarming to me from a trade professional. And it alleges that anyone with component level articles that are brought in and are pretty much wholly produced and then

Are incorporated into another article that is then imported into the United States is transshipment. So he gave an example of a motor that was wholly produced in China. And then it goes to a different country, let’s say Canada, and it is incorporated into a recliner. And that recliner, once it’s imported into the United States, according to current country of origin laws, definitions.

And a rich, rich, rich history of rulings and court cases that indicated that finished article was a chair produced in Canada. And what Peter Navarro has alleged is that this is transshipment, and that these articles have cost anywhere from $40 billion to $303 billion in loss of duty.

Loss of revenue to the United States and have harmed manufacturers to that degree in that they could not have the opportunity to produce those underlying components in the United States. It outlines that this new definition of transshipment is one of the dirty secrets that the international trade community has kept.

From the rest of the world and definitely from the US population and the manufacturers. it is an overall attempt to redefine country of origin. Now, country of origin is something that has been developed, the the law around that for a hundred years.

And the manufacturing process has grown around that understanding that you could have a component level input that was wholly produced in another country. And if it it undergoes substantial transformation, which is the baseline of a country of origin determination, as long as that good has undergone a substantial transformation in another country, then it is considered a component of that. If you think about how

Widely this is used. This is used in almost every manufacturing process for goods that come into the United States. Not only finished goods, but also semi-finished goods. So if you have, you know, let’s say a chip or a semiconductor, and that gets put in a board, and that board gets put in an automobile.

When it comes into the United States, it’s not a semiconductor. It that automobile, when it comes in, is not the sum of each of those component level inputs. It’s a car. And because it has undergone substantial transformation. And as I mentioned, there have been court cases, there have been rulings, there’s been all kinds of looks at this and definitions. It’s a very complicated area of international trade.

Based on a rich history and rich base in court actions as well as customs rulings. And that substantial transformation is critical to understanding the manufacturing process. So if this great scam is overcome in the way that the administration really wants it to be, is that manufacturers will end up actually declaring.

All of the components, not only the component input, but that component’s country of origin, that component’s value, that component’s application for international trade, and for any of the trade remedies, any other oversight that that the government has on that component rather than

The finished article. So if you look at a car which has hundreds of parts in it, are we going to a place where we are looking at that one car then becomes hundreds of tariff lines in hundreds of different countries of origin with individual values and an assessment of the applicability of some of these tariffs to each of those underlying components?

Now we’ve seen some of the 232s actually outline the component level tariffs. And as I’ve talked before, that was really based on some of the information that grew out of anti-dumping duty component level duty assessments. So it’s not necessarily a new concept, it’s just being applied in a different manner and to a greater degree. So

What can we do about this? Well, as I mentioned, the White House came out with a companion paper to this that is 10 or so pages long that outline exactly what the administration wants to do and how they want to change this approach and how they believe this is harming U.S. manufacturers in the United States, and that there is a tariff loss of that anywhere from 40 billion to 300 billion dollars. So if

If the administration moves along this path like they have proposed, what will happen is I believe the original whole components will have to be eventually declared on that. So if you take that example that Mr. Navarro outlined in the paper, it was that that motor, that motor would have to be declared, and then the value of the chair would have to be declared separately, and you would have to.

pay duty on each of those component level products. But where does that stop? Do we then have, you know, a car coming in and there’s a chassis and there’s a transmission and there’s an engine that were wholly imported into, let’s say, Mexico from different areas of the world. Are you going to have to declare those individual whole components? And then where does that stop? Are the spark plugs then considered a component

Are any of the any of the electrical components considered a component? How far back in the manufacturing process does this want to go? Mr. Navarro in the White House paper does indicate that the new executive order on enforcement will give CBP the enforcement capacity to actually enforce this level of tariff because they believe.

at the administration that this is a transshipment. When we in the trade community talk about transshipment, what we think about is a misdeclaration of the country of origin. So let’s go back to that chair. If you had a chair that was made in Canada and you declared it as a US origin or you declared it as another origin, that would be transshipment.

In the traditional sense of the word. You’re actually bringing it into another country. Maybe you’re mislabeling it so you don’t have to pay duty rates. We’ve seen some of that in court cases where fraud was alleged, where companies produced something in China, they took it to Vietnam, they relabeled it without doing any other

Manufacturing process without transforming it at all. And then what they did is they brought that into the United States, country of origin, Taiwan, or country of origin Singapore, so they wouldn’t have to pay the Chinese 301 duties. So that in our minds is really what the definition of transshipment is. This completely redefines the definition of trans of transshipment and will have an effect of completely redefining country of origin declarations.

We’ve seen hints of this in some of the executive orders that have come out. We’ve seen hints of this in some of the free trade agreement discussions about limiting the value of outside components coming in. And we do know that the administration has a desire to really build up the North American manufacturing area.

Which is not a bad thing in and of itself to build up manufacturing in North America, but they want to do that by limiting outside inputs, inputs from Asia that would then undermine the manufacturing in the United States, Canada, and Mexico. So this is an attempt to do that. how they’re going to do that, how they will overturn essentially a century of case law and binding rulings will be interesting to watch.

And that’s really why I chose to choose tolerate it for for the song this week. And really the lyrics that really spoke to me about the situation is I sit and watch you and notice everything you do or don’t do, kind of as a resigned position. We just are sitting and watching, we’re watching this happen in real time, but it has a huge effect on our business and our clients’ business.

I know I know my love should be celebrated. And to me, it’s a love of trade. I’ve done this for over 40 years now, and it’s my love of trade. It should be celebrated. This has helped a world develop manufacturing capacities around the world. It has raised the standard of living in countries that didn’t have an opportunity to do that without investments, foreign investments coming in. you know, post World War Two, those

soldiers and sailors that came back to the United States did see this as an opportunity to not just limit their manufacturing capacity to the US, but also that there was a global a global ability at as well as global consumers that could buy US goods. And that turned into that post-World War II free trade environment. So for those of us who love trade, we think

it should still be celebrated. and but she goes on to say, I know my love should be celebrated, but you tolerate it. And I really feel that’s what the administration is doing. They’re tolerating the trade environment today so that they can achieve the goals that they want to. So on that happy note, go out and read that article, read the companion white paper that was issued by the White House because this has an ability to completely transform

How you and I do our jobs every day, and how we understand the manufacturing processes and does indicate, as I’ve mentioned before, a need to know all of your component level products that go into what you are importing down to those raw materials. So those technology companies are going to be even more important partners moving forward if this does achieve what the administration wants it to. So hopefully we’ll tolerate a little bit more.

And we’ll talk to you next week.

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