The Fair Tariff Act, introduced by Senators Bob Menendez (D-N.J.) and Bill Cassidy, M.D. (R-La.) on Thursday, aims to protect companies from incurring additional taxes on products that have already shipped from overseas when new tariff actions are announced. A companion to the bipartisan bill introduced in the House this fall, it calls for a 60-day cushioning period for those goods to arrive at U.S. shores before companies are forced to pay duties on the imports that follow.
“While the goal of tariffs is to pressure foreign governments to live up to their commitments… and to create political pressure on an offending government,” the burden instead falls “entirely” on U.S. shoppers and companies, Menendez said, adding that the measure “will exempt goods in transit from additional tariffs, something that should be standard practice.”
“Referees shouldn’t change the rules in the middle of a game, and tariffs shouldn’t change in the middle of a shipment,” Cassidy added, noting that U.S. companies “require certainty” about the cost of operating their businesses. “This bill gives certainty.”
Under current law, the U.S. Trade Representative (USTR) can enforce tariffs on products in transit from other countries, even if those goods were shipped before the tariff law took effect. The agency has made concessions in the past, such as in May 2019 when it granted goods-on-the-water exemptions to importers bringing in shipments from China following then-President Trump’s decision to deploy $200 billion in Section 301 tariffs. The same action was not taken in October 2019 or in January 2021, when USTR levied tariffs on over $7.5 billion in products from Europe, including wine, spirits, food and some luxury fashion products.
The proposed legislation is gaining traction with business advocate groups and trade organizations.
“There’s never a good policy reason to slap tariffs on ‘goods on the water,’ and this legislation will ensure that doesn’t happen in the future,” U.S. Chamber of Commerce senior vice president of international policy John Murphy said. National Retail Federation (NRF) vice president for supply chain and customs policy Jonathan Gold said the group has strongly supported goods-on-the-water tariff exemptions in the past.
“It is completely unfair to have tariffs applied to goods that are already in transit destined for the United States,” he told Sourcing Journal. “Tariff penalties should be applied beginning on a specific date, before goods are actually shipped. As the bill’s title notes, this is just a fair application of such tariffs.”
Footwear Distributors and Retailers of America (FDRA) vice president of government affairs Thomas Crockett told Sourcing Journal that the Fair Tariff Act would help alleviate the tariff burden on U.S. companies. “There’s been a lot of uncertainty for businesses with the rollout of the tariffs, so this will provide more certainty,” he said.
However, trade with “non-market economies” is exempt from the benefits of the legislation in its current form. That’s an issue of significance for FDRA members, many of whom source shoes from China and Vietnam. “It’s good legislation in that it makes sense to not hit goods on the water,” Crockett said. “It creates a 60-day window for companies to adjust to the tariffs, but then it doesn’t apply to [those countries], and so that would be a concern for us.”
Footwear firms facing rising costs across the supply chain, from raw materials to production and transport, are being already impacted by Section 301 tariffs on goods from China, according to FDRA chief economist Gary Raines. Steep footwear import costs are “strongly correlated” with the average duties paid, he pointed out. “Most recently, as the average per-pair cost of duties jumped to a record [$2 per pair] in September, so did the average import cost,” he said of the roughly $15 per-pair expense—a more than 25 percent year-on-year increase.
“These higher import costs directly impact consumers, as over the long term, trends in the average landed cost of footwear are strongly correlated with trends in retail footwear prices,” Raines said. FDRA’s preliminary data suggests both will reach “unprecedented highs” before January, with average footwear retail prices set to reach more than $145 per pair. That’s 5.5 percent higher than 2021, the highest year-over-year rate of change in decades. “Coupled with the highest inflation in decades, shoppers’ purchasing power—particularly for footwear—is waning,” Raines said.
Higher prices seem to be weighing on shoppers, but retailers are feeling the burn as well. While consumer spending on footwear has risen year-on-year over the past several months, sales numbers don’t tell the whole story, Raines said. “After adjusting for the higher prices, footwear spending still remains soft,” he said. “In other words, shoppers are having to spend more to buy relatively less footwear.”
President and CEO of the American Apparel and Footwear Association (AAFA) Steve Lamar believes the Fair Tariff Act should be applied across U.S. trade relationships, noting that the current legislation would “be strengthened by jettisoning provisions that exempt non-market economies” like China, a primary sourcing locale for many of the group’s members. “It’s important to make sure that tariffs are premised on predictability and effectiveness, two principles that have been lacking during the imposition of the Trump-Biden Section 301 tariffs,” he added.
“We believe Congress should fully embrace the principle embedded in this draft bill about avoiding tariffs that hurt U.S. buyers and the U.S. workers they employ and U.S. consumers they support, whether those tariffs are newly applied or whether they’ve been in place for decades,” Lamar said.
The legislation signals that lawmakers “believe our current tariff policy hurts U.S. interests and needs to be dramatically overhauled,” he added. “But this measure needs to go further to truly put U.S. tariff policy on the right path.”