August 17, 2021:

Some PCB brokers may not be correctly applying the 25% tariff on circuit boards imported from China.

Specifically, these U.S.-based brokers seem to lack clarity on how tariffs are to be applied and who ultimately pays them.

The 25% tariff is due on the cost of the board that the importer (the PCB broker) pays the Chinese manufacturer at time of export.

It should not be applied to anything else.

When the tariff was first imposed, brokers wanted to remain competitive without necessarily divulging their buy price to the customer.

So they came up with a workaround serving both purposes: a Tariff-Related Expense (TRE), a pass-through charge based upon a percentage of the sell price that would cover most of the tariff.

This charge allows brokers to legitimately pass along tariff costs while keeping their profits intact. The TRE is usually listed as a separate line item on the invoice, so the PCB customer can clearly see it.

When the tariff was at 10%, most brokers were charging in the range of 6% to 8% of the sell price. With the tariff increasing to 25%, the TRE rose to the 16% to 20% range.

This is how it is supposed to work: A U.S. customer is charged, for example, $1.20 each for a PCB manufactured in China that only cost the broker $.80 at time of export.

The $.40 difference covers the broker’s cost of overhead, things like freight, inspection, warehousing, and, of course, profit—all of which are not subject to the tariff.

The broker pays 25% on just the buy price of $.80, meaning a tariff of $.20 is required. The total cost of ownership of that board, as reflected in the invoice, should be $1.40, which is the sell price of $1.20 plus, say, a TRE of 17%, which is $.20. All well and good.

Here’s the thing though: some PCB distributors are applying the tariff based on the value of the purchase order—their U.S. domestic sell price—and not the price of the board at time of export from China.

So, using the example above, with the 25% tariff applied to the sell price of $1.20 per board, this means the broker is charging a bogus TRE of $.30 per board, for a total cost of ownership of $1.50 each.

The customer is being charged $.10 more per board in profit to the broker.

It’s understandable that brokers want to sustain their profits in the face of the tariff. But the PCB customer should not be paying a 25% tariff on that profit.

You, like your broker, should only be paying the tariff on the actual cost of the board itself at time of export from China and nothing more.

PCB buyers should confirm they are being charged the tariff only on the amount of the product being exported and not on any ancillary charges like international freight, insurance, or profit.

Being overcharged could be a simple misunderstanding. But in the next post, we will discuss how some brokers may be defrauding the government and how that could actually land your company in hot water.

It’s important for buyers to know all they need to about PCB tariffs. I can help.

Reach out to me at greg@boardbuying.com.