How will reciprocal tariffs impact the optical industry?

Following last month’s webinar covering the ongoing trade war’s impending impact on the optical industry, The Vision Council (TVC) recently hosted a second and third webinar to discuss how the industry may be affected by“reciprocal tariffs” introduced last week and taking effect today (April 9).

Let’s get into the details on these latest tariffs.

Sure thing. However, it may help to get some context and background on the big picture of why we’re in the midst of a trade war.

• For those answers, click here for the rundown (including a refresher on what a tariff is).

Now to the recent developments on this:

• On April 2, the U.S. Trump administration announced the latest round of tariffs—referred to as “reciprocal tariffs”—spanning anywhere from 10% to 50% on an estimated 60+ countries across the globe.

In general, what do “reciprocal” tariffs mean?

Essentially, reciprocal tariffs are a tax or trade restriction imposed to create a so-called “level playing field” in the trade industry by responding to tariffs or trade barriers already imposed by other countries.

The intent behind these: Aside from creating a balance in trade between countries, this “response” can be used as a negotiation tool and is meant to protect local (domestic) business, preserve jobs, and resolve trade imbalances.

• The potential backlash: As the Economic Times reported, this can lead to a back-and-forth increase in trade barriers, potentially resulting in a trade war that negatively impacts both economies” and cause:
  • Disruptions in supply chains
  • Consumer price increases
  • Slower economic growth
  • Strained international relationships

Now to the specifics of these reciprocal tariffs.

The gist: The U.S. imposed a baseline 10% tariff (effective April 5) for all countries and variable higher taxes for a number of countries.

See below for a look at a few of these (and take note: the countries listed are major players in the optical industry).

• Cambodia (49% tariff)
• Vietnam (46% tariff)
• Thailand (36% tariff)
• China (125% tariff)
  • What led to this:
    • On April 7, the U.S. threatened an extra 50% tariffs—which would bring the grand total to 104%—if China did not withdraw the extra 34% increase it imposed on the U.S.
      • That increase was raised to 125% on April 9.
    • Also on April 9: China raised its increase to a 50% tax (totaling an 84% tariff).
• Taiwan (32% tariff)
• Switzerland (31% tariff)
• India (27% tariff)
• South Korea (25% tariff)
• Japan (24% tariff)
• Malaysia (24% tariff)
• European Union (20% tariff)

Check out the complete list here.

Go on ...

To note: That baseline 10% tariff went into effect on April 5 and will remain in place during the newly announced 90-day postponement of those reciprocal tariffs.

As a reminder: Thee reciprocal tariffs’ were originally expected to take effect at 12:01 a.m. on April 9 and would be in addition to the existing duties the U.S. imposed back in 2018 under Section 301.

• See here for exceptions to these (and we’ll explain this more later).

And keep in mind: These tariffs are paid by U.S. businesses that import goods from these countries.

How were these individual tariffs calculated?

That’s a point of contention.

According to the White House: Each country’s tariff was determined by estimates from bilateral trade deficits in goods and were calculated using this apparent mathematical formula.

• However: Tax policy experts have called this method “nonsense,” saying that the formula is unrelated to any actual policy and bilateral trade balances in goods are not a good measure for tariff application.

Interesting … now explain how the optical industry may be impacted.

In speaking during TVC’s webinar on April 4, Rick Van Arnam, regulatory affairs counsel for TVC, offered a look at a few TVC-member countries and their expected reciprocal tariffs (as we showed earlier).

And on April 9: TVC updated members on the U.S.'s 90-day postponement plans.

So these reciprocal tariffs are on top of already established tariffs?

Yup—with a few exceptions.

Notably: These tariffs will not be cumulative for certain products protected by Section 232 tariffs, which includes the U.S.’s taxes on steel and aluminum imports:

• 25% duties imposed on steel and aluminum products (as well as specific derivatives)
• 25% duties imposed on automobiles and automobile parts

In other words: For these products, only the Section 232 duties will apply.

Got it. Now let’s focus on Mexico and Canada.

In general: Optical products originating from these countries will be exempt from both the baseline 10% tariff as well as the country-specific individual reciprocal tariff.

The reason: The U.S. has already imposed an additional 25% tariff on goods coming from Canada and Mexico—which, as we previously emphasized, is on top of regular customs duties of 2% or 2.5% (excluding select product types).

And keep in mind: A select number of products may be exempt from those 25% tariffs due to qualifying under the Free Trade Agreement (via the 2020 U.S.-Mexico-Canada Agreement [USMCA]) established during the first Trump administration.

• For optical products falling under this category: the regular customs duty is free.

So how would these tariffs apply to products with both U.S. and non-U.S. materials?

There are two scenarios to consider:

• For imported optical products with 20% or more U.S. origin material, only the percentage of non-U.S. origin material used in the product will be subject to a reciprocal tariff
• And for imported optical products with less than 20% of U.S. origin material, 100% of that product will be subject to a reciprocal tariff.

And what will these increased tariffs mean for optical product importers?

Nothing good, to say the least.

In general, Van Arnam said, importers will be paying more for imported goods—including raw materials, parts, components, or finished goods.

• Also facing an increase: freight costs, particularly as companies attempt to beat these reciprocal tariffs, and—impacting consumers— product pricing.

Van Arnam advised caution with internal commercial terms, as tariff responsibilities will fall to an exporter, and the potential impact the export market could face as a result of retaliatory tariffs in foreign countries.

Another major issue to consider: transhipping (in which a country ships products through a third country so the products appear as though they’re coming from the third country to avoid a higher duty or tariff).

Now get into specifics on tariffs the optical industry will be hit with.

TVC offered a look at the updated tariff percentages products will face if imported from China (which, let us remind you, faces one of the steepest reciprocal tariffs out of all countries).

• Optical telescopes (including monoculars; total duty: 117.5%)
• Over-the-counter (OTC) reading glasses (total duty: 155%)
• Plastic frames or mountings (total duty: 154.5%)
• Contact lenses (total duty: 154.5%)
• Glass and plastic lenses (total duty: 154.5%)
• Sunglasses (total duty: 154.5%)
• Non-plastic frames or mountings (total duty: 152.5%)

To note: The following percentages are based on:

• China’s “regular” customs duty (ranging from free to 2%, 2.5%, or 6%)
• China 301 origin duty (7.5%)
• 20% tariff imposed in February + new reciprocal duty rate of 125%
  • (145% in total)

How about for eyeglass cases?

Editor's note: The following percentages were calculated based on the previously announced 84% reciprocal tariff (not the updated 145%).

Depending on the case material, the updated tariffs for those products of Chinese origin are “astronomically” high.

Eyeglass case with:

• Outer surface of plastic sheeting (not reinforced or laminated plastic sheeting)
  • 99% total duty
• Outer surface of textile materials, man-made fibers
  • 96.6% total duty
• Outer leather or composition leather surface (not reptile leather)
  • 87% total duty
• Outer surface of reinforced or laminated plastic sheeting
  • 12.1ȼ/Kg + 83.6% total duty

And production equipment?

Editor's note: The following percentages were calculated based on the the updated 145% tariffs.

For equipment imported from China, the new total tariff amounts range from 170% to 190%.

This applies to:

• Lens grinding equipment; lens generators; lens finding machines; lens polishers and edgers
• Lens finishing equipment; lens layout equipment; lens tinting and coating equipment
• CAD/CAM milling systems
• CNC milling systems
• 3D printers

And what are the updated tariffs for Canadian or Mexican products looking like?

Unlike for China-origin products, these products would not be subject to the April 9 reciprocal tariffs.

Instead, they either have the regulator customs duty (ranging from free [if USMCA eligible] to 2%, 2.5%, or 6%) as well as the 25% reciprocal tariff the U.S. already imposed on both countries at the beginning of April.

• For a look at products like contact lenses and reading glasses—whose total duties range from 25% to 31%—see here.

As for eyeglass cases, the already-imposed reciprocal tariffs begin at 25% (again, only if USMCA eligible) to 45%.

So with these updates in mind, what should industry members keep in mind?

To start: A product’s country of origin, particularly if transhipping is typically involved and especially if a product contains various components assembled from different countries.

“You should be very careful with determining this,” Van Arnam said.

• If so, then the country of origin would be where the product is produced (manufactured).
• And if not, then the U.S. Customs and Border Protection will look at which components “impart the essence of a finished product,” according to Van Arman.
  • For example: The use of foreign inputs of country x to make a “new and different article of commerce” [product] in country y could result in country y being the product’s country of origin.

His recommendation: Compile a cost of a bill of materials that identifies various countries involved in a product’s development to use as a tool in determining whether or not a product’s components undergo a substantial transformation when made into a new product.

And what is TVC doing in the meantime?

The Council noted continuing efforts to advocate for relief from tariffs impacting eyewear and related optical products.

How: TVC’s Government Relations team is reportedly in discussions with “congressional leaders and key committees that influence the [U.S.] Trade Representative to push for the creation of an exemption process that would allow affected U.S. companies to formally petition for relief.”

• Further: The Council is urging industry members to “stay informed as trade dynamics evolve.”

How might they do this?

TVC members can access the newly-launched Tariff Dashboard to view an aggregation of import data (and a tariff simulator) from the U.S. International Trade Commission.

• The Council is also providing updates for members on its website.

Otherwise, stay tuned! We’ll likely be reporting on new developments shortly …