The tariff situation has given rise to questionable add-on costs.

The US has escalated its trade war with China, raising the tariff on over $200 billion in products, including printed circuit boards. The tariff has risen from 10% to 25%. Hopefully, this situation will be resolved soon. But for now, the increased tariffs are the law and must be paid.

The problem is some in the PCB industry lack clarity on exactly how these additional tariffs are to be applied and who ultimately pays them.

The truth is PCB buyers would be surprised to learn some US brokers may not be entirely “above board” when it comes to following both the letter and spirit of the law. To maintain profitability and minimize the impact of the increased tariff, some brokers may be taking advantage of the situation by playing with the numbers. And that could mean board buyers are left holding the bag in more ways than one.

Before the imposition of the tariff last September, a PCB broker’s sell price would include the cost to make the board, as well as freight and expenses such as value-added inspection and warehousing. It would also include the broker’s profit margin.

Brokers need to make a profit for services provided. It’s understandable they’d 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. Buyers should only pay the tariff on the actual cost of the board itself at the time of export and nothing more.

Say, for example, you were paying a delivered price of $1 per circuit board. If, with the imposition of the 10% tariff, you started paying $1.10, you were probably paying more than your fair share of the tariff. Likewise, with the 25% tariff, if your board price has jumped to $1.25, how do you know you’re not carrying more than your share of the burden?

When the 10% tariff was imposed, brokers wanted to prevent customers from feeling they were paying too much. They also wanted to remain competitive on price. So, they came up with a workaround serving both purposes: a pass-through charge, usually 6% to 8% of the sell price, to cover the tariff.

This pass-through charge allowed brokers to legitimately pass along most of the cost of the tariff, without necessarily divulging their buy price. The pass-through was listed as a separate line item on the invoice, so the PCB customer could clearly see the tariff charge.

With the tariff increasing to 25%, the pass-through has risen to the 18% to 20% range. All well and good.

Here’s the thing, though: The tariff applies only to the actual manufacturing cost of the exported board. What’s happening is that, even with the customer
paying the pass-through, some brokers are playing games with their buy prices, especially after the unpalatable jump to 25%. They are unreasonably deflating the board prices listed on their purchase orders to vendors, while unreasonably inflating other charges – or creating bogus charges – they believe are not subject to the tariff.

For example, before the tariff, a PCB broker would issue a purchase order to a Chinese manufacturer with a single line item for 100 pieces of PCBXYZ at $0.80 each. Now, some brokers are issuing a PO for that same part number at $0.40 each, but with an extra line item for a so-called 100 pieces of inspection/test charges, also at $0.40.

Same PO total, but the broker is misrepresenting the piece price to pay the tariff on a smaller portion of the actual cost. At the current tariff rate of 25%, the broker is only paying half of the required tariff.

Another way of trying to get around the tariff is to add a separate line item with unusually high engineering/tooling charges on every PO. This suggests – incorrectly – these charges are exempt from the tariff. The non-recurring engineering charge (NRE) that used to appear only on the first PO seems to have morphed into a recurring engineering charge on every order. Because a PCB cannot be built without a tooling package, the Gerber files the manufacturer receives are considered a technical assist. Therefore, engineering/tooling charges are subject to the tariff as well.

And the truth is brokers fudging the numbers like this are playing with fire. This is customs fraud. They are putting themselves at risk. By extension, the PCB customer is also at risk.

“Typically, the broker (the importer in this case) is only required to pay the tariff on the price paid, or payable, on the merchandise itself,” says Elon Pollack, a customs and international trade lawyer who has taught global logistics, importing and exporting at Cal State Long Beach and UCLA for more than 20 years.

“But the broker must be able to demonstrate the price they declare is the price actually paid. Wild changes in prices from past purchase orders or similar prices paid by other brokers for the same part can trigger a review.”

Pollack points out the penalties for customs violations exceed even those from the IRS for tax violations. If a broker misrepresenting PCB buy prices or adding bogus charges to every order gets caught, significant fines and operational delays are likely.

And that means if your broker is misrepresenting the numbers in this way, your supply chain could well be disrupted. Worse, you could be on the hook for tariff violations.

Greg Papandrew has more than 25 years’ experience selling PCBs directly for various fabricators and as founder of a leading distributor. He is cofounder of Better Board Buyer and will be speaking at PCB West in September; greg@boardbuying.com.

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