A Conversation With: Jeff JorgePrincipal and firm leader - international services, Baker Tilly Virchow Krause LLP
Jeff Jorge, 43, is a principal and the firm leader for international services with Baker Tilly Virchow Krause, which he joined in 2015 after a merger with Global Development Partners, where he was executive partner.
He frequently works in the firm’s Central Pennsylvania offices.
Jorge earned a bachelor’s degree in design engineering from Middle Tennessee State University in Murfreesboro, Tennessee. He also earned an MBA from the University of Michigan.
He lives in Huntington Woods, Michigan, with his wife and 5-year-old son.
Q: Can you describe the impact of tariffs on some of your clients?
A: I’m going to focus primarily on companies using or relying on items coming from abroad into the U.S. That seems to be the broader impact we see through the Midwest and East where a lot of physical manufacturing still occurs. Those who have been impacted, their business model is not set up to accommodate that increase in tariffs. A 25 percent rise in your cost of imported items, if you’re operating on a single-digit margin, could entirely erode your profits. For certain companies it has been a dire impact.
How have you helped your clients turn some of these problems into opportunities?
The short term is, can we help reevaluate how you source those items you currently import and source them locally in the U.S.? For many items that is not an option. The other is to do what we call denationalization. Up until recently, it didn’t matter where imported items came from. It was the category of the product, the classification, that mattered. Now that matters, and may require you to think about what you are importing and whether you can do transformations of that product in other countries that denationalize that content. Let’s say a manufacturer is purchasing a metal part that was cast in China. They bring that part finished into the U.S. We work with that manufacturer to see, ‘What if we were to bring the raw metal part from China to Mexico and in Mexico you can do all the milling operation and bring that to the U.S. where you heat treat it at your own facility?’ Invariably, we find it is less than 25 percent premium.
One of the bigger payoffs, which is also short-term and can be a longer-term solution, is to reclassify the product. The harmonized tariff system is the way that can be commonly applied across every country in the world to describe, monitor, categorize and apply duties to physical goods. A baseball cap has a number that means a baseball cap everywhere else in the world. The way companies categorize products for import and export, they have looked to a logistics broker or freight forwarder to tell them what that code is. Eighty percent of the cases which are brought in are classified incorrectly relative to the application of that product and the tariffs that get applied. We work with clients to find the right classification code, properly reclassify it and make sure it’s compliant.
There are two other methods that have a little longer lead time. The first is the MTB, the Miscellaneous Tariff Bill. Let’s say your company deals with a product that requires an electric motor. The majority of the ore that gets mined to make the magnets resides under China. It’s a physical impossibility to get those items made in the U.S. The Miscellaneous Tariff Bill was passed to help manufacturers that cannot obtain their necessary goods in a commercially-reasonable manner in the U.S. get a path to those items.
Another method is to seek an exemption from tariffs themselves. Since Section 301 was put into force, companies have filed 25,000 exemption requests. To date only 1 percent of the petitions were granted.
The second longer-term answer is to do a foreign trade zone. A FTZ is a demarcated area a manufacturer can request to have inside their own facility, essentially a foreign trade zone within U.S. soil, meaning traditional rules of import and export don’t apply until the products leave that zone. [Hypothetically] that motor was not protected by the MTB, but you’re going to get a container of motors and they’re going to be deconsolidated inside the FTZ in your plant and you’re going to take that motor and assemble it into a power wheelchair. If the motor by itself is brought in from China, you would have paid 25 percent in tariffs; but when that motor gets aggregated onto the chair, you can choose which duty code gets applied. If the chair is 5 percent, then you retroactively apply 5 percent tariffs to that motor and not the original 25 percent.
You’re fluent in Portuguese. What is the most interesting place you’ve ever put it to use?
I grew up in a Portuguese-speaking country, Brazil. I think the more interesting place outside of Brazil is the Azores. It’s unexpectedly beautiful, such a different environment with dramatic landscapes, greenery, it’s just stunning.