Mark Heusel and Hezi Wang's article, "Tariffs on Chinese Goods Target a New Sector of Concern," was recently published by Directors & Boards. They discuss the proposed increase in tariffs on $18 billion USD of additional imports from China. "While the tariffs have seemingly been absorbed into the supply chain and consumers have grown accustomed to higher prices, inflation remains a hot topic in this year's election and a continued escalation in the Trade War will certainly disrupt global supply chains. In fact, it is expected that Beijing will have a countermove that further restricts U.S. growth in one of the largest consumer markets," stated in their article. To read more, click here.
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The so-called "Tariff War" initiated by former President Donald Trump six years ago resumed in May when President Joe Biden directed the Office of the United States Trade Representative (USTR) to increase tariffs on $18 billion USD of additional imports from China. On May 14, USTR Katherine Tai issued a formal proposal for public comment (generally, a mere formality) to modify the existing Section 301 China Tariffs by making substantial increases on "targeted and strategic products." Specifically, the proposed increase in tariffs will cover products in 14 strategic sectors under 382 Harmonized Tariff Schedule subheadings and five statistical report numbers. Products subject to proposed increases beginning August 1, 2024, include electric vehicles, certain batteries and battery parts, certain medical products, certain critical minerals, solar cells, ship-to-shore cranes, and steel and aluminum products. Increases in semiconductors are proposed to begin in January 2025. Lithium-ion non-electric vehicle batteries, medical gloves, natural graphite and permanent magnets are subject to the last tranche of tariff increases on January 1, 2026.
The USTR has also proposed establishing a temporary exclusion process (i.e., not subject to the tariffs) for particular machinery used in domestic manufacturing and 19 temporary exclusions for solar manufacturing equipment that will support investment in U.S. solar manufacturing. The temporary exclusions will be effective through May 31, 2025. The public comment period ends on June 28, 2024, whereafter it is expected that the proposed additional duties will take effect in accordance with the following schedule.
The Biden Administration's latest push to put pressure on China by increasing the costs of Chinese goods imported into the United States is not an original idea, but the reasons behind the tariffs are more closely associated with a protectionist trade policy, rather than Trump's economic hammer. In August 2017, then-USTR Robert Lighthizer, at the direction of President Trump, initiated an investigation under the Trade Act of 1974 to determine whether acts, policies and practices of the Government of China related to technology transfer, intellectual property and innovation are actionable under the Trade Act. At the time, it was widely understood that President Trump was keen to reduce the U.S. trade deficit with China and that the threat of tariffs may bring Beijing in line with a new trade agreement. After completing its formal investigation (a legal prerequisite to implementing the tariffs without the involvement of Congress), the USTR took steps to unfold a strategy of penalizing importers of Chinese goods by leveling excessive additional duties in response to China's "maligned" trade practices. This began an escalation of trade tensions in which China responded with its own tariffs on U.S. imports and the U.S. continued expanding the tariff list. Since its inception on July 6, 2018, the USTR has imposed additional tariffs on products of China in four tranches (List 1-4A), ranging from 7.5% to 25% on approximately $400 billion of Chinese goods.
As 2020 approached, it seemed for a time that Trump's strategy was having an impact and China and the U.S. engaged in a series of negotiations, resulting in a new (and rather extraordinary) trade agreement referred to as the Economic and Trade Agreement between the Government of The United States of America and the Government of the People's Republic of China. The so-called "Phase 1 Agreement" (because additional trade pacts were intended) was signed on December 15, 2019, resulting in the suspension of some tariffs and commitments by China to buy more U.S. goods. COVID-19 then captured the world's attention just 2 months later and, with President Trump facing a heated reelection campaign, the once-bright hope of improving trade relations with China was a thing of the past. After Biden was elected President, his administration did not signal any immediate deviations from Trump's policy toward China. Nonetheless, as required by the law, the USTR was compelled to commence a statutory four-year review of China 301 tariffs in May 2022. The Biden administration hesitated to acknowledge the effectiveness of the Trump-era tariffs and USTR Tai remained relatively quiet on the administration's policy toward China and whether the Phase 1 Agreement was still effective. Two years after commencing her review and three years into Biden's term, the USTR finally released its investigation report. In its May 2024 report, the USTR recommended that products currently subject to the Section 301 tariffs should remain because they were "effective." The USTR also extended all current exclusions for products on List 1-4A, including COVID exclusions, through June 14, 2024, with certain exclusions being extended through May 31, 2025. The full impact of the tariffs is summarized in the chart below.
While it is widely expected that the latest round (and prior rounds) of tariffs is likely not to ease regardless of who wins in November, neither Trump nor Biden have signaled an off-ramp to the escalation in tariffs or other trade sanctions. In fact, Trump has suggested Biden's latest move was not severe enough. And, while the tariffs have seemingly been absorbed into the supply chain and consumers have grown accustomed to higher prices, inflation remains a hot topic in this year's election and a continued escalation in the Trade War will certainly disrupt global supply chains. In fact, it is expected that Beijing will have a countermove that further restricts U.S. growth in one of the largest consumer markets. Coupled with other regulatory actions by the U.S. government toward China, it is clear that importing from and exporting to China remains a tricky game and one that must be played with a deeper understanding of the risks. One such law to watch is the Uyghur Forced Labor Prevention Act, which now enters its second anniversary but is being enforced with greater scrutiny by U.S. Customs on Chinese goods than ever before. And it is fair to say these risks are not limited to mainland China and includes supply chains flowing throughout Asia.
Download: Tariffs on Chinese Goods (directorsandboards.com)
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