6 July 2018
President Trump Pledges Tariffs on More Products from Mainland China, Eases Investment Restriction Threat
President Trump is threatening to raise tariffs on another US$400 billion worth of goods from mainland China if Beijing retaliates for the 25 percent tariff the United States is planning to impose on mainland Chinese products beginning on 6 July. The Office of the U.S. Trade Representative has also published a formal notice announcing those tariffs, which will affect more than 800 products, and setting forth a schedule for public comment on whether to take similar action on nearly 300 others.
The Trump administration announced on 15 June two lists of goods imported from mainland China that will or could be hit with higher duties after a Section 301 investigation determined that mainland China’s acts, policies and practices related to technology transfer, intellectual property and innovation are unreasonable and discriminatory. Beijing immediately said it would respond in kind by levying a 25 percent tariff on 545 U.S. goods as of 6 July and expanding that list by another 114 products on an as-yet-undetermined date.
Trump said on 18 June that mainland China’s response “clearly indicates its determination to keep the United States at a permanent and unfair disadvantage” and that “further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States.” The president therefore directed USTR to identify another US$200 billion worth of mainland Chinese goods that would be subject to an additional 10 percent tariff if mainland China “refuses to change its practices” and “insists on going forward with the new tariffs that it has recently announced.” Trump added that if mainland China increases its tariffs yet again the United States “will meet that action by pursuing additional tariffs on another US$200 billion of goods.”
Meanwhile, USTR has issued a notice in the Federal Register that (i) formally modifies the Harmonised Tariff Schedule of the United States to reflect the pending imposition of an additional 25 percent tariff on 818 products from mainland China and (ii) sets forth a schedule for public comment on the possibility of similar action against 284 other mainland Chinese products. The USTR notice modifies subchapter III of HTSUS Chapter 99 to create new subheading 9903.88.01 and new U.S. note 20 listing the mainland Chinese products that will be subject to the additional tariff effective for goods entered or withdrawn from warehouse for consumption on or after 12:01 a.m. EDT on 6 July. These tariffs will be in addition to all other applicable duties, fees, exactions and charges, including antidumping and countervailing duties. However, the additional tariffs will not apply to products for which entry is properly claimed under a Chapter 98 heading or subheading.
Any covered product admitted into a U.S. foreign-trade zone on or after the effective date of the tariffs may only be admitted as “privileged foreign status.” Upon entry for consumption, such products will be subject to any ad valorem rates of duty or quantitative limitations related to the classification under the applicable HTSUS subheading.
Requests to exclude specific products from these tariffs will be accepted but a notice describing this process (including filing opposition to exclusion requests) will be published separately. USTR suggests that products that may be considered for exclusion include those that are only available from mainland China, those for which an additional tariff would cause severe economic harm to a U.S. interest and those are not strategically important or related to the “Made in China 2025” industrial policy.
The USTR notice also lists the 284 other HTSUS subheadings that could be subject to an additional 25 percent tariff. USTR will issue a final determination on which of these products will be covered after completing the following process: a hearing will be held on 24 July (requests to appear at this hearing and pre-hearing submissions were due by 29 June), written comments on maintaining or removing specific subheadings from this list are due by 23 July, and post-hearing rebuttal comments are due by 31 July. USTR states that comments should address whether increased tariffs on specific products would be practicable or effective to obtain the elimination of mainland China’s acts, policies and practices and whether maintaining or imposing such tariffs would cause disproportionate economic harm to U.S. interests, including small or medium-sized businesses and consumers.
At the same time, the president has eased threats of tough investment restrictions and enhanced export controls on mainland China in favour of the Foreign Investment Risk Review Modernization Act (FIRMMA), which would apply to investments from all countries. Having concluded that this bill “will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity,” Trump said he plans to direct his administration “to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies identified in the Section 301 investigation.” On the other hand, if the bill does not pass Congress or is watered down, Trump said he would work to “deploy new tools” to protect U.S. technology and intellectual property.
The House of Representatives approved its version of FIRMMA on 26 June by an overwhelmingly favourable 400-2 vote. A press release from the House Financial Services Committee states that the Committee on Foreign Investment in the United States needs to be modernised to keep pace with the growing number and complexity of foreign investment deals. “CFIUS is authorised to review foreign investment transactions that may threaten our national security, and although these authorities have been wielded carefully, Congress must remain vigilant when delegating additional powers that may have far-reaching effects,” said Committee Chairman Jeb Hensarling (Republican-Texas).
An earlier press release from bill sponsor Rep. Robert Pittenger (Republican-North Carolina) said FIRMMA would (i) expand CFIUS jurisdiction, (ii) update the CFIUS definition of “critical technologies” to include emerging technologies that could be essential for maintaining the U.S. technological advantage over countries that pose threats, (iii) add new national security factors to the review process, and (iv) strengthen the government’s ability to protect critical infrastructure from foreign government disruption. At the same time, the press release stated, the bill makes clear that the United States must “maintain its enthusiastic support for foreign investment, which is crucial for U.S. jobs, innovation and productivity.”
In other news of potential interest, a group of business and agriculture associations on 26 June urged the U.S. Senate to pass legislation introduced by Sen. Corker (Republican-Tennessee) and a bi-partisan group of senators to require the president to submit to Congress any proposal to raise tariffs in the interest of national security under Section 232 of the Trade Expansion Act of 1962. The associations expressed deep concern at the president’s unrestricted use of Section 232 to impose tariffs, which may not be in the national interest of the United States because they have resulted in retaliatory tariffs from some of the largest U.S. trading partners and closest allies and also undermine “U.S. efforts to build an international coalition of like-minded countries to join the United States in combatting the use of unfair trade and investment policies.” The letter also criticises the threat of an additional 25 percent tariff on imported automobiles, which would “inflict enormous harm on the U.S. economy.”
The letter notes that Article I of the U.S. Constitution assigns the Congress exclusive authority to regulate foreign trade and levy taxes, including tariffs. Congress used this power to delegate to the president the authority to impose tariffs, without congressional oversight, to safeguard national security in the Trade Expansion Act of 1962. Although the associations believe the president should still have this type of authority, they assert that “the current circumstances highlight the need for Congress to ensure that the authority will be used, as intended by the Congress, in the overall national interest.” The legislation offered by Sen. Corker and his colleagues, according to the letter, is designed to accomplish this limited objective.