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U.S. Announces List of Mainland Chinese Products that Would Face Additional 25 Percent Duty as Trade Tensions Escalate

The Office of the U.S. Trade Representative has released the proposed list of mainland Chinese products that would be subject to an additional 25 percent tariff as part of the U.S. response to a Section 301 investigation concluding that mainland China is coercing U.S. companies into transferring their technology and intellectual property to mainland Chinese enterprises. According to USTR, the additional tariffs are designed to target products that benefit from mainland China’s industrial plans, including its “Made in China 2025” initiative, while minimising the impact on the U.S. economy. Beijing quickly responded with its own list of U.S. goods that would be subject to a retaliatory 25 percent tariff and President Trump has further escalated tensions by swiftly threatening to target an additional US$100 billion worth of mainland Chinese products.

The U.S. list currently under consideration covers approximately 1,300 items worth some US$50 billion in the following HTSUS chapters: 29 – chemicals; 30 – medicines; 40 – some rubber, tyres & conveyor belts; 72 – iron/non-alloy steel; 73 – alloy steel; 76 – aluminium; 84 – machinery and mechanical appliances, including machinery used in manufacturing textiles and apparel; 85 – electrical machinery, television image and sound recorders and reproducers; 86 – railway/tramway; 87 – motor vehicles; 88 – planes and helicopters; 89 – boats; 90 – glass and microscopes; and 93 – guns. No travel goods or textile, apparel or footwear products are included in the proposed list.

This list will now undergo further review. Interested parties may submit written comments by 11 May, USTR will hold a public hearing on 15 May in Washington, D.C., and post-hearing rebuttal comments are due by 22 May. USTR is particularly interested in comments on (i) the specific products to be subject to increased duties, including whether the listed products should be retained or removed or whether products not currently on the list should be added; (ii) the level of the increase, if any, in the rate of duty; and (iii) the appropriate aggregate level of trade to be covered by additional duties. Any interested party may submit comments, including Hong Kong and mainland Chinese companies.

After the completion of this process, USTR will issue a final determination on the products that will be subject to the additional duties. However, it remains unclear when those duties may take effect. Typically they would be expected to be imposed 30 days after a final list is published, but USTR can delay implementation by up to 180 days if the United States and mainland China are making sufficient progress toward an agreement on the underlying issues.

It should also be noted that these tariffs are in addition to the 10 percent and 25 percent additional tariffs imposed on 23 March on imported aluminium and steel products (some source countries are excepted but mainland China is not among them). As a result, aluminium and steel imports from the mainland would be subject to total additional tariffs of 35 percent and 50 percent, respectively.

Beijing has responded in swift fashion with the issuance of its own list of 106 U.S. products worth some US$50 billion that would be subject to a retaliatory 25 percent tariff should the Trump administration move forward with the proposed Section 301 tariffs. The list appears targeted at politically sensitive industries in an effort to bring pressure on the White House not to go ahead with its planned tariffs. They include major crops such as soybeans, corn, cotton, sorghum and wheat as well as other agricultural products such as beef, cranberries, orange juice, whiskey and tobacco. Manufactured goods on the list include aircraft, passenger cars, sport utility vehicles, off-road vehicles, auto parts, chemical products and plastics.

In response to the issuance of the mainland Chinese list, President Trump has directed USTR to determine if an additional US$100 billion worth of tariffs on mainland Chinese products would be appropriate under Section 301. Any such tariffs would be subject to a similar review and public comment period as the initial list, with a second proposed list likely to be issued sometime in April.  A spokesperson from mainland China’s Ministry of Commerce declared on 7 April that Beijing will fight “at any cost” and take “comprehensive measures” if the United States continues its uni-lateral, protectionist practices. The official reiterated that while mainland China does not want a trade war it is not afraid of such a war, adding that the current spat “was initiated by the United States as provocation.”

There are conflicting reports as to whether the two sides are discussing a possible resolution to the dispute. Prior to the issuance of the mainland Chinese list and President Trump’s response, there was cautious optimism about the possibility of a negotiated outcome that would avoid a trade war between the two superpowers. And while Treasury Secretary Steve Mnuchin has hinted that “conversations” with Beijing may still be going on, a MOFCOM spokesperson indicated on 6 April that no such discussions are taking place and that given the current circumstances “it’s getting impossible for any bilateral talks over this issue.”

In the United States, several industry associations have already expressed serious concern about President Trump’s threat to target an additional US$100 billion worth of mainland Chinese products. For example, American Apparel and Footwear Association President and CEO Rick Helfenbein stated on 6 April that “we are being marched into a trade war and the losers will be American workers, American consumers, and the American economy,” blasting tariffs as “hidden, regressive taxes paid for by hardworking American families.” National Retail Federation President and CEO Matthew Shay asserted on 5 April that “these tit-for-tat trade actions could spell disaster for the U.S. economy and make it harder for Americans across the country to afford everyday products and basic necessities.”

U.S. agricultural associations are also increasingly alarmed despite President Trump’s instructions to Agriculture Secretary Sonny Perdue to use his broad authority to implement a plan to protect American farmers. American Farm Bureau Federation President Zippy Duvall warned on 6 April that U.S. farmers “cannot afford to lose any market, much less one as important as China’s,” as he urged both sides to “return to negotiations and produce an agreement that serves the interests of the world’s two largest economies.” The American Soybean Association, meanwhile, said on 4 April that the proposed 25 percent additional tariff on mainland China’s imports of U.S. soybeans “will have a devastating effect on every soybean farmer in America.”

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