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U.S. to Impose 25 Percent Tariff on US$34 Billion Worth of Mainland Chinese Products on 6 July

Hundreds of goods imported from mainland China will be hit with an additional 25 percent tariff starting on 6 July 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. This duty hike could also be imposed on nearly 300 other goods not included in any previous proposal once the Trump administration has completed a public notice and comment process. However, importers will be able to request exclusions from the tariffs for specific products using a process that will be announced in the coming weeks.

According to the Office of the U.S. Trade Representative, the two lists focus on products from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials and automobiles. The lists do not include goods commonly purchased by U.S. consumers such as cellular telephones or televisions.

The first list comprises 818 products with a total import value of US$34 billion, down from the 1,300 goods valued at US$50 billion that had originally been proposed. A large percentage of the goods on this list are from HS Chapters 84, 85, 87, 88 and 90, such as engines and motors; construction, drilling and agricultural machinery; machines for working minerals, glass, rubber or plastic; rail locomotives and rolling stock; motor vehicles and motorcycles; helicopters and airplanes; and testing, measuring and diagnostic instruments and devices. U.S. Customs and Border Protection is slated to begin collecting an additional 25 percent duty on these products from 6 July.

The second list comprises 284 proposed tariff lines with a total import value of about US$16 billion. Many of these products are also classified in Chapters 84, 85, 97 and 90, but various products in Chapters 27, 34, 38, 39, 70, 73, 76 and 89 are also included. Affected goods include plastics and plastic products; industrial machinery; machinery for working stone, ceramics, concrete, wood, hard rubber or plastic, and glass; cargo containers; tractors; and optical fibres. These tariff lines will undergo further review in a public notice and comment process, including a public hearing. After this process is carried out, USTR will issue a final determination on the products from this list that would be subject to the additional duty.

The announcement of the Section 301 tariffs was met with concern. House Ways and Means Chairman Kevin Brady (Republican-Texas) expressed alarm that “additional products are now placed on the list for possible future action,” which he said would “make it more difficult to sell more ‘Made in America’ products globally and expose many of our industries…to devastating retaliation.” Senate Finance Committee Chairman Orrin Hatch (Republican-Utah) echoed those concerns, calling the tariffs “ill-conceived.”

Business groups registered opposition as well. “This is not the right approach,” said U.S. Chamber of Commerce President Thomas Donahue, who worried that the tariffs would place “the cost of China’s unfair trade practices squarely on the shoulders of American consumers, manufacturers, farmers and ranchers.” National Retail Federation CEO Matthew Shay agreed, stating that the tariffs “won’t reduce or eliminate China’s abusive trade practices” and citing an NRF-commissioned study finding that retaliation by mainland China could “lead to four job losses for every job gained.” Information Technology Industry Council CEO Dean Garfield said the tariffs are “the wrong answer” and urged Trump to “reassess the approach, engage in real negotiations with China, and work with allies to change Chinese policies.”

There was support for the tariffs, though some was guarded. Sen. Marco Rubio (Republican-Florida) called the tariffs “an excellent move” and Sen. Chuck Schumer (Democrat-New York) said they are “on the money.” Ways and Means Ranking Member Richard Neal (Democrat-Massachusetts) said the tariffs are “a significant step forward” but was critical of “the apparent lack of coherence in the administration’s approach thus far with China.” Senate Finance Ranking Member Ron Wyden (Democrat-Oregon) made similar remarks, stating that he welcomed the tariffs if they mark “the beginning of a coherent strategy” but that he is concerned they are “more impulsive than strategic.”

As previously reported, the United States will also announce by 30 June and implement shortly thereafter specific investment restrictions and enhanced export controls for mainland Chinese persons and entities related to the acquisition of industrially significant technology. Moreover, the United States has vowed to continue to pursue a World Trade Organisation case filed on 23 March alleging that mainland China has violated the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights based on its “discriminatory practices for licencing intellectual property.”

Beijing has responded in kind with the issuance of its own list of U.S. products that would be subject to retaliatory duties also in two stages. A first set of products comprising 545 tariff lines worth some US$34 billion will face an additional tariff of 25 percent from 6 July, while a second set of products comprising 114 tariff lines worth some US$16 billion would face countermeasures at some point in the future. The first schedule includes a broad range of agricultural and food products as well as raw cotton and automobiles, while the second schedule includes various chemical and energy products, plastics and articles thereof, certain rubber and certain medical equipment. Additionally, mainland China is expected to invalidate the trade and economic agreements that it reached recently with the United States.

President Trump has threatened to impose high duties on an additional US$100 billion worth of imports from mainland China should Beijing retaliate against U.S. products, which would almost certainly elicit an equivalent response from mainland Chinese authorities and further escalate the trade dispute. Then again, there is still time for the two sides to reach a negotiated settlement before 6 July, although it appears that no additional discussions to resolve the dispute had taken place as of 18 June.

In other news of potential interest, legislation introduced by a bi-partisan group of senators on 6 June would require Congress to approve any import tariffs imposed on national security grounds under Section 232 of the Trade Expansion Act of 1962. The measure reflects growing opposition to President Trump’s decision to levy such tariffs on imports of steel and aluminium from major allies such as the European Union, Canada and Japan and his consideration of such duties on automobiles and auto parts.

Under the new bill (S. 3013), the president would have to submit to Congress any proposal to adjust imports under Section 232. For 60 days following such a submission, legislation to approve the proposal would qualify for expedited consideration, guaranteeing the opportunity for debate and a vote. This requirement would apply to all Section 232 actions in the future as well as those taken within the past two years.

According to a number of press sources, the introduction of the bill indicates that, as a Politico article put it, congressional Republicans “are finally reaching their breaking point with President Donald Trump on trade.” Senate Foreign Relations Committee Chairman Bob Corker (Republican-Tennessee) said the proposed restriction is necessary because the Trump administration is “abusing” the Section 232 authority, which “not only harms the very people we all want to help and impairs relations with our allies but also could invite our competitors to retaliate.” Other senators, Republicans and Democrats alike, agreed and emphasised that this bill would respond by allowing Congress to reclaim its constitutional right to regulate foreign trade.

However, prospects for legislative approval of the measure are uncertain. Trump reportedly called Corker on 6 June to oppose the bill and would almost certainly veto any measure to which it may be attached, such as the annual national defence authorisation bill. It is unclear whether enough Republicans would then vote against the president ahead of important mid-term elections to override a veto. As a result, some lawmakers are instead trying to use what Sen. John Cornyn (Republican-Texas) called “the powers of persuasion” to convince the president to ease the steel and aluminium tariffs.

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