Wide Range of Industries Tell Section 301 Panel That 25% Tariffs Would Damage Their Businesses

David Mathison, founder of furniture leather company Leather Miracles, asked a panel of government officials to strike Harmonized Tariff Schedule headings 4107.11.50, leather upholstery, and 9401.90.50, leather for auto seats, from the Section 301 tariff list. He spoke as one of 62 witnesses testifying on the first of six days of scheduled hearings to determine which products will face additional tariffs. Mathison's career has been disrupted by China before. The rise of Chinese shoe manufacturing, and then Chinese furniture manufacturing, drove his previous company, Lackawanna Leather, out of business after about 100 years of operation.

China doesn't have a lot of cows, so American and South American hides are shipped there, where they are hand worked, and then returned to the U.S. for high-end furniture manufacturing. Mathison said Leather Miracles -- founded after the closure of Lackawanna's Nebraska tannery -- exports $34 million in hides annually. "We've almost been singled out exclusively, it seems terribly unfair," he said. The business is already suffering because of retaliatory tariffs on U.S. hides from China, which drives business to Brazilian competitors. There is no leather tannery in the U.S., so this tariff protects no domestic industry, but it will harm his 50-employee company in Hickory, North Carolina, once at the center of American furniture manufacturing.

The Section 301 actions are aimed at changing Chinese policies on intellectual property and business subsidies and in the hope of narrowing the balance of trade between the two countries. But witness after witness said their firms do not produce high-tech goods and there is either no alternative source available for their Chinese imports at the volumes demanded, or said that any shift in sourcing would take more than 18 months to achieve. Many of these panelists heard the same arguments at two earlier rounds of hearings (see 1807250040, 1805160031 and 1805150044), in some cases from the same people.

While many of the witnesses represent small businesses like Leather Miracles, many of the large trade groups testified, too -- the Health Industry Distributors Association, the U.S. Council for International Business, the National Association of Foreign-Trade Zones, the American Chemistry Council, SEMI, the American Apparel and Footwear Association and others. If the goal was protecting American manufacturing, the government is decades too late, witnesses from hat importers, dress importers and bicycle importers said. And the semiconductor industry, one of the few sectors where U.S. production is globally dominant, said the tariffs would undermine the industry and put jobs at risk.

The chemical industry is another U.S. strength, and the tariffs target many of its inputs. Michael Huff, CEO of Ascensus Specialties, a chemical manufacturer in Bellevue, Washington, said sodium metal, an input for the chemicals he produces, is only available from China and France, and the French supplier is one-third the size of the Chinese supplier and is at capacity. He buys 80 percent of the sodium from China. He said he wishes he had a domestic supplier -- until 2016, he bought all of the sodium from DuPont's Niagara Falls, New York, plant, but when it closed, the Chinese factory bought its machinery, so the DuPont plant would not be easy to restart.

About two-thirds of the chemicals he makes are exported, he said, and they're used in medicines and for industrial uses. Many companies said they fear sales of their products will fall if consumer prices rise, and others said that binding contracts mean they will take a loss on contracts already signed.

Most witnesses did not suggest an alternative to raising tariffs to get China's cheating to stop, but Patrick Cunnane did. Cunnane, an executive at the parent company of the Performance Bicycle retail chain, said the increase of de minimus from $200 to $800 back in 2016 "had an immediate negative effect on our business." He said "the counterfeits we see are shipped one at a time to a consumer," and when those consumers have quality issues, the real manufacturers don't honor warranties because these are fakes. He recommended lowering the de minimus to $50 -- he said that will cut down on fraud and protect domestic retailers from Chinese online competition. The panel asked a question about his proposal, signaling some interest in the idea.