List 3 Section 301 Tariffs Will Go Up at 12:01 a.m. May 10, USTR Says

After a day when the stock markets responded as if President Donald Trump's May 5 tweet about raising tariffs on Chinese goods was an empty threat, U.S. Trade Representative Robert Lighthizer told reporters from a number of national outlets that the new tariff rate -- jumping from the current 10 percent to 25 percent -- would take effect at 12:01 a.m. on May 10.

Lighthizer said China reneged on earlier promises during the trade talks. He didn't specify which commitments. During the briefing, which came at 5 p.m. on May 6, Lighthizer said that a Chinese delegation will still arrive in Washington on May 9. So that does leave some room for a reprieve if the tenor of the talks changes then. But Treasury Secretary Steven Mnuchin, who is perceived as softer on China than Lighthizer is, also spoke at the briefing and said the deal had been 90 percent done until there was "a big change in direction" from the Chinese.

Many trade watchers had treated Trump's May 5 tweet as bluster. Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs, said earlier on May 6, "If I had to place money on this it’s that we are still heading towards a 'light 'deal and he won’t go through with it. That’s not a very confident bet -- 55 percent probability. A 45 percent probability that things go kablooie."

Levy, who was an economic adviser on trade in the George W. Bush White House, said that in the past, when Trump said a 25 percent tariff was coming on about 5,700 8-digit tariff lines, he ended up shying away because he was convinced it would harm the U.S. economy, or at least the stock market.

Ted Murphy, a customs lawyer at Baker McKenzie, blogged May 6 that the tweet was a bombshell, "particularly given recent stories about all of the progress being made in the negotiations between the United States and China." He said the firm is viewing the tweet as evidence that the negotiations are in final stages, "and President Trump is using the leverage he has to cinch the deal. In particular, people should watch to see if Vice Premier Liu still comes to Washington, DC this week for talks, or whether he stays home in response to today’s tweets." China announced that negotiators were still coming, but did not say if Liu He would be with them. Murphy said if the vice premier doesn't come, that makes the tariffs' imposition likely.

Levy said he doesn't believe Chinese negotiators will "deliberately trigger a breakdown," but he thinks those who think "Look at how weak the Chinese economy is, they have to give in," are fooling themselves. He said China is very motivated to get a deal, but he said the administration has not said that if China makes a list of specific concessions, then they will have trade peace -- a tariff rollback and no sudden return. In fact, the administration has been clear that at least some of the tariffs will stay, and it wants to be able to snap back tariffs if the U.S. thinks China isn't following through.

For China to sign on the dotted line, Levy said, "They have to know how to get to the deal and have to believe that gets them something." He said the evidence of the continuing steel and aluminum tariffs on Mexico and Canada after their negotiations concluded on the new NAFTA suggests this administration will not follow through on its promises, China believes. Even so, Levy said a "light" deal, with relatively vague promises of economic reforms and some purchases of U.S. goods could be in sight.

Edward Alden, a trade expert and professor at Western Washington University, said he thinks the deal will be silent on subsidies and on Chinese-sponsored (or at least tacitly approved) corporate espionage, and he thinks that will make it a "big fat target" for Democrats' criticism. Before Lighthizer's briefing, he said: "The market reaction today is fairly modest and I think that’s because markets don’t think it will really happen." He doesn't think a deal will get done this week, as the administration had said could happen, but he thinks it will come about during the summer.

Alden said the fact that the U.S. Chamber of Commerce told reporters that a partial deal will be fine shows that U.S. businesses that do business in China don't really want to take on the ways China puts a thumb on the scale for its domestic companies. Alden said corporate complaints about China grew in recent years, but "their willingness to pay a cost to change that behavior is very limited."

Importers are taking the threat seriously. American Apparel and Footwear Association CEO Rick Helfenbein put out a statement May 5 that said, "We urge the President to refrain from imposing these additional tariffs and instead focus on negotiating and concluding the trade deal with China.”

"Doubling down on taxing Americans as a negotiating tactic only makes a bad situation worse. Taxing Americans when they buy furniture, tools, electronics and groceries should have nothing to do with reaching this agreement. This isn’t leverage to get a better deal, it’s taking money out of the pockets of hard-working Americans," said Tariffs Hurt the Heartland, which is supported by more than 150 trade groups, including AAFA.

The chairman of the Coalition for a Prosperous America, a group that backs Trump trade policy, reacted to his tweet saying, "This is great news for America’s domestic manufacturers. President Trump continues to confront China’s aggressive trade strategies and its heavily subsidized production of state-sponsored companies," CPA Chairman Dan DiMicco said. "America’s manufacturers and their workers can breathe a sigh of relief that the president isn’t being coerced by the import lobby into abandoning the very leverage that brought Beijing to the negotiating table.”

Even if the tariffs don't go up to 25 percent on May 10, some companies may relocate production or purchases to other parts of Asia, according to a consulting firm that serves U.S. businesses that invest in Asia. Dustin Daugherty, head of North American business development at Dezan Shira & Associates, said in an e-mail that some companies will wait to see if the tariffs come to pass. "But should escalation occur I think U.S. companies producing in/sourcing in China should seriously rethink their stance and begin looking at methods for shifting their supply chain to South or Southeast Asia where possible,” he said.