25% Tariff on TVs From Mexico Could Exceed Impact on TVs From China, ITC Data Show

Tariffs on Mexican imports would have a profound impact on the U.S. TV business if the Trump administration were to make good on its threat to impose 25 percent duties by Oct. 1 (see 1905310044), suggests our analysis of International Trade Commission import data. ITC statistics show the monetary fallout from 25 percent duties on finished TVs imported from Mexico could possibly exceed that of the threatened 25 percent Section 301 List 4 tariffs on TVs from China, even though China ships many more TVs to the U.S. than Mexico does.

Compared with China, the Mexican supply chain is known as a haven for more premium-priced TVs flowing into the U.S., as the ITC import data bears out. The U.S. imported 3.47 million finished sets under Harmonized Tariff Schedule subheading 8528.72.64 in Q1 this year at an average customs value of $452.45. A 25 percent duty would add $113 to the import cost of that TV, which now enters duty-free under NAFTA.

The U.S. imported 5.07 million finished sets from China under subheading 8528.72.64 at an average customs value of $201.18, ITC said. A 25 percent Section 301 tariff would add $50.30 to the import cost of that set, well less than half the increase in the average set from Mexico. TVs from China under subheading 8528.72.64 currently are assessed a 3.9 percent import duty at entry.

ITC data show TV imports from China and Mexico increased by double digits from both countries year-on-year, though Chinese shipments are accelerating at a much faster rate. Unit shipments in TVs from China increased 50 percent in Q1, compared with the 37.2 percent increase in sets from Mexico, ITC said.

The U.S. imported just under $8 billion worth of finished TVs from Mexico in 2018, ITC said. A 25 percent tariff on that volume would mean an annual hit to U.S. importers of just under $2 billion. In comparison, the $4.47 billion in TVs imported from China last year would mean an annual hit of $1.18 billion to U.S. importers under the 25 percent tariffs on goods on List 4.

It would remain to be seen how much of the extra costs of the 25 percent duties, whether on TVs shipped from China or Mexico, will be passed along to consumers. Best Buy and Walmart didn’t respond to email requests for comment on the threatened Mexico tariffs. The Retail Industry Leaders Association, which represents Best Buy, Walmart and other big-box retailers, said that whether the administration’s “rhetorical target is Mexico or China, the bill is adding up for American consumers who will pay the price for these tariffs."

No president in the 41-year history of the International Emergency Economic Powers Act (IEEPA) has used the statute as the basis for imposing tariffs on the imports of a foreign country. The U.S. Chamber of Commerce on May 31 wouldn’t rule out mounting litigation to block the Mexican tariffs, but wouldn’t discuss its possible legal grounds for doing so, including whether that would involve challenging Trump's IEEPA executive powers in court.

Whether Trump has the authority to impose tariffs “pursuant to the delegation under the IEEPA is a case of first impression,” according to trade expert David Cohen with Sandler Travis. “Given the other established sources of Presidential authority to impose tariffs, perhaps a court could be convinced to draw a line for the IEEPA. We will never know unless the issue is brought before the courts. It would be an interesting case to have the courts weigh in.”

Cohen thinks “alternatively, legislation could be crafted to limit the Presidential authority to impose tariffs under IEEPA regardless of the propriety of the national emergency declaration,” he told us. “A Presidential veto may make this a difficult to become law. The timing is an issue given the scheduled imposition of the duties and their escalation coupled with Congress’ summer recess.” Trump’s threat is to impose 5 percent tariffs on Mexican imports starting June 10, hiking them by five percentage points monthly until they reach 25 percent Oct. 1.

Amid the three rounds of Section 301 tariffs imposed on Chinese goods since last summer, “diversion of production to other geographies outside of China has been ongoing,” said Cohen, who counsels clients on tariff-mitigation strategies. “While I am unaware of the data, it stands to reason that Mexico may have benefited as US importers sought refuge from the Section 301 duties.”

For clients “engaged in cross-border trade,” and seeking “reductions in tariffs and trade barriers,” the threat of Mexican tariffs “clearly” is “a sharp pivot” in the “opposite direction,” Cohen said. “Many have voiced concern over whether the use of tariffs to drive policy on the immigration issue is a proper tool,” he said. Still others have “doubt over whether it will have the desired impact” in reducing the influx of migrants at the southern border, and at what “cost to the U.S. economy,” he said.