Trade Economist Questions Whether China Trade Truce Can Last

With the announcement of a phase one deal, Flexport chief economist Phil Levy said the promise is for stability in tariff levels -- even if the large majority of goods facing Section 301 tariffs will retain the 25 percent hike. But, he noted in a Dec. 16 webinar, many times over the last eight months, “a deal was announced, and it didn't last. That should sort of serve as a precautionary tale.” Levy, like many observers, doesn't believe that a phase two deal, that could lead to rolling back more tariffs, is likely in the next year.

Scott Kennedy, a senior China economics expert at the Center for Strategic and International Studies, wrote in a blog, “The costs [of the China trade war] have been substantial and far-reaching, the benefits [of deals] narrow and ephemeral.” He called this deal “fragile,” and wondered if it will come at all.

“The deal’s apparent big winners, U.S. farmers, were not in harm’s way before the trade war, and they likely would have sold just as much in aggregate to China had the trade war never commenced,” he said. For the companies affected by Section 301 tariffs, some have abandoned shipments, according to Tom Gould, vice president for customs and trade at Flexport. He said the profit margins were not enough to cover the cost of tariffs.

Gould said for companies that are going to benefit from Section 301 tariff exclusions, their brokers need to monitor the Office of the U.S. Trade Representative's lists closely, because corrections to previous exclusions can widen coverage substantially. For instance, you might have thought the compressor you import wouldn't qualify, but when the list price range went from $500 to $900, to $200 to $1,500, it could now.

If you learn you have an exclusion, the broker should apply for a post-summary correction. But if the entry has been liquidated, “then you need to file a protest,” he said.

For companies that have items on List 4a, Gould said, they should consider using a bonded warehouse until the tariff reduction to 7.5 percent comes into force. It's not completely certain that would work, since no Federal Register notice on the tariff reduction has been filed, he noted. It's also possible that CBP will offer the possibility of delaying paying the tariff for a couple days before the change is coming. “They often do that at the end of the year when there’s a duty reduction scheduled,” he said. “Be in close communication with your lawyer.”

Gould said he's been surprised that even as tariffs escalated, most companies keep telling him they can't shift production out of China. That finally seems to be changing, he said, with companies saying it's hard “but we're going to have to find a way.”

Kennedy wrote, “Although the Trump and Xi administrations deserve credit for finding their way to a deal, they both deserve blame for the downward spiral in the relationship. China has operated on the conceit that its market is so large that it could act with impunity and that even the United States would never press them in a sustained way. Conversely, Washington has acted under the incorrect assumption that denying access to the U.S. market in and of itself was sufficient leverage to force Beijing to change course. Both sides heavily miscalculated, resulting in an amazing amount of collateral damage.”