Tariffs ‘Stopped Motivating’ Importers to Leave China 2 Years Ago: Report

Consumer tech products imported from China bore more than $32 billion in Section 301 tariff exposure between July 2018, when the first of the tariffs took effect, and December 2021, without dissuading most U.S. importers to abandon Chinese sourcing, said a newly released CTA report produced with Trade Partnership Worldwide. A CTA spokesperson said Wednesday the association released the report to coincide with this week's International Trade Commission public hearing as part of its Tariff Act Section 332 investigation (332-591) into the economic impact of the Section 301 and Section 232 tariffs on U.S. industries.

The Section 301 tariffs affected about 55% of U.S. tech imports from China, but imports of Section 301-affected tech products have risen since mid-2020, suggesting duties “stopped motivating” companies to leave China two years ago, said the report. For some of the most-tariffed products, U.S. imports from China were higher in 2021 than in 2017, despite facing up to 25% Section 301 tariff exposure, it said. Rising imports, plus the lapse of nearly all tariff exclusions, “means Section 301 tariff costs are at their highest levels yet,” it said.

The Section 301 tariffs didn't spur “noticeable growth” in U.S. production or employment for tech sectors, said the report. “Computers and electronics had the highest value of imports affected by Section 301 tariffs, and yet U.S. manufacturing shipments followed their basic pre-tariff trend -- and their worst performance was in the year after tariffs were first imposed.”

U.S. manufacturing shipments of tech-specific electrical equipment “stagnated” after the Section 301 tariffs were first imposed but started growing again in mid-2020 along with growing imports from China, said the report. Communications equipment faced most of the tariffs, yet U.S. employment was “essentially flat” before and after tariffs were imposed, it said.

The threat of Section 301 tariffs on U.S. imports from China held particular risks for the consumer technology industry, “given its reliance on China for final assembly of many tech products,” said the report. Though much of the value of tech products, in terms of R&D, software and components, comes from other countries, including the U.S., “the final assembly location and cost of the completed product were generally the key factors in whether imports might become subject to punitive tariffs -- and how much,” it said.

U.S.-based consumer tech companies started off at a “distinct disadvantage,” compared with their peers in other import sectors, said the report. About 45% of U.S. consumer tech imports came from China in 2017, about three times the volume of non-tech imports, it said. “It would be hard to draft a Section 301 product list that did not prominently feature tech products.”

Many tech companies “say they can no longer absorb the costs of tariffs without increasing prices for products,” says CTA President Gary Shapiro in the report’s foreword. “This trend is exacerbated by continued global supply chain challenges and higher shipping rates imposed by foreign ocean carriers. For American consumers, this means the technology they love and have come to rely on is less accessible and less affordable. Amid rising prices across all sectors of our economy, removing tariffs is an important step to help fight inflation.”