Most Witnesses Say Section 301 Tariffs Ineffective, Harming US Businesses

Importers of finished goods and manufacturing inputs told the International Trade Commission across three days of testimony that the Section 301 tariffs are damaging profit margins, and in some cases lead to layoffs. But some unions and manufacturers said the Section 301 tariffs are deserved for Chinese abuses, and with the tariffs in place, the goods they make are more competitive. The International Trade Commission is studying the efficacy of Section 301 and Section 232 tariffs, and their economic impact.

Tile Council of North America Executive Director Eric Astrachan said that Chinese manufacturers copied U.S. designs and sell substandard porcelain tile that isn't water resistant to the same standard of U.S. branded porcelain tile. He said 2020 antidumping and countervailing duties made a much bigger difference in cutting off Chinese imports, which were $482 million in 2018 and were just $1.7 million last year. But, he said, tile manufacturers universally support keeping the 25% Section 301 tariffs on tile. "In the first quarter of 2022 (the last period for which data is available), the price of domestically produced ceramic tile was $1.61 per square foot, a paltry 3.9% increase over the course of the almost four years since the Section 301 tariffs went into effect," he said, speaking to the alleged inflationary effect of the tariffs.

Jim Anderson, owner of Molycop USA, which makes steel grinding balls to break up ore, said it's critical the 25% tariffs stay on his product. He said China, after stealing his intellectual property, was gaining market share with cheaper products of the same quality, but with the tariffs, he's regaining ground.

The National Council of Textile Organizations said removing tariffs on textiles and apparel "would reward China, put U.S. manufacturers at a competitive disadvantage and do nothing to reduce inflation."

Scott Moskowitz, head of public affairs at Hanwha Q CELLS USA, a member of the American Alliance for Solar Manufacturing, said the Section 301 tariffs helped revive the solar industry in the U.S. "Antidumping and countervailing duty levels have varied significantly from year to year (including zero percent antidumping duties in the final results of the review that concluded in 2021), and they have often been further reduced by adverse court decisions," he said. "Similarly, the section 201 safeguard duties were seriously undermined by the exclusion of bifacial solar products. Since 2018, U.S. solar manufacturers have been able to rely on the Section 301 tariffs, and they need to continue to rely on those measures going forward." But Moskowitz said Section 301 tariffs on solar glass, junction boxes and silicone are putting U.S. manufacturers at a cost disadvantage to Asian panel makers.

Don Dumoulin, CEO of Precise Tooling Solutions, said, "I do think targeted tariffs on Chinese molds and tooling have helped our industry and we have seen our customers change their behavior both when USTR imposed the tariffs, then lifted them with an exclusion, and reinstated the 25 percent rate. There was then and remains now, a clear connection between the Section 301 tariff action and our customers’ approach to sourcing."

Other companies said receiving an exclusion to Section 301 tariffs made the difference between boom and bust for their firms.

Element Electronics CEO David Baer said that when Element had an exclusion on LCD panels, and a Miscellaneous Tariff Bill covered the standard 7.5% tariff on the panels, his television assembly company had more than 500 workers. When both expired at the end of 2020, Element laid off almost 300 people as it couldn't compete with Mexican TVs. He said the South Korean alternatives Element found for LCD panels stopped making them when they, too, were driven out of business by China's ability to sell for less.

Rob Calia, director of trade compliance at Medline, said that his company had an exclusion on tariffs on face masks and gloves, but it expired last fall. He said even with tariffs on Chinese PPE, a U.S.-made face mask is five to eight times more expensive than Asian masks, and nitro gloves are four to five times more expensive than Asian gloves.

He said when tariffs on Chinese gloves were imposed, Malaysian glove producers faced less price competition and started charging more. Even today, he said, European buyers are paying 4% to 7% less for gloves than U.S. buyers.

Some trade groups noted that other tariff benefits were more effective in getting firms to find vendors outside China than the Section 301 tariffs were.

Richard Harper, director of government affairs at the Outdoor Industry Association, said that the only items where purchasing moved out of China were travel goods, because the Generalized System of Preferences benefits program removed the 15% average most favored nation (MFN) tariffs. He gave another example of an outdoor chair where, before the China tariffs, the good faced no tariffs, and since the action, importers have paid $100 million, and the production is still 95% done in China.

Nate Herman, director of government relations at the Travel Goods Association, said the tariffs have been an "abject failure" at trying to get China to curb its subsidies, end its theft of U.S. intellectual property and increase its purchase of U.S. exports. "China continues to steal our intellectual property and China continues to subsidize key industries. And China continues to purchase the same amount of U.S. goods that China did before the tariffs," he said.

Herman said GSP led to a 17% market share for the beneficiary countries, but since GSP expired, travel goods imports from China have surged more than 35%.

Other trade groups also emphasized that the tariffs had not led companies to move sourcing outside China, which is what the exclusions are designed to give firms time to achieve.

The U.S. Fashion and Industry Association said, "These tariffs have ... not encouraged a large-scale shift out of China as companies diversify their sourcing base. China is the leading textile supplier of fabrics and accessories in the world and there are currently no realistic options for sourcing destinations that can viably replace China entirely."

The American Chemistry Council said China has a larger share of U.S. chemical imports in 2021 than it did in 2017, even as chemical importers have paid $8.5 billion tariffs between June 2018 and the end of 2021.

Curt Christian, founder and CEO of Home Furnishings Resource Group, said he founded his company that designs and sources furniture for universities after his 250-worker furniture factory closed in 2005 when he could no longer compete with Chinese imports. The tariffs he's paying on Chinese imports of furniture now, he said, could result in another business failure. His new company has 35 employees. "We have not found another country that is capable of manufacturing such products with the same quality, efficiency, cost, and scale as China," he said.

The Consumer Technology Association acknowledges that the Chinese commit “unfair trading practices,” said Ed Brzytwa under questioning from ITC Chairman David Johanson. “If you’re asking if the tariffs in particular caused China to stop its IP theft practices, the answer is probably no,” he said. “We’ve heard so many different messages from the administration that the tariffs are leverage in negotiations that would then stop China from those practices,” he said. “I can’t tell whether or not there are ongoing negotiations with China in this area."

Several trade groups and companies said the tariff exclusions their member companies have received have been helpful, but they're so short-term, it's difficult to plan around.

Ann Wilson, senior vice president of government affairs at the Motor & Equipment Manufacturers Association, said, "USTR should restore a robust Section 301 tariff exclusion process. While it was far from perfect, an exclusion process for goods unavailable anywhere but from China existed during the Trump Administration but no longer does. In addition, imposing any new tariffs based on a rumored Section 301 investigation on overall China subsidies would be extremely counterproductive."

Fred Ferguson, vice president of public affairs for Vista Outdoor, the company that makes Bell helmets, said its imported helmets from China have gotten four exclusions over the years, and the current round will expire at the end of the year. But Bell also manufactures some helmets in Oregon, and 75% of the components for those helmets come from China -- and there are Section 301 duties on them. He said since the tariff action, the Foreign-Trade Zone setup Bell uses is useless to avoid the tariffs on the inputs, and they have paid tens of millions of dollars in duties. Ferguson said the bicycle helmet business has been concentrated in China since the 1990s.

The Information Technology Industry Council's Naomi Wilson, vice president of policy, Asia, said the trade group thinks there's no way to remove some of the Section 301 tech tariffs to better tailor them to make U.S. tech firms more competitive. She said she knows some other sectors say the tariffs are leveling the playing field, "But from the tech sector perspective, these have been deleterious, and there’s no reason for them to remain in place."

Several witnesses told the ITC that no matter how much Chinese exports are taxed, their industries are not coming back to the U.S. Ed Weinstein, vice president of tax and government affairs at JOANN Inc, a sewing and crafting retailer, said the company has paid more than $90 million in tariffs each year, and they have had to raise prices for their working-class and middle class customers.

"While we would prefer to source all of our products in the United States, many of the products we sell have never been produced in the United States, or their production here has been dormant for well over 50 years," he said. "After the imposition of tariffs, we moved some of our cotton fabric production from China to Pakistan. However, once faced with the pandemic and a huge increase in the demand for cotton fabric used for mask making, we had no choice but to return to China to satisfy a large portion of our need for these goods, which resulted in our cotton fabric tariff costs doubling between 2019 and 2020."

Pedego Bikes CEO Don DiConstanzo said he tried to move production to Vietnam, but because the frames of the electric bicycles were still coming from China, CBP ruled the bikes were of Chinese origin, and he still owed a 25% tariff. He said bike manufacturing left the U.S. in the 1980s and 1990s and is never coming back at scale. "So it doesn't change anything except make the products more expensive," he said. He said he still has problems from China, such as competitors shipping electric bikes under de minimis, but he said, "these tariffs have had absolutely no positive and a bunch of unintended negative consequences."

International Trade Commissioner Jason Kearns said on July 22 that even if the tariffs have not yet managed to change IP practices in China, "I don't know that just going back to the ways things were" is what should happen.

DiConstanzo said, "My company lost $30 million in valuation because of the tariffs. I'd be patient if I thought it would work, but I don't see it would ever work in our industry."

Ed Brzytwa, from the Consumer Technology Association, agreed that negotiating with China to change its industrial policies is a long, slow process. But he said the ITC has to answer the question of whether the tariffs have been, on the whole, healthy for competitive sectors in the U.S. He said the U.S. should be negotiating trade agreements with other Asian countries that could be alternative sources of supply to China, but it's not doing that.