Despite three rounds of Section 301 tariffs and the threat of a fourth, “very few customers are moving existing production out of China,” CEO Mark Mondello of supply-chain services provider Jabil said on a fiscal year Q3 earnings call June 18. The “deep-rooted, mature supply chain that's foundational to China” has most customers staying put, he said. Many also “don't see a reasonable payback” from shifting sourcing elsewhere, plus “a decent percentage” of their Chinese production is “for final consumption in geographies other than the United States,” he said. Some customers have decided “to ramp some of their new products” in countries of origin other than China, he said. “I think that's really healthy. It's really good for us because it continues to help us balance factories and factory loading.” Mondello wants “things to get settled, and settled as soon as possible, between the U.S. and China,” he said. “If things got really, really bad, either short-term or long-term, I think it's going to be tough on everybody, us included, but let's hope that that doesn't occur.”
Section 301 Tariffs
Section 301 Tariffs are levied under the Trade Act of 1974 which grants the Office of the United States Trade Representative (USTR) authority to investigate and take action to protect U.S. rights from trade agreements and respond to foreign trade practices. Section 301 of the Trade Act of 1974 provides statutory means allowing the United States to impose sanctions on foreign countries violating U.S. trade agreements or engaging in acts that are “unjustifiable” or “unreasonable” and burdensome to U.S. commerce. Prior to 1995, the U.S. frequently used Section 301 to eliminate trade barriers and pressure other countries to open markets to U.S. goods.
The founding of the World Trade Organization in 1995 created an enforceable dispute settlement mechanism, reducing U.S. use of Section 301. The Trump Administration began using Section 301 in 2018 to unilaterally enforce tariffs on countries and industries it deemed unfair to U.S. industries. The Trump Administration adopted the policy shift to close what it deemed a persistent "trade gap" between the U.S. and foreign governments that it said disadvantaged U.S. firms. Additionally, it pointed to alleged weaknesses in the WTO trade dispute settlement process to justify many of its tariff actions—particularly against China. The administration also cited failures in previous trade agreements to enhance foreign market access for U.S. firms and workers.
The Trump Administration launched a Section 301 investigation into Chinese trade policies in August 2017. Following the investigation, President Trump ordered the USTR to take five tariff actions between 2018 and 2019. Almost three quarters of U.S. imports from China were subject to Section 301 tariffs, which ranged from 15% to 25%. The U.S. and China engaged in negotiations resulting in the “U.S.-China Phase One Trade Agreement”, signed in January 2020.
The Biden Administration took steps in 2021 to eliminate foreign policies subject to Section 301 investigations. The administration has extended and reinstated many of the tariffs enacted during the Trump administration but is conducting a review of all Section 301 actions against China.
U.S. Trade Representative Robert Lighthizer faced criticism about President Donald Trump's China policy, which both Democrats and Republicans noted is hurting U.S. businesses and, if tariffs come on List 4, will dearly cost U.S. consumers. Lighthizer, who was testifying June 18 at the Senate Finance Committee about the administration's trade policy, said there's been no decision on whether there will be tariffs on another $300 billion in Chinese imports. "The president will make that decision in the next few weeks," he said, and if tariffs are levied, there will be an exclusion process. "We think we have been fair in granting exclusions," he said.
International Trade Today is providing readers with some of the top stories for June 10-14 in case they were missed.
Companies large and small, new and more than a century old all told government officials to keep apparel and footwear off the fourth list of Section 301 tariffs. The witnesses testified June 17, on the first of seven days of hearings from industries and trade groups about the possibility of additional 25 percent tariffs on nearly all Chinese imports that have not yet been targeted.
Ricoh Americas is “currently assessing the potential impact” of the proposed List 4 Section 301 tariffs of up to 25 percent “on nearly all remaining goods manufactured in China and imported to the U.S.,” the vendor emailed in an announcement to business customers on June 17. “The government-proposed tariff increases are not specific to Ricoh and span far beyond our industry,” it said. “Be confident that we continue to review and optimize our global supply chain to minimize the potential impact for both Ricoh and your organization wherever possible.” While Ricoh will do its best to mitigate any impact, “it is possible that the outcome cannot be avoided, and we anticipate there may be some impact to pricing,” the vendor said. “If, despite our efforts, there becomes a need to increase pricing for new purchases, we will work with you to create solutions that optimize cost, delivery, and value.”
The List 4 goods targeted for Section 301 tariffs of up to 25 percent include “many products Bose imports” to the U.S. from China, the manufacturer said in comments posted June 17 in docket USTR-2019-0004. The “proposed remedy” for curbing China’s allegedly unfair trade practices “should avoid causing disproportionate and direct economic harm to U.S. consumers,” Bose said.
The Office of Management and Budget Office of Information and Regulatory Affairs approved a new information collection requested by the Office of the U.S. Trade Representative in order to begin the exclusion process for goods from China in the third tranche of Section 301 tariffs. OIRA approved the new form on June 14 after USTR sought an "emergency" review that allowed for expedited treatment, according to OIRA's page on the form. USTR requested the new information collection last month and said it planned to begin taking requests by around June 30 (see 1905210048).
Last August, Mike Branson, executive vice president of Rheem Manufacturing's air conditioning division, warned that if 8145.90.80 wasn't added to Section 301 tariffs, Chinese air conditioner exporters would avoid tariffs on their goods (see 1808210011). On June 17, Branson was back at a Section 301 tariffs hearing saying that's exactly what's happening.
Commerce Secretary Wilbur Ross said it's too speculative to say whether the imposition of tariffs on List 4 of Section 301 goods from China might be put on hold after President Donald Trump and Chinese President Xi Jinping meet at the G-20 summit at the end of June. In fact, Ross told Bloomberg TV June 13 that it's not clear whether the two will share just a brief conversation, or a dinner. "We don't know for sure there will be a meeting," he said.
Quartz countertops imported from China and cut from quartz slabs from the U.S. are considered to be of U.S. origin, CBP said in a April 25 ruling. The ruling comes at the request of idX Corporation, which imports the cut and polished countertops into the U.S. Both the unfinished slabs and the finished countertops are classified under subheading 6810.99.00, as “Articles of … artificial stone, whether or not reinforced: Other: Other.” That subheading is included in the third tranche of Section 301 tariffs on goods from China.