Smartphones are the largest of eight classifications of consumer technology products that would bear the biggest brunt of the 25 percent Section 301 tariffs proposed on $300 billion in imports not previously dutied during the U.S.-China trade war, according to the Consumer Technology Association’s top trade strategist. “The import values of the products that hit our members are massive,” emailed Vice President-International Trade Sage Chandler on May 14.
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.
The top Democrat on the Senate Finance Committee said he thinks China cheats in trade, but that consumers are going to bear the brunt of this confrontation. Sen. Ron Wyden, D-Ore, speaking to International Trade Today in a brief hallway interview May 14, said, "It is really harder and harder to divine this administration's strategy on trade. It's almost wash, rinse and repeat. They threaten something, the financial markets react badly, consumers express concern, then they pull back and start a process and you kind of get the feeling it may just be this way from now until Election Day 2020. I believe deeply in fighting trade cheating. I wrote the Enforce [and Protect] Act. With respect to say, China, I hope the Chinese cave."
Trade Partnership Worldwide President Laura Baughman stands by her organization’s February survey report that found levying Section 301 tariffs on all remaining $300 billion in Chinese imports in addition to other sanctions in effect would cause severe U.S. economic harm, she said in an email. President Donald Trump's chief economic adviser Larry Kudlow, in a Fox News Sunday appearance May 12, called the study flawed. He tried to make the case that any economic "consequences" would be "modest" and well worth it.
CBP created Harmonized System Update (HSU) 1907 on May 10, containing 43 Automated Broker Interface records and 10 Harmonized Tariff Schedule records, it said in a CSMS message. The update includes adjustments required by the Office of the U.S. Trade Representative's announcement of increased tariffs on goods from China (see 1905100015). The update also includes the new exemptions from Section 301 tariffs on China (see 1905100034). Modifications required by the verification of the 2019 HTS are included as well.
President Donald Trump started May 13 threatening China that if it retaliates against the latest U.S. Section 301 tariffs, "it will only get worse!" but late in the afternoon reminded White House reporters that he'd be meeting with President Xi Jinping at the G-20, and, he added, "that will be probably a very fruitful meeting."
In a tweetstorm, President Donald Trump said trade talks with China are continuing in a "very congenial manner," but that there is "absolutely no need to rush" because with the tariff revenue, the U.S. can pay for infrastructure and health care, and purchase U.S. farm products that were once bought by China. He said those purchases would be shipped to "poor & starving countries in the form of humanitarian assistance. In the meantime we will continue to negotiate with China in the hopes that they do not again try to redo deal!"
Importers with goods exported to the U.S. prior to May 10 will be able to avoid the increased Section 301 duties on goods from China as long as the merchandise is entered before June 1, CBP said in an updated CSMS message. "Such products remain subject to the additional duty of 10 percent for a transitional period of time before June 1, 2019," said the U.S. Trade Representative in a notice. "The covered products of China that are entered into the United States on or after June 1, 2019, are subject to the 25 percent rate of additional duty.
The Office of the U.S. Trade Representative is publishing its latest list of product exclusions from the first tranche of $34 billion in Section 301 tariffs on China (see 1905090067). This fourth list of exclusions includes full tariff schedule subheadings, as well as 35 subsets of tariff numbers in chapters 84, 85 and 90. The new exclusions take effect retroactively from July 6, 2018, when the $34 billion in tariffs originally entered into force, and will remain for one year following publication of USTR’s notice.
GoPro remains "on track" to begin "ramping" its "U.S.-bound" action-camera production this quarter in Guadalajara, Mexico, as a proactive hedge against possible future Section 301 tariffs on Chinese goods, Chief Financial Officer Brian McGee said on a Q1 earnings call May 9. GoPro has no current exposure to the three rounds of tariffs imposed since July, but wanted protection anyway against new duties, he said. Guadalajara's production ramp will "support" U.S. sales beginning in Q3, McGee said. "We expect most of our U.S.-bound cameras will be in production in Mexico in the second half of 2019." GoPro's decision to shift production from China to Mexico for most cameras destined for U.S. import "supports our goal to insulate us against possible tariffs, as well as recognize some cost-saving and efficiencies," he said. GoPro says it's keeping production of non-U.S. cameras in China because it's an important strategic hub and the Chinese consumer market loves the product.
Some firms have moved contract production out of China, even though the items they import were only subject to a 10 percent tariff, according to Meredith DeMent, a senior associate in the international commercial practice at Baker McKenzie. DeMent said she personally has seen more than 10 companies move at least some production to other countries. But, she said, many were thinking that their goods might return to Most Favored Nation tariff levels soon, because news reports suggested the U.S. and China were headed toward a deal that would at least have "a phased scaling back of the tariffs."