Chinese drugmakers and device makers, U.S. device makers that import Chinese components, and the distributors who sell supplies to hospitals and government agencies all asked the Section 301 panel to spare the healthcare sector from 25 percent tariffs on Chinese imports. The testimony came on the last of three days of hearings by the Office of the U.S. Trade Representative as the panel works to refine a list of 1,300 tariffs on $50 billion worth of Chinese goods. Witnesses said these Chinese items do not necessarily follow China's industrial policy of forced tech transfer or its efforts to leapfrog into more advanced manufacturing. Linda Rouse O'Neill, vice president of government affairs for the Health Industry Distributors Association, said tariffs aren't just going to be an economic drag on the healthcare system. "It's really going to exacerbate product shortages," she said. "We already don't have enough personal protective equipment."
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.
More than 1,000 of the 1,300 tariff lines on the list of products that could be affected by Section 301 tariffs would impact General Electric's operations, but the company is asking for just 34 items to be removed from the list. On May 16, during the second day of the International Trade Commission's public hearing to help it refine the list of products subject to 25 percent tariffs, Karan Bhatia, who leads GE's government affairs and policy office, suggested the committee exclude intra-company inputs from owned and controlled Chinese factories because those don't involve forced technology transfer, something the Section 301 tariffs are meant to address. He suggested items that have high U.S. content by value that come from China also should be excluded.
International Trade Today is providing readers with some of the top stories for May 7-11 in case they were missed.
A wide range of industries asked to be spared -- or protected -- in the first day of the International Trade Commission's public hearing that will hear from more than 120 companies, a major union, and trade groups, including those from China. The panel is tasked with refining the list of products subject to 25 percent tariffs, which accounted for $50 billion in imports last year. The size of the action was shaped by an estimate of the cost to U.S. companies of forced tech transfer, market access restrictions and intellectual property theft.
The combination of World Trade Organization rules for Most Favored Nation treatment and bound tariff rates leave the U.S. at a disadvantage within trade negotiations, Commerce Secretary Wilbur Ross said during a May 14 speech at the National Press Club. "We are now constrained by two sides of a WTO pincer," he said. The MFN, which requires level tariff rates for countries the U.S. doesn't have free trade agreements with, and Bound Tariff Rates, the ceiling on allowed tariff levels, "prevent us from having reciprocal tariffs because, in most cases, our bound rate ceiling is at or near our very low MFN applied rate, while other nations have higher levels of both." President Donald Trump has mentioned the possibility of implementing a "reciprocal tax" (see 1802120034).
U.S. companies are “market leaders” in development and sale of smart thermostats, and would be the hardest hit if the Trump administration imposes 25 percent tariffs on Chinese imports, the Advanced Energy Management Alliance said in comments posted May 10. The alliance, whose members include green energy services providers, but also Nest, Tesla and Walmart, wants the Office of the U.S. Trade Representative to remove automatic thermostats in HTS subheading 9032.10.00 from its list of products targeted for the tariffs, it said. Chinese companies “do not have a meaningful presence in the U.S. market” for smart thermostats, it said. “Therefore, if USTR were to impose duties on smart thermostats, the impact of the duties would fall primarily on U.S. companies. In addition to the harm this would cause to the U.S. companies and their American workers, the additional duties would increase prices for the millions of U.S. families who rely on smart thermostats to control their energy costs and [would] discourage their use.”
Echoing U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross said that if a deal isn't reached in the next few weeks, NAFTA 2.0 won't be finished in 2018 -- but unlike the lead negotiator, Ross suggested there may be no revised agreement (see 1805010042). "If we don’t see progress soon, probably we won’t see it for quite a little while toward the end of the year, if at all," he said May 8 at an international conference.
When Trump administration officials are in Beijing this week, there is going to be "a lot of stuff that's getting thrown at the wall," according to Evan Feigenbaum, vice chairman of the Paulson Institute at the University of Chicago. Feigenbaum, speaking on a panel about China's policies, said the Trump administration is complaining about bilateral deficits, intellectual property theft, Made in China 2025, non-tariff trade barriers and Chinese state-run firms buying U.S. tech companies. While most of the issues underlined in the Section 301 investigation are in the non-tariff trade barriers and IP theft areas, experts at the Washington International Trade Association event disagreed on whether President Donald Trump would declare victory after only a pledge to reduce the bilateral trade deficit.
U.S. Trade Representative Robert Lighthizer said it will be very difficult to get China to change the policies that are the reasons the U.S. opened the Section 301 investigation. "I am always hoping, but not always hopeful," he said to a U.S. Chamber of Commerce audience two days before he leaves for negotiations in Beijing.
Only one of the allies that have so far avoided tariffs on their steel and aluminum exports to the U.S. has agreed to reducing the volume of those exports -- and Commerce Secretary Wilbur Ross says all will have to if they don't want to face tariffs. "If people don't have the tariffs, and they don't have the quota, that would defeat the whole purpose of the [Section] 232s," he said, which is to boost aluminum and steel production domestically. Since the temporary tariff exemptions for the European Union, Canada, Mexico, Brazil, Argentina and Australia end May 1, it remains to be seen if countries in talks with the U.S. will get another extension.