TVs imported from China could bear an especially heavy burden under the Office of the U.S. Trade Representative’s list of products targeted for 25 percent tariffs under the Trump administration's Section 301 investigation (see 1804040019). “This is a big impact on TV,” Bob O’Brien, president of Display Supply Chain Consultants, said in an interview. All products classified in Harmonized Tariff Schedule subheading 8528.72.64 would be prone to tariffs, “which is basically all TVs” imported from China, he said. He estimates 18.8 million TVs with a value of $3.9 billion were imported from China in 2017 under that classification. “This would have a huge impact on the TV supply chain.”
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.
Soybeans, aircraft, cars and liquefied propane accounted for the largest dollar amounts of trade from the U.S. into China among goods that would be subject to new tariffs if the U.S. goes forward with Section 301 tariffs, the United Nations' International Trade Centre said in a tweet. China's list of goods potentially subject to new tariffs came in response to a U.S. proposal to add tariffs on $50 billion worth of Chinese goods (see 1804030070). President Donald Trump has since directed the Office of the U.S. Trade Representative to look into tariffs on another $100 billion worth of Chinese goods.
Trump Considering Tariffs on Another $100 Billion Worth of Chinese Goods Under Section 301 Authority
President Donald Trump tasked the Office of the U.S. Trade Representative with looking at adding another $100 billion in Chinese goods to the $50 billion already identified as part of the Section 301 investigation. "Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers," the White House said in a release. USTR promptly responded that tripling the size of the tariffs is appropriate, and promised to assemble a list. "Any additional tariffs proposed will be subject to a similar public comment process as the proposed tariffs" announced on April 3 and "no tariffs will go into effect until the respective process is completed," the agency said.
Both the U.S. proposal for Section 301 tariffs (see 1804040019) and the Chinese response (see 1804030070) are likely stage-setting for future negotiations, said Merrill Lynch analysts in an April 4 note to investors. "Despite the exchange of tariff threats, we believe there is still room for negotiation between the US and China," Helen Qiao and Sylvia Sheng said in the research note. "We maintain our view that China will continue its 'carrot and stick approach,' threatening retaliation but also proposing to expand its imports of US products, cut the auto duty, and ease restrictions for US companies investing and selling in China in negotiations," the analysts said. "As a result, we expect the final version of both the US and China trade measures to be more toned down relative to the initial announcement."
China disputed the legality of the Section 232 tariffs on steel and aluminum at the World Trade Organization (see 1803260025), and now the U.S. is disputing both the characterization of those tariffs and how China has responded to them. The tariffs were for national security, and not to protect domestic industry from rising imports, asserted Deputy U.S. Trade Representative Dennis Shea, ambassador to the WTO. China's decision on April 2 to implement tariffs on pork, aluminum scrap and other U.S. exports were not justified, Shea wrote in a letter to China's WTO ambassador, since China can only use the safeguards to respond to safeguards, and the U.S. measures were not safeguards. "China has asserted no other justification for the measures, and the United States is aware of none," he wrote. "Therefore, it appears that China's actions have no basis under WTO rules."
A proposed new 25 percent tariff on imports from China appears to hit machinery, metals and trucks hard, with additional effects on pharmaceuticals, medical devices and optical equipment, according to a list of proposed tariff subheadings released by the U.S. Trade Representative on April 3 (see 1804030055). Other affected products include antifreeze, rubber tires and tubes, televisions, optical instruments and weapons. Comments on the list are due May 11.
China will respond proportionately to any U.S. tariffs implemented as part of the Section 301 investigation, Chinese Ambassador Cui Tiankai said while speaking on an English-language Chinese television station on April 2. If the U.S. does add tariffs as a result of that investigation as expected, "we will certainly take countermeasures of the same proportion, and of the same scale, same intensity," he said. The White House said the total value of goods subject to levies will be $50 billion (see 1803220034). Cui emphasized that the latest tariffs on U.S. imports (see 1804020009) were solely in response to the tariffs on steel and aluminum.
The Office of the U.S. Trade Representative released a proposed list of tariffs on some $50 billion worth of Chinese imports. "Sectors subject to the proposed tariffs include industries such as aerospace, information and communication technology, robotics, and machinery," said the USTR in a news release.
Total U.S. soybean exports could fall by 40 percent if China imposes a 30 percent tariff in retaliation for U.S. tariffs, a new study from Purdue University agricultural economists says. The study, which was paid for by the U.S. Soybean Export Council, estimates that a tariff of that size would cut Chinese purchases of U.S. soybeans by 71 percent. More than 60 percent of U.S. soybean exports go to China. The economists also modeled the effect of a 10 percent tariff. In that case, total U.S. exports could fall by 18 percent, they estimated. Congress members from farm states have been anxious about China imposing retaliatory tariffs against soybeans, seen as a likely target, in response to Section 301 tariffs on China announced March 22 (see 1803220034).
The Chinese government complained that U.S. actions regarding China's intellectual property record are destroying the World Trade Organization -- calling unilateral action "fundamentally incompatible with the WTO, like fire and water." According to a Geneva trade official's summary of the March 26 debate, Japan and the European Union agreed that any trade measures against China should be consistent with WTO agreements, even as they said "they share US' concerns of the need for stronger protection of intellectual property rights and concerns over technology licensing and transfers in China."