In spite of a short-term reprieve from additional tariffs on select products, trade uncertainty under the Trump administration continues for U.S. companies that do business with China.
After two recent increases affecting nearly 6,000 Chinese goods–the List 1 items and the List 2 items–the Trump administration planned to raise tariffs on List 3 items as of March 2, 2019 from 10% to 25%. That increase did not take place and has been on hold indefinitely, announced President Trump, while the U.S. continues trade negotiations with China.
Congress Steps In
The administration's effort to impose additional tariffs has been further complicated by Congress, which directed the Office of the U.S. Trade Representative (USTR) in mid-February to implement a "product exclusion process" for List 3 items under Section 301 of the Trade Act of 1974. In a statement (PDF), Congress explained that it intended to require the USTR to establish a process to request exclusion from the higher List 3 tariffs that follows the same procedures as those currently in place for products on List 1 and 2.
The USTR has yet to comply with the Congressional directive and has not yet published any exclusion procedures for the List 3 goods. Responding to Congress, USTR Robert Lighthizer promised that his office will initiate an exclusion process for List 3 goods, but not until the tariffs are actually raised.
That means that for now, tariffs on goods covered under List 3 of Section 301 will remain at 10%. For additional background regarding the Trump Administration's proposed tariff increase of 25% on imports and the affected products see our previous article.
Negotiation Outcomes will Determine Tariff Increase
According to the White House, China agreed to purchase "a substantial amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries" in exchange for President Trump's agreement not to raise Section 301 tariffs to 25%. In addition, President Trump and President Xi agreed to begin immediate negotiations regarding "structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture."
Pending the conclusion of current negotiations, expected at the end of April, a new deadline for List 3 tariffs has not been announced. It is interesting to note that President Trump announced on April 4, 2019 a "monumental trade agreement" in the works between the U.S. and China that should be coming within the next month. That may signal a change in the administration's position on the tariff increase, but until negotiations are completed, the question of whether duties will increase to 25% remains unanswered.
Current State of Section 301
To date, there have been three waves of Section 301 tariffs on Chinese imports, imposed as a response to the recent Section 301 investigation by the United States Trade Representative, which found that China was engaging in unfair trade practices—particularly on the transfer of American technology and intellectual property (see our previous article for details):
- Tariffs on List 1 products took effect on July 6, 2018, and imposed a 25% tariff on $34 billion worth of Chinese goods. The deadline to file an exclusion request for the products on List 1 was on October 9, 2018.
- Tariffs on List 2 products took effect on August 23, 2018, and imposed a 25% tariff on $16 billion worth of Chinese goods. The deadline to file an exclusion request for the products on List 2 was December 18, 2018.
- Tariffs on List 3 products took effect on September 24, 2018, and imposed a 10% tariff on $200 billion worth of Chinese goods. An exclusion request procedure for the products on List 3 has not been released.
In response to the first two waves of tariffs, China imposed the same duty rate on a comparable amount of U.S. goods. If negotiations with China fail, the tariff on List 3 products will likely raise from 10% to 25%, and the Chinese are likely to retaliate with additional tariffs of their own.
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