Just a quick update on the evolving Section 301 situation.
First, negotiations for a deal are continuing (and appear to be making meaningful progress). U.S. trade officials were in Beijing this week, and Chinese officials will be coming to Washington, DC next week, to continue the negotiations. By all accounts, progress is being made on the terms of a deal, but certain key issues remain unresolved. If progress continues to be made (which, while not guaranteed, we expect given both sides’ strong desire for a deal), there will likely be a summit/signing ceremony sometime late April-June.
One of the things to keep an eye on as the talks progress is whether the deal will result in either side rolling back the duties already imposed (e.g., the List 1, 2 and 3 duties in the United States). Last week, President Trump said that, even if a deal is reached, he intended to keep the duties in place “for a substantial period of time” until he is sure that China is complying with the terms (remember, we do not always take what he says literally, but we do take it seriously). If the United States takes this approach, we expect that China will keep its retaliatory duties in place as well (the U.S. has imposed additional tariffs on $250 billion worth of Chinese-origin goods and China has imposed retaliatory duties on $110 billion worth of U.S.-origin goods).
Second, the U.S. Trade Representative’s office recently released a second tranche of product exclusion approvals for List 1. These exclusions include numerous products in Chapter 84, 85 and 90, including various types of housings, filters, rotors, valves, engines & motors. There are also exclusions for certain high tech products (ADP storage units, digital displays, LED displays), and consumer products (instrument tuners, breast pumps, salad spinners). Since the approvals are product-specific (not company-specific), all companies which import merchandise subject to Section 301 duties should be reviewing the approvals to see if they can benefit. Remember, the approvals are retroactive (e.g., back to July 6, 2018 for List 1 articles).
Third, the U.S. Trade Representative’s office has not created a product exclusion process for List 3 by March 17th, despite the clear instruction from Congress in the Explanatory Statement to the Consolidated Appropriations Act, 2019 (H.J. Res. 31) (see previous post). It appears that the USTR is sticking to its position that the exclusion process will only be created if the List 3 duty rate goes from 10% to 25%.
Finally, one of the ‘hidden’ (or maybe lingering) costs of the trade way will be the increased bond costs many importers are bearing as a result of the increased duties. Even if a deal is reached (and even if duties are eventually rolled back), we do not believe that bond amounts will be lowered very quickly (if at all). As a result, importers will likely be bearing this additional cost well into the future.