On June 15, 2018, the U.S. Trade Representative (USTR) announced a 25% import tariff on 1,102 separate tariff lines that cover approximately $50 billion of Chinese goods. These tariffs will be imposed in two tranches. The first includes $34 billion worth of Chinese imports announced in April from the aerospace, information and communication technology, robotics, and machinery industries, which will go into effect on July 6, 2018. The second covers an additional $16 billion in imports, which will not go into effect until USTR has conducted a public notice and comment process. USTR stated that it will provide an opportunity for importers to apply for product-specific exclusions in the next few weeks. China responded with reciprocal tariffs mirroring the U.S. approach in terms of value and timing. These actions represent the latest development in an increasingly deepening trade war between the United States and China, and will have the effect of increasing prices on a range of imported goods and downstream products.
These tariffs come after the conclusion of USTR’s investigation into China’s trade and intellectual property practices under Section 301 of the Trade Act of 1974. USTR’s findings and conclusions contained a wide-ranging condemnation of Chinese practices, which paved the way for these tariffs. The first set of tariffs announced by USTR consists of part (but not all) of the Chinese products announced in April 2018 against the Chinese aerospace, information and communication technology, robotics, and machinery industries. These tariffs will take effect on July 6, 2018. USTR also announced a second set of 284 additional tariff lines which were identified by the Interagency Section 301 Committee as benefiting from the Chinese government’s industrial policies, particularly focusing on the “Made in China 2025” policy. The new Chinese goods targeted for tariffs include plastic, semiconductors, and other machinery. These tariffs would cover $16 billion in imports from China and will go into effect at a later date. Notably, USTR has decided not to impose tariffs on common consumer goods, including mobile phones and televisions. USTR will first hold a notice and comment period, including a public hearing on July 24, 2018.
China has responded to these tariffs in kind with a reciprocal approach. Specifically, it has expanded its own previously-announced list of target products, which now include soybeans, pork, tobacco, chicken, automobiles, and seafood. These tariffs, like the first group of U.S. tariffs, will go into effect July 6, 2018. Chinese Foreign Ministry spokesman Geng Shuang stated that “If the US takes unilateral and protectionist measures that harm Chinese interests, we will respond immediately by taking the necessary decisions to safeguard our legitimate rights and interests.” In addition, China has matched this U.S. action by publishing a second list of tariff targets equal to $16 billion in U.S. goods, including crude oil, medical devices, coal, energy products, and chemical products. Like the second tranche of U.S. tariffs, this group of Chinese tariffs does not have a set implementation date. It is likely that they will be imposed if and when the additional U.S. tariffs are imposed.
These new tariffs come as a reversal of sorts after several positive developments following President Trump and President Xi’s trade discussions. At that meeting, President Xi had agreed to drastically increase the amount of agricultural goods China imports from the United States. President Trump also agreed to reach a deal with beleaguered Chinese technology company ZTE Corporation, which had effectively ceased operations following its permanent listing on the U.S. Department of Commerce’s Entity List, barring it from receipt of U.S. exports. However, President Xi’s offer was explicitly conditioned on the United States’ backing down on further tariffs. The Trump Administration appears to be taking a harder line on Chinese trade issues at this time. The two-pronged approach to the Section 301 tariffs can be seen as applying leverage to pressure China to negotiate further.
Additionally, the U.S. Department of the Treasury is due to announce investment restrictions aimed at curbing Chinese acquisitions of U.S. technology on June 30, 2018. President Trump announced in a White House fact sheet that the United States would impose “specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.” Since Treasury Secretary Mnuchin has been tight-lipped about this process, it remains to be seen how broad these restrictions will be and how Treasury will implement them.
U.S. importers of Chinese products should review the list of tariff lines in USTR’s announcement to see if they may be affected. If so, particular attention should be paid to USTR’s rollout of a potential exclusion process in the next few weeks.