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Talking Trade blog

301 continues: The public hearings


Published 25 May 2018

The much-dreaded trade war between China and the United States over Section 301 has been averted for now as Washington and Beijing concluded talks over the weekend. Both sides announced that a consensus has been reached, agreeing that there is a need to reduce the United States’ trade deficit in goods with China and to create a fair environment for competition between firms.

However, if the negotiations break down at any point in the future, the US has completed the necessary second step of the Section 301 process to be able to impose 25% tariffs on Chinese products in the future.  

From 15-17 May 2018, USTR convened hearings with Section 301 Committee members and industry players to discuss the pros and cons of the tariff plan. Over the course of 3 days, 105 individuals testified to how the tariffs would affect their companies, industries or the American economy. A prevalent sentiment among the witnesses was that the tariffs would cause “disproportionate harm” to U.S. businesses and consumers across all sectors.  This Talking Trade post unpacks these comments.

In the digital age, stakeholders involved in information and communication technology (ICT) industry were united in their opposition to Section 301 tariffs on imported electronic devices. Industry representatives at the hearing included the Consumer Technology Association, Information Technology Industry Council, Internet Association and Electronic Transactions Association.  Furthermore, the Internet Association called for the removal of optical fibre cables from the potential tariff list, because these cables are essential to internet services, wireless applications, data storage and data centres. The proposed tariffs on optical fibre cables would apply additional pressure on the costs of production for these downstream producers.

Tariffs on Chinese-made television were frequently cited as most injurious to consumers’ interests. Both TCL North America and the Retail Industry Leaders Association contended that the addition of new tariffs would reduce the affordability of televisions for consumers.

Specifically, TCL mentioned that televisions would become subjected to a total of 28.9% of tariffs and the cost of most television models would increase from $50 to $2003. Additionally, both organizations cited the lack of substitutability of Chinese flat-screen televisions. An overwhelming majority of flat-screen televisions sold in the U.S. originate from China. Due to a lack of alternative sources in the short-term, consumers would have no choice but to pay higher prices for Chinese-made televisions.

Outside of the digital realm, China’s importance as a trading partner to different industries’ supply chains were exemplified by the automotive industry. Automotive manufacturers lamented that there were simply instances where domestic capacity could not fill the void of Chinese-imported components. For instance, Lucerene, a supplier of hinges for the Jeep Wrangler, claimed that its products were manufactured in China and other Asian countries because it could not find a domestic manufacturing facility with the capacity to produce the parts and components that it sells.

Section 301 tariffs on automotive parts and components would apparently compel industry players to modify their supply chains, seek alternative sources and face new capacity-related issues. Hence, the disruption to their operations would undermine their competitiveness in both domestic and global markets.

Industries were understandably worried that Section 301 tariffs would result in Chinese retaliation. Given that China that is a key export market for industries like chemical products, U.S. chemical manufacturers were concerned that 40% of products on China’s cross-retaliation list related to chemicals. The agriculture sector was especially alarmed about obstructed access to the Chinese market. Their fears were founded on how agricultural producers had been previously caught in trade disputes.

According to the National Association of State Departments of Agriculture, China retaliated to American imposition of Section 232 tariffs on steel and aluminum by subjecting U.S. agricultural exports to around $2 billion worth of tariffs. The association also reported a series of barriers that China had recently erected on U.S. agricultural products. China had effectively stopped importing U.S. soybeans, one of the products targeted for retaliation. Orders for 62,690 metric tons of U.S. soybeans were cancelled by China at the end of April.

Furthermore, U.S. shipments of fresh fruit produce had allegedly been subjected to more stringent inspections by the Chinese customs, which delayed their sale in the Chinese marketplace. The Chinese customs also ramped up checks on U.S.-imported pork where they now sampled around 20 per cent of pork shipments instead of the usual 5 per cent.

On the other hand, various industries and companies revealed that they were in favour of additional tariffs on Chinese imports because they had been victims of cyber theft committed by China. SolarWorld America, a manufacturer of solar cells and modules, alleged that the 3PLA (China’s equivalent to the U.S. National Security Administration) stole thousands of commercially sensitive files from their database. Their Chinese competitors reportedly exploited the stolen information to “target SolarWorld’s business operations aggressively from a variety of angles.” Consequently, SolarWorld incurred $120 million worth of lost sales and revenue. To ensure that Chinese manufacturers did not profit from this cyber theft, SolarWorld requested that Chinese solar cells and modules to be subjected to the proposed tariffs.

The textile industry, represented by the National Council of Textile Organization, claimed that China has violated their intellectual property (IP) rights. Their Chinese competitors could easily cover or reverse engineer their technology, making them particularly vulnerable to IP theft. Manufacturers of the tile industry also complained about Chinese manufacturers copying their tile designs, a challenge to the substantial time and resources that the U.S. manufacturers devoted to product development. In order to redress the losses suffered by these manufacturers, their industry representatives requested USTR to impose additional tariffs on the goods produced by these industries.

Despite the concerns of industries afflicted by China’s trade practices, various industries affected by the proposed tariffs argued that tariffs would only provide temporary relief to a select few. Many industries asserted that punitive tariffs would not motivate China to alter its behavior. On the contrary, the proposed tariffs would add fuel to the fire by provoking retaliation from China.

Since a significant number of businesses called for the elimination of trade barriers with China through diplomacy, they would certainly welcome the détente in bilateral trading relations that occurred just after the hearings concluded. Negotiations between both sides is an optimistic sign of cooperation in restructuring the existing trading relations to ensure long-term prosperity underpinned by fair competition in free markets.  

Nonetheless, we should remain cautious of being prematurely hopeful that the threat of tariffs has been eradicated. In light of criticisms of the agreement with China as “weak,” Trump has expressed dissatisfaction with the negotiations and claimed that there is still “a long way to go." The proposed tariffs on Chinese imports are on hold at the moment. However, the possibility of them being invoked in the yet-to-be-resolved trade dispute between the U.S. and China remains.

Stay tuned.

***

This Talking Trade post was written by Joyce Li, Asian Trade Centre intern, Singapore

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).


Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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