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Talking Trade blog

Dishwashers to nuclear reactors: The US retaliation list for section 301 is released

Published 04 April 2018

UPDATE (April 4 evening): The Chinese have already released their own countermeasures to the US list. The Chinese have targeted 106 products, including soybeans, cars, chemicals, cotton, flour and beef on products totaling $50 billion. The date for the imposition of China's new 25% tariffs is yet to be determined and will depend on when the US imposes its own restrictions on Chinese trade to the United States.

April 4: The United States has moved one step closer to the “trade war” with China.  USTR has released an initial list of 1300 different types of Chinese products now subject to 25% tariff increases in 30 days as part of the Section 301 complaint.

As previous Talking Trade posts have noted, the American pursuit of Section 301 has been muddled.  The sweeping indictment charges that “the acts, policies, and practices of China [] are unreasonable or discriminatory and [] burden or restrict U.S. commerce.” 

USTR released a long report to give additional details, but in brief, the US has alleged that China has improperly failed to protect American intellectual property, engaged in forced technology transfer, uses non-market methods that favors Chinese firms in investment practices, and conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies to access their sensitive commercial information and trade secrets.

US President Donald Trump has added his own obsession with the US trade deficit to this overall list of infractions.

To solve these issues, USTR and the White House decided not to negotiate first and impose sanctions as punishment for failure to make progress in talks.  Instead, they have decided to start with sanctions and negotiate second.  This, White House advisor Peter Navarro says, is necessary because China has never heeded talks in the past and will not do so now either.

The US also has not made an attempt to gather support from other countries for its pursuit of Chinese policy changes.  Many others would likely have agreed with US objectives, depending on how the issues were defined.  However, given the path, strategy and tactics chosen by the White House thus far, it is now far less probable that other countries will step forward to back up US complaints about unfair Chinese behavior. 

The tariff list published today runs to 58 pages.  Firms have until May 11 to comment on the proposed list.  USTR has promised to hold one public hearing on the case, on May 15. 

During interviews conducted last week in Washington, DC, officials made several points about the draft list. 

First, while it was apparently crafted with interagency input, like much US trade policy today, the final details were nailed down by a very small group of individuals.  Thus, even teams intimately involved in implementation were also waiting for the publication of today’s list.

Second, the list should be viewed as a draft.  For the next 30 days, Washington will be consumed with a furious lobbying battle as companies push to be both excluded and included from the list.

The list is currently heavy with products from chemicals, steel and aluminum products, machinery and heavy equipment. 

It was originally crafted by taking the list of imported products from China and adding all items, as an example, where Chinese items constituted 10% of total US imports.  This would ensure that American firms and consumers could find alternate sources of supply.  When this product basket was insufficient to hit the “total” of recommended tariffs (originally $30 billion), the threshold was shifted to 15% reliance on Chinese imports and so on. 

Then the list was reviewed to remove items that would unduly negatively impact US consumers—hence apparel, footwear and many consumer electronic products were taken off the list. 

The list was adjusted again to add more products that matched better with China’s 2025 initiative.  The point—after all—of the tariff adjustment is to get China to change policies around technology transfer and intellectual property related to high tech products. 

When the list was nearly done, Trump reportedly demanded that the final set of products be increased, since the original target of $30 billion was seen as too low.  Hence, additional items were included to reach $50 billion in potential tariffs.

Firms are now likely to start asking for exemptions to the product list.  For instance, many items are used in factories for packaging, for preparing agricultural products (like crushing juices, milking cows or keeping bees), or for printing.  Adding an additional 25% cost to these items may drive many American firms that rely on such equipment to be uncompetitive or even go out of business entirely. 

By contrast, some domestic American firms that want protection and can claim any level of Chinese competition, are likely to ask for inclusion on the list. 

This will set up a crazy 30 day period for the US Commerce Department to review all the petitions.  [This is the same tiny group of individuals who are already furiously reviewing thousands of requests for changes to the steel and aluminum Section 232 cases.]

While this tariff discussion is going on inside Washington, of course, at least four additional things should also be taking place.

First, the tariff list is only part of the Section 301 case.  Also coming in the next 60 days is more detail on what the proposed “parallel” regime to more tightly screen Chinese investment will look like.  This system is meant to run at the same time as the broader CIFUS process.  So far, officials are unclear about Treasury intends to do to manage this new set of procedures.

Second, the US is simultaneously moving ahead with a case against China at the World Trade Organization (WTO). 

Third, negotiations between the US and China should be ramping up.  Since the clock is ticking on the imposition of tariffs, with only 30 days before they are meant to take effect, there is extremely limited time to get to an agreement.  Given the sweeping nature of US complaints and the unclear goalposts that China needs to meet to head off sanctions, it is not obvious that 301 retaliation can be stopped.

Finally, the Chinese are likely to put out their own list of counter-retaliation measures.  They just published a list of 128 items subject to $3 billion in sanctions as part of their own response to US steel and aluminum tariffs.  These included new barriers to US exports of wine, fruits and nuts.  But these are likely to look like minor issues compared to what China has in store for the Americans in the wake of the $50 billion in tariff hikes under the Section 301 dispute.

In short, the publication of the tariff list today heralds the start of a new era in US-China relations and the beginning of a totally different American trade policy.  Firms should be braced for some very rough times ahead.

© 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. 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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