Importers and exporters on both sides of the Pacific are scrambling to make adjustments to cope with the latest escalation in the trade war between U.S. and China.
As further tariffs of 15% come into effect as of June 1 on $60 billion worth of U.S. goods – in addition to the 10% duties imposed last September, following Washington’s May 10 hike of its Section 301 tariffs on $200 billion worth of Chinese goods – companies will now be forced to raise prices, endure further erosion of margins, find alternative suppliers (if possible), or seek exemptions from Beijing or Washington.
For the first time, Beijing has established a process that would exclude some U.S. imports deemed “vital for people’s livelihoods and the country’s economic development” from its retaliatory tariffs in order to spare consumers and domestic producers from effects of the punitive countermeasures.
Several months in the making and similar in many ways to that used by the U.S. government on which it was reportedly modelled, China’s process differs in one significant way, however, in that no provision has been made for public hearings.
Beginning June 3, incorporated Chinese companies that import, produce, or use any goods subject to the government’s retaliatory tariffs, can apply for a temporary one-year exclusion, with industry associations and chambers of commerce encouraged to file on behalf of their members, according to the Customs Tariff Commission of China’s State Council.
Supported by detailed facts and figures, applicants must explain the difficulties they would experience in substituting American imports for other goods, the economic damage the tariffs could cause their businesses, and the harm to their industrial development and employment. It should be noted that each request is limited to a single product at the 8-digit tariff level, with no allowance for combining multiple products on a single application.
Requests submitted online via the Ministry of Finance’s Customs Policy Research Center website will be reviewed by the Tariff Commission, taking into consideration expert, industry and government opinion before deciding on the merits of each application. It remains unclear at this point how long the review process will take or when a final exclusion list may be released.
For exclusions from the new tariffs on the first batch of US$50 billion of American goods – on which tariffs were originally imposed in July 2018 – will be accepted from June 3 to July 5. Applications for exclusions from tariffs on products from the second batch of US$16 billion of US imports, on which tariffs were originally imposed in August, will be accepted between September 2 and October 18.
As reported previously, public hearing on the Trump administration’s proposed 25% tariff hike on 3,800 products imported from China worth roughly $300 billion already approved under Section 301 of the Trade Act of 1974 is set to be held in Washington on June 17. Comments from stakeholders and other interested parties are due by June 10.
The targeted products (referred to as list 4), include several tariff subheadings that were omitted from previous tranches after the U.S. Trade Representative decided to narrow the scope of those tariffs in response to input from stakeholders. However, in a confounding move, some of the products that were taken off list 3 have since been added back into list 4. For example, bike helmets, car seats and several other items that were not included on the final list 3 are on draft list 4. the USTR indicates this was done for “further review” under the public comment process.
With regards to the exclusion process, while this has already been implemented for 25% tariffs on two earlier tranches of goods worth $50 billion, USTR Robert Lighthizer had previously stated that he would not establish an exclusion process for the 10% tariffs on $200 billion worth of Chinese imports unless trade negotiations failed and the administration increased the tariffs to 25%.
Lighthizer advised Congress earlier this month that work had begun on a process for the third tranche, which he suggested would be launched by the end of May, but as of the date of writing one has yet to materialize or be announced.