Unlike with the first two rounds of punitive Section 301 levies which imposed a 25% tariff on $50 billion worth of Chinese imports, the Trump administration’s new 10% duty on another $200 billion imports from China that went into effect on Monday, does not include any provision for companies to seek exemptions from the new tax.
The final list of products subject to the 10% tariff contains 5,745 full or partial lines of the original 6,031 tariff lines that were on the proposed list of Chinese imports announced on July 10, 2018. After “a thorough process to rigorously examine the comments and testimony” received over a six-week period and during a marathon six-day public hearing staged in Washington last month, the U.S. Trade Representative decided to remove 286 tariff lines from the original proposed list.
Among the products ultimately spared from the new sanctions were certain consumer electronics gadgets such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture, certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.
According to reporting by Bloomberg, sources “familiar with the matter” say the administration “has justified its decision [not to include a tariff exclusion process] by saying that it’s giving companies more than three months to transition their supply chains away from China before it raises tariffs to 25 percent in January.” At present though it remains “unclear whether the government will start offering exclusions once that rate increase occurs next year” and when asked for clarification in this regard, the USTR’s office simply indicated there was “no announcement at this time.”
Industry groups argue that companies cannot reasonably be expected to shift their supply chains on a dime, a process they say can take months, if not years, to find new suppliers capable of meeting all of a firm’s sourcing requirements. As explained by the Auto Care Association in a letter to the USTR: “supply chains are global and complex. It is not possible to easily or quickly modify supply chains without experiencing a ripple effect. In many cases, companies have no choice manufacturing in China as there are no alternative options due to capacity issues, quality control or customization.”
The disruptive impact on supply chains may not be a wholly unintended consequence of the tariffs, however. Quite to the contrary, it could even be viewed by the White House as a feature not a bug, given the Financial Times reported last year that Trump’s influential trade adviser Peter Navarro “said one of the administration’s trade priorities was unwinding and repatriating the international supply chains on which many U.S. multinational companies rely.”
American Businesses & Economy
Product List 2 Exclusion Request Process Update
The Trump administration has given companies until October 9 and December 18 to seek exclusions from the tariffs on $50 billion of goods, depending on when they were first implemented.
On September 17, 2018, the USTR released procedures for seeking List 2 product exclusions. As anticipated, the process is very similar to the List 1 exclusion process, however, the USTR is now requiring applicants to provide the following additional information:
- For imports sold as final products, those seeking relief must provide the percentage of their total gross sales in 2017 that sales of the Chinese-origin product accounted for.
- For imports used in the production of final products, applicants must provide the percentage of the total cost of producing the final product(s) the Chinese-origin input accounts for and the percentage of their total gross sales in 2017 that sales of the final product(s) accounted for.
List 2 product exclusions must be submitted by December 18, 2018. If granted, exclusions will apply retroactively to the August 23 effective date of List 2 tariffs, and extend for one year after the publication of the exclusion determination in the Federal Register.
Companies so far have filed about 1,700 exclusion requests, but the number that have been approved is unknown.
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