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22 March 2018 Trump Administration announces imposition of $50 billion in tariffs on Chinese origin goods – specific product list to be announced On 22 March 2018, President Trump executed a Presidential Memorandum directing the Administration to take a full range of action responding to China's acts, policies and practices involving unfair and harmful acquisition of United States (US) technology. The action is based on a report released the same day by the United States Trade Representative (USTR) providing findings of an investigation conducted under Section 301 of the Trade Act of 1974. The investigation concluded that China's forced or coerced transfers of US technology burden or restrict US commerce, and an interagency team of subject matter experts and economists have estimated the harm to the US economy of at least US$150 billion annually. In response, the President has directed the USTR to propose 25% additional duties on imports of Chinese products "commensurate with the harm caused the US economy." US imports from China were over $500 billion in 2017, so it is possible that these measures could impact 40% of US imports from China. The Presidential Memorandum directs the USTR to publish a full list of products within 15 days. The list is expected to be released within the next several days. The Memorandum does state that the proposed, list "will include aerospace, information and communication technology, and machinery." Additionally, in testimony to the US Senate Finance Committee shortly before the announcement, USTR Lighthizer elaborated on ten specific categories of products he expects to recommend: advanced information technology; aerospace and aeronautics equipment; maritime equipment in high tech shipping; modern rail transport equipment; new energy vehicles and equipment; power equipment; agriculture equipment; new materials; biopharma, and advanced medical products. The list will be published in the Federal Register, followed by a 30-day notice and comment period, as well as a hearing. The USTR will then review and analyze the comments, and publish a final product list and effective date. Other than specifying the 30-day notice and comment period, no indication of timing is given. In addition to the excess import duties, the President has directed the USTR to take action in the World Trade Organization (WTO) on China's discriminatory licensing practices. Furthermore, the Treasury Department, in conjunction with other agencies, is to propose measures to restrict China's investment practices involving the acquisition of sensitive technology. As the product list is likely to be broad, any company with imports from China will want to map its complete, end-to-end supply chain (including that of suppliers and customers), and fully understand volumes, potential costs and sourcing options. Many companies will have some products with limited sourcing options, particularly in the short term, which could raise costs significantly. The review should include consideration of contractual terms with Chinese suppliers. As the product list is released, companies will want to take advantage of the comment period to detail particular product concerns. Mitigation strategies to defer, eliminate, or recover the excess duties, such as utilizing US Foreign Trade Zones or substitution drawback should also be carefully reviewed. Additionally, as the US pushes forward with these punitive measures against China, it is highly anticipated that the action will receive Chinese retaliation against critical US export products such as key agricultural, beef, aviation, automobile and other industry sectors. These actions may be taken through a WTO case, or may be unilateral responses by China. As a result, the supply chain mapping exercise is also critical for US exporters to China, who may need to be prepared to take swift action to adapt their supply chains in response to retaliatory action by the Chinese Government. Document ID: 2018-5450 |
