President Joe Biden on his 140-minute call Thursday with President Xi Jinping explained to the Chinese leader the administration’s “core concerns with China’s unfair economic practices, which harm American workers and harm American families,” a senior administration official told reporters Thursday in a background briefing. But Biden on the call “did not discuss any potential steps he might take” to remove or reduce the Section 301 tariffs on Chinese imports, said the official. “It would be wrong to believe that somehow a decision on any next steps was somehow waiting for this conversation.” On Taiwan, Biden “underscored” to Xi that the U.S. opposes “unilateral changes to the status quo by either side, and commitment to the maintenance of peace and stability across the Taiwan Strait,” said the official. The two leaders discussed that the U.S. and China “have differences when it comes to Taiwan, but that they have managed those for over 40 years and that keeping an open line of communication on this issue is essential to doing so,” said the official.
Section 301 Tariffs
Section 301 Tariffs are levied under the Trade Act of 1974 which grants the Office of the United States Trade Representative (USTR) authority to investigate and take action to protect U.S. rights from trade agreements and respond to foreign trade practices. Section 301 of the Trade Act of 1974 provides statutory means allowing the United States to impose sanctions on foreign countries violating U.S. trade agreements or engaging in acts that are “unjustifiable” or “unreasonable” and burdensome to U.S. commerce. Prior to 1995, the U.S. frequently used Section 301 to eliminate trade barriers and pressure other countries to open markets to U.S. goods.
The founding of the World Trade Organization in 1995 created an enforceable dispute settlement mechanism, reducing U.S. use of Section 301. The Trump Administration began using Section 301 in 2018 to unilaterally enforce tariffs on countries and industries it deemed unfair to U.S. industries. The Trump Administration adopted the policy shift to close what it deemed a persistent "trade gap" between the U.S. and foreign governments that it said disadvantaged U.S. firms. Additionally, it pointed to alleged weaknesses in the WTO trade dispute settlement process to justify many of its tariff actions—particularly against China. The administration also cited failures in previous trade agreements to enhance foreign market access for U.S. firms and workers.
The Trump Administration launched a Section 301 investigation into Chinese trade policies in August 2017. Following the investigation, President Trump ordered the USTR to take five tariff actions between 2018 and 2019. Almost three quarters of U.S. imports from China were subject to Section 301 tariffs, which ranged from 15% to 25%. The U.S. and China engaged in negotiations resulting in the “U.S.-China Phase One Trade Agreement”, signed in January 2020.
The Biden Administration took steps in 2021 to eliminate foreign policies subject to Section 301 investigations. The administration has extended and reinstated many of the tariffs enacted during the Trump administration but is conducting a review of all Section 301 actions against China.
Two Senate Commerce Committee Republicans -- Rick Scott of Florida and Dan Sullivan of Alaska -- were among five Republican senators who wrote Senate members of the conference committee negotiating how to marry elements of the House-passed America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act (HR-4521) and Senate-passed U.S. Innovation and Competition Act (S-1260) to recommend changes aimed at strengthening the U.S.’ ability to compete with China. Senate Minority Leader Mitch McConnell, R-Ky., complicated negotiations on HR-4521/S-1260 last week by tweeting “there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill.” “Economic competition with China is the single most important geo-political issue facing” the U.S., the five Republican senators said in a letter to the conferees. The other signers were Intelligence Committee Vice Chair Marco Rubio of Florida, Mike Braun of Indiana and Kevin Cramer of North Dakota. “We remain deeply concerned that several provisions germane to the conference would substantially weaken” the U.S.’ ability “to combat malicious Chinese economic influence,” the senators said. They cited language in S-1260 that would amend the 1974 Trade Act “to create a rigid exclusion process under Section 301 which we fear would eliminate it as a tool to combat unfair and malicious Chinese trade practices.” It would create “a statutory exclusion process so broad that” the Office of the U.S. Trade Representative “would be incapable of implementing an effective strategy,” the senators said: “The provision requires USTR to conduct a detailed analysis of each exclusion request and, for exclusions that it intends to deny, requires USTR to demonstrate both that the tariffs do not impact the internal finances of a business unit, and do not create an anticompetitive market structure. This burden is nearly impossible for USTR to meet.” The senators urged their conferees to accept language from HR-4521 that “we believe would be a substantial improvement over current law,” including “improvements to U.S. trade remedy laws which would help domestic manufacturers compete against unfair trade practices,” including the Chinese government-subsidized Belt and Road Initiative.
The Office of the U.S. Trade Representative extended for another six months to Nov. 30 its Section 301 tariff exclusions on 81 COVID-19 related product classifications from China that were due to expire at midnight Tuesday, said an agency notice late Friday afternoon. It was USTR’s second six-month extension on the import classifications covering “medical-care and/or COVID response” products, it said. “In light of the continuing efforts to combat COVID–19,” USTR determined that a six-month extension was “warranted,” it said. The decision took into account public comments previously provided, plus input from industry advisory committees and the interagency Section 301 committee, it said.
Direct negotiations with China are, “at this point, unlikely to yield meaningful results” in curbing Beijing’s unfair trade practices, Emily Kilcrease, senior fellow at the Center for a New American Security, told the U.S.-China Economic and Security Review Commission in written testimony at a hearing Thursday. “China has little incentive to commit to binding rules that will require structural changes to a system they believe works for their economic and political objectives,” she said.
Trade policy on China should prioritize technology issues and set “benchmarks" for a "phased rollback" of Trade Act Section 301 tariffs, the Information Technology Industry Council wrote new U.S. Trade Representative Katherine Tai Tuesday. It encouraged Tai to "move swiftly" on the commitment she made at her Senate Finance Committee confirmation hearing to install "a transparent, predictable, and rapid process for tariff exclusions.” Reforming the tariff exclusions process would be "very high on my radar" if confirmed, Tai told the committee (see 2102250043). Noting USTR has investigated the digital services taxes policies of several U.S. trade partners, the group asked the agency “to discourage further proliferation of such measures.” USTR didn't comment Wednesday, and ITI didn't answer our queries about whether it got a response from the agency. The Chinese tariffs are “there to be punitive,” rather than to stop China’s allegedly unfair trade practices, ITI CEO Jason Oxman told us in January (see 2011090043).
TCL’s North American smartphone subsidiary became one of the largest importers to join the massive Section 301 litigation when it filed a complaint (in Pacer) Friday in the U.S. Court of International Trade. Like the roughly 3,500 other lawsuits inundating the court, TCT Mobile (US) seeks to get the List 3 and 4A tariffs on Chinese goods vacated and the duties refunded with interest. TCT's claims “accrued with each and every entry of products” with List 3 or 4A tariff exposure, said the company. The action was filed within two years of the date that TCT paid the duties, it said, satisfying the court’s statute of limitations requirement on the timeliness of complaints. “With a mobile handset product portfolio that includes TCL and Alcatel devices,” TCT is “the fourth largest handset manufacturer in North America,” it said. The complaint lists two dozen import categories for which TCT has List 3 or 4A tariff exposure. Most are for capital goods, packaging materials or components, including lithium-ion batteries. Finished smartphones that TCT imports from China under the Harmonized Tariff Schedule’s 8517.12.00 subheading are on List 4B. The Trump administration postponed indefinitely the 15% tariffs on List 4B goods from taking effect in December 2019 after reaching the phase one trade deal with China (see 1912130042).
The impact of the U.S. iPhone 12 launch was evident in the Census Bureau’s smartphone import data trends for October, as accessed through the International Trade Commission’s DataWeb tool. Apple’s Oct. 23 release of its first 5G-enabled flagship phone helped send October smartphone unit and dollar import volume soaring. The average October smartphone import was more than a third costlier than in September, though all metrics were noticeably lower than those of a year earlier, as 2020 has been a trying year for the category. U.S. importers sourced 17.49 million smartphones from all countries in October, up 17.2% from September but down 22.5% from October 2019, said DataWeb. October dollar imports spiked 59.3% over September's to $5.21 billion but were 24.1% lower than a year earlier. October smartphone imports were worth $298.43 on average, 36.3% higher than in September but 1.9% below the October 2019 average. China was the obvious beneficiary of the October smartphone import surge, with 83% share of all handsets shipped here in the month, compared with only 70.7% share in September, said DataWeb. Apple is known to be sourcing the iPhone 12 from Foxconn's Zhengzhou factory in China's Henan province. The company, notoriously protective of its proprietary sourcing information, didn’t respond to questions. U.S. importers sourced 14.51 million smartphones from China in October, 37.5% more than in September but 19.1% fewer than in October 2019, said DataWeb. The 104.15 million Chinese smartphones shipped here in the first 10 months were 73.4% of all handset imports to the U.S., slightly lower than its 74.3% share in the same 2019 period. China’s October smartphone import spike took a clear toll on Vietnam, which contributed 13.8% of all handset shipments to the U.S. in the month, down from its 23.9% share in September, said DataWeb. Vietnamese unit import volume of 2.41 million smartphones declined 32.3% from September and was down 35.9% from October 2019. Vietnam shipped just under 29 million smartphones to the U.S. in the year’s first 10 months, 20.4% of all handset imports to the U.S. in the January-to-October period, said DataWeb. The country’s significant stature in the smartphone category will bear watching as the Office of the U.S. Trade Representative convenes a Section 301 investigative hearing Dec. 29 into allegations of Vietnamese currency manipulation to the detriment of U.S. commercial interests. The threat of possible tariffs on Vietnamese imports looms prominently over the proceeding. Smartphones from China technically remain exposed to the threat of List 4B Section 301 tariffs still on the books, but the Trump administration postponed the List 4B duties indefinitely after reaching the phase one trade deal with China nearly a year ago (see 2001160022).
President-elect Joe Biden's incoming administration can support advanced manufacturing in the U.S. by “immediately lifting” the Section 301 tariffs on a “targeted list” of information and communications technology components and inputs sourced from China, blogged Alan Kohlscheen, IBM director-import compliance and supply chain security, and Michael DiPaula-Coyle, director-international trade policy. “Limited, early removal” of the most “counterproductive” China tariffs could provide relief for U.S. manufacturing, while leaving the new administration space “to negotiate further tariff changes based on Chinese market access commitments,” said the authors Wednesday. The tariffs have raised IBM’s sourcing costs by “tens of millions of dollars,” they said. “These imports do not represent high-value technology products -- rather, they are necessary inputs into U.S.-made systems and include such items as printed circuit board assemblies, mechanical parts, fans, power distribution units, power supplies, and cables -- largely available only from Chinese sources.” The incoming administration “can give a direct boost to U.S. manufacturing through targeted tariff relief on these sorts of component parts and inputs,” said Kohlscheen and DiPaula-Coyle. “Such a step would provide immediate benefits to U.S. manufacturing while also redirecting U.S. policy toward more international, and coordinated, action to address Chinese market access issues.” The Biden transition team didn’t respond to questions. Biden told New York Times columnist Thomas Friedman Tuesday evening that he won’t make “any immediate moves” on China policy after taking office. “And the same applies to the tariffs,” he said. “I’m not going to prejudice my options.” A “major priority” in the opening weeks of the new administration will be to “try to get us back on the same page with our allies” and develop a “coherent strategy” toward China, he said.
Rolling back a “substantial number” of Section 301 tariffs on Chinese goods likely will be a “first order of business” for the Biden administration’s trade policy, said the Information Technology Industry Council Tuesday. The duties have “proven to be punishing to American consumers and businesses,” it said. The new administration will need to negotiate with the Chinese “to potentially achieve or strengthen commitments on trade issues and to ensure a stepped tariffs removal process on both sides,” it said. “This can serve as a relatively easy trust building exercise and ‘low-hanging’ fruit as the administration seeks to reestablish more routine government-to-government discussions.” It can also provide “an early window” into which issues the new administration will “prioritize in trade discussions with China,” it said. Neither the Biden team nor the Chinese Embassy in Washington responded to questions.
CTA President Gary Shapiro and Jason Oxman, CEO of the Information Technology Industry Council, expressed hope Monday that President-elect Joe Biden’s bipartisan skills would bring progress on high-skilled immigration and infrastructure initiatives in Congress. President Donald Trump hasn't conceded.