With 90 percent of U.S. laptops and more than 75 percent of smartphones sourced from China, “there is simply insufficient capacity in the rest of the world to absorb production shifts of these high-demand devices in the short term,” commented the Software & Information Industry Association, posted Tuesday in docket USTR-2019-0004. If the List 4 Section 301 tariffs on those products are implemented, “U.S. producers would have to either sacrifice profits on U.S. sales or pass increased costs on to consumers by raising prices,” said SIIA. “In the low-margin and high-risk consumer hardware business, few if any U.S. firms would be able to absorb a 25% surcharge on products without losing significant market share to foreign competitors who are not burdened by such additional costs.” SIIA fears “many smaller U.S. firms in these sectors would simply go out of business, while larger firms would become less competitive globally." And "raising prices at this time of year further risks missing production goals for the critical holiday season.” That can “damage annual sales targets” and risk compromising the “the long-term viability of a product,” the group said. Post-hearing rebuttals were due Tuesday, ending the List 4 rulemaking proceeding. President Donald Trump put the List 4 tariffs on hold after agreeing to resume trade negotiations with China (see 1907010070 or 1907010015).
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.
An internal “review” at Micron Technology found the memory-chip supplier could “lawfully resume shipping a subset of current products” to Huawei because they aren't subject to Commerce Department export administration regulations and entity list restrictions, said CEO Sanjay Mehrotra on a fiscal Q3 earnings call. Micron reinstated those shipments about two weeks ago, he said Tuesday.
The “same concerns” that led the Trump administration to remove smartwatches and fitness trackers from the List 3 Section 301 tariffs on Chinese imports in September “continue to apply” with the proposed fourth tranche, commented Fitbit in docket USTR-2019-0004. Imposing 25 percent tariffs would cause Fitbit “significant and unavoidable economic harm," it commented, dated Monday and posted Thursday.
Many tech and other interests flooded docket USTR-2019-0004 before the Monday-midnight deadline for comments on the fourth tranche of tariffs on Chinese goods. Most opposed the tariffs on grounds they would harm U.S. businesses and consumers and would do little to stop China’s allegedly bad behavior on intellectual property theft and forced technology transfer. The List 4 goods targeted for Section 301 tariffs of up to 25 percent include “many products Bose imports” to the U.S. from China, commented the manufacturer, posted Monday. Bose products earmarked for List 4 tariffs “generally do not incorporate the types of technology targeted” by China’s IP and tech transfer policies, said the manufacturer. Bose forecasts it will import $450 million worth of goods from China this year. Though the administration claims to have tried to avoid placing tariffs on consumer products, “there is simply no way to protect consumers from tariffs” on List 4, said the Information Technology Industry Council. List 4 includes “finished computing devices and accessories that are used widely," ITI said. Lists 1, 2 and 3 “already placed duties on various types of computer monitors, screens, and networking equipment,” it said: “List 4 tariffs will mean that every single office and home computing machine from printers to standalone desktops to landline telephones -- and even the cables that connect them -- will become more expensive for all" in the U.S. LCD modules Sharp imports from China are used in “a wide array of products” manufactured in the U.S., including cars, watches and phones, commented the company: “Punitive” tariffs on LCD modules would imperil many of those jobs “located within the US manufacturing heartland of the Midwest,” in states “that are so crucial to the President’s upcoming re-election campaign.” Also Monday, tech and other interests testified at the Office of the U.S. Trade Representative against List 4 duties (see 1906170066).
A newer high resolution format is adding movies, even as apart from Amazon and Netflix it lacks wide distribution, the 8K Display Summit was told in New York Tuesday. The coming fourth tranche of tariffs on Chinese products will affect a wider array consumer tech than past versions, attendees also were told.
Advanced Micro Devices is “working through” the U.S.-China “trade situation” as “an industry,” Ruth Cotter, senior vice president-marketing, human resources and investor relations, told a Bank of America Merrill Lynch investor conference Thursday. The chipmaker is “partnering” with the Semiconductor Industry Association “and others” to mitigate the impact of the List 3 Section 301 tariffs on Chinese goods, which increased to 25 percent May 10 (see 1905090018), she said. “We're watching it carefully and ensuring that we are somewhat risk-mitigated as it pertains to tariffs and managing that for our customers.” AMD sources products from two “foundry partners” based outside China, she said. It also has “some backend manufacturing assets” and “test and assembly” operations in Malaysia, “so some of that is outside of China as well,” she said. “So kind of well-positioned from that perspective. I would say we're watching and monitoring the situation carefully.”
Hiking the third tranche of U.S. tariffs on Chinese products rejuvenated talk inside CTA for challenging the duties in court, said informed people. Days before the increase, the policy talk there was about strategies to lobby Congress for removing the tariffs once a U.S.-China trade deal was in the bag, they said. The List 4 proposal brought new urgency to the litigation chatter, we’re told. At least one holdout on the eight-member executive board opposes taking the administration to court until President Donald Trump has a chance to meet with Chinese President Xi Jinping at the G20 summit June 28-29 in Osaka, Japan, said a CTA member insider. The group hired Akin Gump last fall to draft a complaint challenging the Office of U.S. Trade Representative’s broad authority under the 1974 Trade Act to impose retaliatory tariffs against China without launching a new Section 301 investigation (see 1905170064). CTA tried shopping the complaint around to other trade associations for financial and legal backing, but got no takers, we’re told. The association didn’t comment Tuesday. The U.S.-China trade war caused a fivefold increase in tariffs on tech product imports from 2017 to 2018, said CompTIA Tuesday. “Should a 25-percent tariff rate apply to all tech product imports the costs could run into the tens of billions of dollars.” CompTIA encourages the U.S. and China to “reach a deal that protects American innovation and intellectual property.”
Industry reacted against President Donald Trump’s surprise tweets Sunday threatening to hike to 25 percent the Section 301 tariffs currently at 10 percent on $200 billion in Chinese imports, effective this Friday. The uproar overshadowed industry’s response to Trump’s accompanying threat to impose 25 percent tariffs “shortly” on $325 billion more in Chinese goods previously “untaxed.” That would cover virtually all remaining imports to the U.S. from China.
The Office of the U.S. Trade Representative included China for the 15th straight year on its priority watch list for intellectual property violations. USTR also elevated Saudi Arabia from the second-tier watch list and downgraded Canada and Colombia from priority to watch, in the annual special 301 report Thursday (see 1902080063).
Section 301 tariffs on Chinese imports would reduce U.S. GDP by up to $1 trillion within a decade if left in place, concluded a Rhodium Group study for the U.S. Chamber of Commerce. The tariffs are “eroding” U.S. “competitiveness” in information and communication technology and “undermining globalized supply chains,” said the chamber, which plans to release the report Friday. “U.S. tariffs, together with Chinese retaliation, are disrupting global trade and supply chains, further damaging American businesses, workers, farmers, ranchers and investors,” commented the chamber in August, arguing unsuccessfully against imposition of the List 3 tariffs that took effect Sept. 24. The three rounds of tariffs imposed since July are costing the tech industry $1 billion a month in higher fees, estimated CTA in December (see 1812140045). U.S. Trade Representative Robert Lighthizer, in two recent appearances before Congress, refused to say if a trade deal with China hinges on lifting the tariffs or keeping them in place to enforce Chinese compliance (see 1903130036).