Delaying the increase to 25 percent on the 10 percent Section 301 tariffs on $200 billion in Chinese imports will require a “presidential proclamation” or publication of a Federal Register notice before the midnight Friday deadline to avert an automatic rate hike, emailed customs law expert Ted Murphy of Baker McKenzie Monday. President Donald Trump, for the second time since December, postponed the rate hike in a pair of tweets Sunday, citing “substantial progress” in U.S.-China trade talks (see 1902250001).
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.
Policy “mistakes,” especially the Trump administration’s Section 301 tariffs on Chinese imports, “continue to be the biggest threats” to global economic growth in 2019, IHS Markit said in a study released Monday at the World Economic Forum in Davos, Switzerland. A “perfect storm” of economic developments “shook markets in late 2018,” including U.S.- China trade frictions, and the U.S. government shutdown, it said. “However, it’s important to note that the stock market is not a reliable predictor of recessions, and the probability of a recession in 2019 remains low.” IHS expects the global economy to grow at a rate of 3 percent in 2019 and 2.8 percent in 2020, “below the rates seen in 2017 and 2018,” it said.
Despite partial government shutdown, the Office of the U.S. Trade Representative continues “to conduct all operations,” including trade negotiations and enforcement activities, “using existing funds,” said the agency Friday. USTR Robert Lighthizer is the lead negotiator in talks with China on a comprehensive trade package that forestalled the imposition of 25 percent Trade Act Section 301 tariffs on the third tranche of Chinese imports, at least until March 2 (see 1812140045). “Big progress” is being made in the U.S.-China trade negotiations, tweeted President Donald Trump Saturday. “Just had a long and very good call with President Xi of China,” said Trump. “Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute.”
The Office of the U.S Trade Representative issued its first list of product exclusions from the 25 percent Trade Act Section 301 tariffs on Chinese imports, granting full or partial exemptions for nearly two dozen 10-digit Harmonized Tariff Schedule subheadings, said a notice posted Friday at the agency’s website. The exclusions apply retroactively to July 6, the date the first tranche of tariffs took effect, and will remain in effect until one year after the USTR’s notice is published in the Federal Register.
China’s foreign ministry said the U.S. must withdraw allegations against two state-linked Chinese hackers charged Thursday with intellectual-property cybercrimes (see 1812200059) or risk endangering U.S.-China trade negotiations aimed at averting a March 2 increase in Section 301 tariffs on Chinese imports (see 1812140045). China urges the U.S. “to immediately correct its wrongdoings, stop defaming and discrediting China on the cybersecurity issue, and withdraw its so-called charges against the Chinese nationals so as to avoid seriously damaging bilateral relations and bilateral cooperation in relevant fields,” said a spokesperson Friday. In charging the two Chinese nationals with cybertheft, the U.S. “fabricated stories out of nothing and made unwarranted accusations against China on the cybersecurity issue,” she said. China “has been firmly opposing and cracking down on all forms of cyber espionage. The Chinese government has never participated in or supported others in stealing commercial secrets in any form.”
The three rounds of Trade Act Section 301 tariffs imposed since July on $250 billion worth of Chinese goods are costing the tech industry more than $1 billion a month in added fees, reported CTA Friday. CTA released its estimates as the Trump administration officially delayed to March 2 its plan to raise the third tranche of 10 percent tariffs to 25 percent.
Cable modems that include Chinese parts but are assembled in Mexico are subject to the third tranche of 10 percent Trade Act Section 301 tariffs on Chinese imports, said Customs and Border Protection in a Nov. 27 ruling. The ruling request was submitted by Barnes Richardson lawyer Lawrence Friedman on behalf of Zoom Telephonics. CBP's analysis was on two types of modems -- those that include Wi-Fi gateways and those that don’t. All the components involved are products of China and "bulk-packed board assemblies will be shipped in separate boxes from the remainder of the components including the case components, feet, screws, and labels," CBP said. The assembly work done in Mexico doesn't constitute a "substantial transformation" of the Chinese components, CBP said. The modems are classifiable under subheading 8517.62.0010 and therefore subject to the tariffs imposed Sept. 24, it said. The modems meet the North American Free Trade Agreement’s tariff shift requirement and are a product of Mexico for marking purposes, CBP said.
With the U.S. “on the cusp” of Trade Act Section 301 tariffs rising Jan. 1 to 25 percent on $200 billion worth of Chinese imports, President Donald Trump took “authority that he does not have under the law” when he ordered the Sept. 24 imposition of retaliatory duties (see 1809180020), CTA President Gary Shapiro told the American Legislative Exchange Council’s States & Nation Policy Summit in a keynote Thursday. Speaking to an audience of mainly conservative state legislators, Shapiro stopped well short of threatening a CTA court challenge to block the Trump administration from putting the higher tariffs into effect, though CTA frequently has blasted the duties as "taxes" that run "afoul" of the 1974 Trade Act (see 1809070032).
Cisco saw “immaterial” impact in its Q1 ended Oct. 27 from the 10 percent Trade Act Section 301 tariffs that took effect Sept. 24 on $200 billion worth of Chinese imports, because the tariffs kicked in with only a month to go in the quarter, said CEO Chuck Robbins on a Wednesday earnings call. Though Cisco hiked prices on Chinese-sourced goods in Q1 to cover the higher tariff costs, it “saw absolutely no demand change” between the week before and the week after the price increases took effect, he said.
Past administrations of "both parties" gave "some lip service" to curbing China's unfair trade practices "but never followed through," National Economic Council Director Larry Kudlow said during a Q&A at the Economic Club of Washington Thursday. President Donald Trump "is following through" with the three rounds of Trade Act Section 301 tariffs he imposed over the summer, Kudlow said. He acknowledged he's "more of a doctrinaire free trader" than his boss, and that he opposed the administration's Section 232 tariffs on steel imports before joining the White House from CNBC. But there's "a lot of unfair trading practices" worldwide, and "the biggest culprit is China, and that can't be left alone," said Kudlow. "China has played fast and loose with the rules," he said. "The World Trade Organization needs reforms to enforce those rules. China's taken advantage. They're not a third-world country anymore. Why should we have to suffer?" Trump wants "a level playing field" with China, said Kudlow. "He wants reciprocity. Ultimately, he wants zero tariffs, zero non-tariff barriers, zero subsidies." Kudlow acknowledged tariffs "may be painful in some cases," but Trump is "a disrupter." Kudlow is "quite patient" with the policy, and confident a deal with China "can be negotiated" as a result, he said. It has been only "four or five months" since Trump first imposed tariffs, Kudlow said: "Let him do his work."