Inside US-China Trade – Powered by Dow Jones
The Office of the U.S. Trade Representative last year asked for input on its review of Section 301 tariffs imposed by the Trump administration on Chinese goods — and it got what it asked for, as hundreds of companies, associations and others have laid out their positions on whether the duties should remain.
Tuesday marked the close of the comment period USTR opened in November as part of its statutorily required review of the tariffs, imposed under Section 301 of the Trade Act of 1974. USTR announced the review last May by notifying industries that the tariffs, which affected $370 billion worth of Chinese goods, could expire beginning in July 2022 — four years after they were first imposed. Many stakeholders requested that the tariffs remain in place, triggering a formal review process that could result in the continuation, modification, or termination of the tariffs. USTR in November sent out a questionnaire asking stakeholders if the tariffs were effective. As of Wednesday, the agency had posted nearly 1,500 responses. Stakeholders were asked if they “have views on the effectiveness of the actions in obtaining the elimination of China’s acts, policies, and practices related to technology transfer, intellectual property and innovation.”
The responses, predictably, depended on whether the responders’ industries were benefiting from the duties.
“We have seen first-hand how the tariffs are working to help level the playing field and resuscitate America’s industrial base to the benefit of producers and workers across the country,” Labor Advisory Committee on Trade Policy and Negotiations Chair Thomas Conway said in comments filed on behalf of the panel. Conway is the international president of United Steelworkers. “Without Section 301 tariffs in place, producers based in the People’s Republic of China could capture U.S. domestic investment programs passed during the 117th Congress like the Infrastructure Investment and Jobs Act,” he wrote.
Conway added that removing the tariffs “would only embolden China by showing we are willing to capitulate without addressing their underlying unfair trade practices.”
Nucor Corporation, the largest U.S.-based steel producer, called the tariffs “an effective means of counteracting the unfair competitive advantages and market distortions generated by the Chinese government’s sweeping interventions in the economy.” The tariffs have made Chinese steel imports less competitive, Nucor said, “bolstering sales of Nucor’s domestic products, and contributing to Nucor’s ability to invest in domestic technology improvements, capacity increases, and to maintain and grow U.S. jobs.”
States Industries, an Oregon-based hardwood plywood manufacturer that employs 900 people, included in its comments nearly identical language in describing the benefits of the tariffs. They boost sales, the company wrote, “thereby allowing States Industries to invest in domestic technology improvements, capacity increases, and to maintain and grow U.S. jobs.” Both Nucor’s and States Industries’ comments were prepared by Wiley Rein.
The tariffs should be “strengthened or expanded” to give the U.S. more negotiating leverage over China, Nucor argued. The U.S. also should implement a system to protect against tariff circumvention, according to Nucor. For instance, the company suggested “giving U.S. Customs and Border Protection authority to investigate duty evasion as it would for antidumping and countervailing duties under the Enforce and Protect Act” and to impose duties “to any Chinese content of downstream goods processed in third countries.”
Other manufacturers said the tariffs directly benefited their companies. Auburn Manufacturing, Inc., a small Maine-based industrial fabrics producer, said the tariffs have led the company to increase its domestic manufacturing and “encouraged AMI to make new capital investments, increase capacity and production levels, and increase its profit.” Subsequently, the company said it has also been encouraged “to increase the number of its workers and increase wages for those workers.” AMI has 53 employees, according to its comments.
Sherrill Manufacturing, an upstate New York flatware manufacturer, said its workforce had increased by 92 percent since the tariffs took effect, with wages boosted by 40 percent. The tariffs “contributed to Sherrill’s ability to make additional capital investments that would not otherwise have been feasible,” the company said. “Since the imposition of the Section 301 duties, Sherrill has invested $1.6 million in tooling, equipment, and facility upgrades.”
A question of leverage
The Alliance for American Manufacturing called for the tariffs to be expanded, citing China’s failure to live up to its phase-one agreement commitments and worsening “destructive trade practices.” The group, which says it represents “the collective interests of U.S. manufacturers and American workers,” argued that “abandoning or eroding the Section 301 tariffs discards our negotiating leverage.”
But whether the tariffs created more negotiating leverage is a subject of much debate. Proponents of lifting the tariffs cite their lack of effectiveness as a reason for the duties to be lifted, at least in some sectors. “The China Section 301 tariffs on apparel have been decidedly ineffective at eliminating or counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation,” said the U.S. Fashion Industry Association. “Not a single USFIA member company has reported an improvement with respect to IP within China since the Section 301 tariffs were imposed. Moreover, the imposition of the Section 301 tariffs has had no appreciable impact on apparel exports from China — and therefore have almost certainly not contributed to any pressure upon the Government of China to alter its IP or technology transfer policies.”
The Consumer Technology Association argued that the tariffs “are not now, and will never be, an effective tool for achieving the objectives of Section 301 to eliminating China’s problematic acts, policies and practices.” In calling for the removal of the tariffs, the group contended that “it is also clear by now that [the tariffs] have never and do not now constitute negotiating leverage that may change China’s behavior.”
The U.S. Chamber of Commerce, meanwhile, contended that negotiating leverage was a moot point because “the absence of meaningful, high-level dialogue between the two governments renders any negotiating leverage unusable.”
The China Chamber of International Commerce, while denying that the U.S. has any “legal or factual basis” for the tariffs, defended the country’s technology transfer, intellectual property and innovation policies. “Strengthening intellectual property protection in terms of legislation, judicature and enforcement, China has made great strides and achieved remarkable results in recent years,” said the group, which describes itself as representing groups, companies and organizations that engage in international commercial activities in China. “First, China has established the punitive damages system.
Second, China has formed a specialized trial pattern. Third, China has continuously strengthened administrative enforcement and improved an open, fair and transparent administrative protection system.” The U.S.-China Business Council, which represents U.S.-based companies operating in China and opposes the tariffs, said the Chinese government has instituted reforms — but not because of the tariffs. “Section 301 tariffs have been generally ineffective in pressuring China to change its practices,” it said. “While China has, on paper, implemented limited reforms in the areas of technology transfer and IP protection since the tariffs were instituted, many of the reforms, particularly within the realm of IP, were implemented due to the interests of domestic companies in China, which are more reliant on IP than ever as they become increasingly advanced. According to data collected for the USCBC Annual Member Survey, the percentage of foreign companies that have been asked to transfer technology to China is about the same as it was when tariffs were first implemented.”
Meanwhile, the Coalition for a Prosperous America pointed to some Chinese reforms as proof the tariffs have worked, at least to some degree. “The Section 301 actions were effective in eliminating some aspects of China’s policies relating to technology transfer, intellectual property and innovation,” CPA, a nonprofit advocacy group that supported the previous administration’s tax and trade policies, wrote. “Significantly, positive results were seen in China’s loosening of certain joint venture requirements for foreign investment.”
But even that was a “small concession,” CPA said, noting China had already agreed to loosen the joint venture requirements as parts of its World Trade Organization accession protocol. “And while there has been policy improvement, other unfair trade practices relating to intellectual property remain. For example, China has increased the use of ‘anti-injunction orders’ as a pseudo-judicial means of confiscating IP,” the group continued.
The group called for duties on consumer goods that were halved when the U.S. and China signed their phase-one trade agreement to be restored to 15 percent and for the re-imposition of suspended tariffs on roughly $180 billion worth of Chinese goods.
Some stakeholders used the comment invitation as an opportunity to advocate for changes to the U.S. de minimis policy. The U.S. in 2016 raised its de minimis threshold to $800, allowing any imported goods below that value into the country without imposing taxes or tariffs. The National Council of Textile Organizations and the U.S. Industrial and Narrow Fabrics Institute reiterated their call for the Section 301 tariffs to apply to goods that enter the U.S. below the de minimis threshold. “The use of de minimis tariff waivers has exploded, and the de minimis carveout is significantly undercutting the effectiveness of the 301 penalties and delaying a resolution,” the groups said in their submission.
Bicycle manufacturer Kink, Inc., said in its submission that tariffs on bicycles have been entirely ineffective. “The bicycle industry did not suffer from China’s actions in these areas,” the company said. “Bicycles are a mature technology and most bicycles imported from China are relatively simple products, such as children’s bicycles. Because China’s policies were never directed at the bicycle industry, the 301 actions were entirely ineffective in changing those policies with respect to goods within the industry.”
Continuing the tariffs or launching a new Section 301 action would be similarly ineffective, the company continued. “The most effective action that would support our industry and counter China’s economic and trade practices would be lowering the de minimis threshold from $800 to $200 to reduce direct to consumer imports of bicycles and bicycle products,” it said. “This would also help stem the flow of substandard products, including bicycles, electric bicycles and lithium ion batteries, that enter the country without payment of any duty, and without proof of testing or compliance. Bicycles and electric bicycles are regulated products, and entry of these products under de minimis with proof of regulatory compliance poses significant safety risks to U.S. consumers.”
Rep. Earl Blumenauer (D-OR), then the chair of the House Ways & Means trade subcommittee, last January introduced a bill that would keep goods from non-market economies such as China from benefitting from entering into the U.S. tariff-free. The bill was passed by the House as part of the America COMPETES Act but was not taken up by the Senate. — Brett Fortnam (email@example.com)