US, China Officials Set Plans in Motion for Tariffs to Take Effect in July

21 June 2018

The past fortnight has seen a series of developments in the US-China trading relationship, amid announcements from the US on the planned imposition of tariffs covering thousands of Chinese products, while hinting at the potential for more, and responses from Beijing that their government is prepared to issue tariffs of their own. 

Some of the tariffs are due to take effect from 6 July. Whether negotiators can find a solution to avert the planned duties in that timeframe – the prospect of which, analysts say, is already affecting global markets – remains to be seen. 

Previous bilateral talks

Over the past year, trade tensions between the US and China have emerged or escalated across negotiating forums, from domestic imposition of trade measures to intense debates at the World Trade Organization. 

The two sides had appeared to have scaled back these tensions last month, after officials released a statement indicating that China would import more US natural gas and farm products, while Washington would hold off on the planned tariffs and some of the other Section 301 actions. 

The subsequent news that the US would still be moving ahead on the initial Section 301 tariffs, targeting US$50 billion in Chinese products, suggested a renewal of tensions, with Chinese officials warning that moving forward would make the pledges under the previous joint statement void. 

Product lists

On Friday 15 June, the Office of the United States Trade Representative released the long-awaited list of over 1000 Chinese products that it plans to target with an additional ad valorem duty of 25 percent. 

The tariffs are part of the US’ previously announced Section 301 actions, following an investigation into allegedly unfair trade practices by China, namely in the field of intellectual property protections and forced technology transfers. They are known as Section 301 due to the provision of the US Trade Act of 1974. 

At the multilateral level, the Office of the USTR will continue to push its WTO dispute settlement case against China initiated in late March to address China’s allegedly discriminatory licensing requirements. The case was one aspect of the initial Section 301 actions. 

The White House announced its intention to move forward on these tariffs on Chinese goods soon after the official release of the USTR’s publication of its Section 301 investigations results on 22 May. 

On that occasion, the USTR report argued that the Chinese practices in questioned were unfair to American companies, arguing that Beijing pursued an “aggressive technology policy that put 44 million American technology jobs at risk.” One of the main Chinese policies under focus was the "Made in China 2025" industrial plan. 

Among other findings, the USTR investigation outlined practices of forced technology transfers, allegedly discriminatory licensing requirements, and cyber theft, among other concerns. Separately, the White House has also publicly criticised a US$375 billion trade in goods deficit with China, calling for any deal to help lower this gap. 

Next steps for tariff imposition

The White House plans to implement its tariff retaliation in two phases, collecting tariffs on a first set of goods worth US$34 billion from 6 July. The tariffs will be set at 25 percent. 

The latter set of goods, worth approximately US$16 billion, will face tariffs later on, pending further public consultations and other domestic procedures, according to a 15 June announcement from Washington. Investment restrictions may also be forthcoming, with an announcement due by the end of the month.

In response, China’s Ministry of Commerce said on 16 June that the “US’ measure violates the relevant rules of the World Trade Organization and is contrary to the consensus reached in the economic and trade negotiations between China and the United States. It seriously violates the legitimate rights and interests of our country.” 

Following the US announcement on 15 June, Beijing’s State Council declared that it was ready to impose “corresponding retaliatory measures” on 659 items of US products worth US$50 billion, according to a report published by state-run news agency Xinhua. This includes several agricultural goods, along with select industrial products. 

It will similarly stagger the implementation so that the first tranche of goods, worth US$34 billion, will face tariffs of 25 percent on 6 July, with the remainder of the goods to be addressed later on, following additional domestic procedures. (See Bridges Weekly, 9 May 2018

Additional US tariffs forthcoming?

During the next few weeks, US producers are expected to submit comments, responses, and pre-hearing submissions regarding the list of products issued by the USTR on Friday, 15 June. They have until 29 June to appear and provide testimony at the Section 301 Committee public hearing, scheduled for 24 July. Written comments for the hearing should be submitted by 23 July, and post-hearing rebuttal comments should be submitted by 31 July. 

On Monday 18 June, US officials also indicated that tariffs on an additional set of products could follow suit. US President Donald Trump has asked that the Office of the USTR come up with a list of goods that could face tariffs of 10 percent, with the value of the affected goods due to hit US$200 billion. 

Trump justified this request as being due to China’s plans to impose tariffs on US-made products, though Beijing’s tariff announcement was in response to the US’ own initial Section 301 duties. 

“The initial tariffs that the President asked us to put in place were proportionate and responsive to forced technology transfer and intellectual property theft by the Chinese.  It is very unfortunate that instead of eliminating these unfair trading practices China said that it intends to impose unjustified tariffs targeting US workers, farmers, ranchers, and businesses,” said  US Trade Representative Robert Lighthizer. 

US farm, industry groups air concerns

Meanwhile, the tariffs have drawn pushback from US lawmakers from both major political parties, along with industry representatives from multiple sectors.

For example, Farmers for Free Trade Executive Director Brian Kuehl issued a statement on Friday 15 June regarding the White House’s tariff announcement, saying that “American farmers demand that elected officials support them by ending this trade war.” 

Farmers for Free Trade is a coalition that names among its supporters a variety of farmer associations, including corn and wheat growers, pork producers, the American Farm Bureau, and other organisations. The coalition has reacted specifically to the prospect of Chinese tariffs on imported farm goods, in response to the US’ Section 301 actions. 

The US Semiconductor Industry Association (SIA) has argued that the planned US tariffs will be “counterproductive,” causing hefty damage to US producers who are part of the same value chain, while failing to address the underlying concerns. Others have also cautioned that tariffs will translate into higher consumer costs at home. 

“While the US semiconductor industry shares the Trump Administration’s concerns about China’s forced technology transfer and intellectual property (IP) practices, the proposed imposition of tariffs on semiconductors from China, most of which are actually researched, designed, and manufactured in the US, is counterproductive and fails to address the serious IP and industrial policy issues in China,” the group said.  

ICTSD reporting; “Chip Makers: We’ll End Up Paying Tariffs on Our Own Goods,” WALL STREET JOURNAL, 15 June 2018; “Trump Hits China With Tariffs on $50 Billion of Goods; China Says It Will Retaliate,” NPR, 15 June 2018; “China promises fast response as Trump readies tariffs,” CNBC, 15 June 2018; “China decides to impose additional tariffs on 50 bln USD of U.S. imports,” XINHUA, 16 June 2018.

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