USA and China trade war.

Overview

Overall, trade talks between the United States and China ended Friday, May 10 with no final deal other than a commitment to continue to talk. Earlier that week, the United States announced it was increasing its 10% retaliatory tariffs to 25% for the $200 billion in Chinese imports on List 3 and would provide stakeholders with an opportunity to apply to have their products excluded from the tariffs.

China then announced its retaliatory measures to raise tariffs on $60 billion worth of American goods. President Trump also said that he would give China a month before he imposed an additional tariff on a new List 4 of the remaining Chinese imports valued at $300 billion. The Office of the United States Trade Representative (USTR) is providing stakeholders with an opportunity to testify and submit public comments on the List 4 products and tariffs. Please see our updates below to learn more about Lists 3 and 4 and how they may affect your clients.

tariff hike looms

List 3 Tariffs: USTR Increases Tariffs to 25% for Chinese Imports on List 3 Tariffs

MBS can help clients apply for exclusions from tariffs and engage with congressional leaders.

On Thursday, May 9, USTR officially notified the public of the increase in tariffs to 25% from 10% on $200 billion of Chinese imports (known as List 3). This increase went into effect on Friday, May 10, 2019.

A few points to highlight from the official notices:

  • USTR will establish an exclusion process for the products on this third tranche of tariffs. Details describing the product exclusion process, including the timeline and procedures for submitting exclusion requests, and an opportunity for interested persons to submit oppositions to requests, is still forthcoming.
  • Products of China on List 3 that were exported prior to May 10, 2019, are not subject to the additional duty of 25% as long as such products are entered into the United States prior to June 1, 2019. Such products remain subject to the additional duty of 10% for a transitional period of time before June 1, 2019. The covered products of China that are entered into the United States on or after June 1, 2019, are subject to the 25% rate of additional duty.

Please click here to view the full list of products on List 3 that are subject to the increase in 25% tariff.

List 4 Tariffs: USTR Posts Notice on List 4 Tariffs and Opportunity for Public Testimony and Comments

MBS can help clients engage in USTR’s public comment and public testimony process.

USTR outlined its request for public comments and plans to hold a public hearing regarding the new list of $300 billion of Chinese goods subject to a 25% tariff.

Here are some of the key highlights from USTR:

  • The proposed modification issues a 25% tariff on products of China with an annual trade value of approximately $300 billion.
  • USTR has posted the following schedule for public comments and the public hearing:
    • June 10, 2019: Due date for filing requests to appear and a summary of expected testimony at the public hearing.
    • June 17, 2019: Due date for submission of written comments.
    • June 17, 2019: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission
    • Seven days after the last day of the public hearing: Due date for submission of post-hearing rebuttal comments.

Some products on List 4 include:

  • Dairy – milk, cream, condensed milk, yogurt, sour cream, butter, cheese
  • Cattle imported for dairy purposes
  • Live chickens, goats, cattle, ducks, horses etc.
  • Bovine meat cuts; turkey; chickens
  • Produce – cucumbers, potatoes, tomatoes, lettuce, etc.
  • Tea; juice
  • Seasonings and herbs
  • Oils – coconut, sunflower, olive, sesame, etc.
  • Sugar, cane, sucrose, glucose, etc.
  • Chocolate and cocoa
  • Condiments
  • Alcohol – wine, rum, vodka, gin, brandy
  • Essential oils
  • Furniture products – handles, knobs, fittings
  • Men and women’s clothing and accessories
  • Linens, bedding, and curtains
  • Footwear – sports, waterproof, golf,
  • China, porcelain, ceramic, and tableware; glassware
  • Jewelry – pearl, metal, silver, semiprecious stones,
  • Iron/nonalloy steel; stainless steel; alloy steel
  • Padlocks, base metal locks,
  • Tools – metalworking, drills, saws
  • Batteries – lithium ion, storage
  • Appliances – hairdryers, toasters, coffee, and tea makers, etc.
  • Storage water heaters
  • Bicycles – lighting equipment
  • Telephones and telephone sets
  • Video monitors, video projectors, TVs reception apparatus, radio broadcast receivers
  • Lighting – electrical filament lamps, LED lamps
  • Motorcycles and cycles
  • Contact lenses and eyeglasses
  • Cameras
  • Watches, clocks (alarm and wall), and parts
  • Musical instruments
  • Firearms
  • Sporting equipment for various sports
  • Vacuum parts

The full details and the newly formed List 4 can be found here. We expect USTR to officially post this to the Federal Register soon under the docket number USTR-2019-0004.

China Announces They Will Retaliate

China’s finance ministry announced on Monday, May 13, that it was raising tariffs on $60 billion of American goods, a swath of roughly 5,000 products, in the country’s first move to retaliate over President Trump’s broader increase in tariffs on Chinese goods last Friday. The finance ministry delayed the implementation of its tariff increase until June 1, a delay of nearly three weeks, allowing time for negotiators to make another push for a deal. U.S. financial markets fell sharply in early trading after China announced its tariff increase, with the Dow Jones Industrial Average slumping more than 500 points.

When President Trump placed 10% tariffs on $200 billion a year in Chinese goods last September, China responded with its own tariffs of 5 to 10% on $60 billion a year in American goods. On Monday, China’s ministry of finance raised those tariffs by introducing four new categories for the $60 billion in goods. The tariffs on those four categories are 2,493 items at 25%, 1,078 items at 20%, 974 items at 10% and 595 items at 5%. Goods that China will charge at 25% include animal products, frozen fruits and vegetables, and seasonings. Goods it will charge at 20% include baking condiments, chemicals, and vodka. (See chart below.)

In addition, China has announced a pilot program that will allow companies who import, manufacture, or use products subject to retaliatory tariffs on U.S. goods to request an exclusion for those products. There are specific timeframes within which requests must be submitted depending on which retaliation list they are on.

Each request will be limited to one product at the eight-digit tariff level and will be evaluated based on difficulty obtaining the product from sources other than the U.S., material injury from the tariff to the requestor, and any structural impact of the tariff on relevant industries. Any exclusions granted will remain in effect for one year.

This latest tariff actions still give both countries time to negotiate a trade deal. In a shift from the typical practice of assessing tariffs on goods as they reach American seaports and airports, USTR’s notice stated that the increased tariffs would be applied only to shipments that left China from Friday onward.

How the United States-China Trade War Escalated

  • Over the weekend of May 4, a new Chinese draft of the agreement deleted commitments on core issues that the U.S. had considered closed. U.S. Trade Representative Robert Lighthizer briefed President Trump which led to President Trump’s tweets on Sunday stating that China had reneged on the negotiations and threatening an increase in the tariff rate.
  • On Thursday, May 8, President Trump said that he had received a letter from Chinese President Xi Jinping and that he would likely be talking to him and that a deal could still be reached. It has not been reported that any call has taken place. He also announced that he had staff working on an additional tariff on remaining Chinese imports of approximately $300 billion, a so-called List 4.
  • Also on Thursday, Chinese Vice Premier Liu He arrived from China and met with Ambassador Lighthizer at the USTR office where they talked for about 90 minutes and resumed talks on Friday morning. The two groups ended this latest round of talks on Friday morning knowing that negotiations extended beyond the time when the U.S. started to raise tariffs.

Quick Timeline Recap

In September 2018, List 3 tariffs on $200 billion worth of Chinese imports was initially set by USTR at a rate of 10% and scheduled to increase to 25% on January 1, 2019. Unlike the products on Lists 1 and 2, USTR never provided an exclusion process for products on List 3. USTR stated an exclusion process would only be put in place if the tariffs increased to 25%.

  • In December, the 25% increase action was postponed until March 2, 2019. On March 5, USTR postponed the increase in tariffs until further notice.
  • Now USTR determined the List 3 tariff increase to 25% would take place on May 10, 2019, and China has announced their increases will take place on June 1.

 

Denise Bode
Bio Link Denise co-leads the federal practice at Michael Best Strategies with expertise in association and coalition management as well as development of public policy strategies, at both the state and federal level. She was active, on behalf of firm clients, during the recent federal tax reform debate, much as she was during the last major tax reform in 1986. Expertise: Regulatory Law, Tax & Trade, Energy, Environmental, Food, Agriculture, and Telecommunications
Sarah Helton
Bio Link Prior to joining Michael Best Strategies, Sarah served as regulatory counsel at ASTM International. In this role, she supported the Office of Global Policy and Industry Affairs on legal, legislative, and regulatory matters. She researched, analyzed, and advised on current and emerging federal policy matters that affected diverse industries, including energy, environment, transportation, technology, and trade. Expertise: Manufacturing, Tax and Finance, PAC, Education, Political Giving, and Transportation
Alex Nichols
Bio Link Prior to joining Michael Best Strategies, Alex was a legislative campaign and finance assistant for the Republican State Leadership Committee (RSLC). He coordinated meetings and political efforts with Senate and House legislative leaders from across the country, provided policy briefings and government affairs services, and organized national and regional events. Expertise: Education, Tax, Environment, and Energy

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