Trade Battle Lines Drawn

American Shipper — As the Trump administration continues to draft tariffs against what it deems to be unfair trade from China, American shippers and importers are entering a new landscape that will govern the flow of international commerce for years to come. The last two weeks of May, in particular, brought a furious volley of trade shots fired between the United States and China, both in the form of immediate and broader measures that could impact goods flowing across the Pacific Ocean, including automobiles and auto parts.

The Trump administration on May 29 announced plans to impose 25 percent tariffs on about $50 billion worth of goods in yearly import value from China, just over one week after putting that tariff proposal on hold. The tariffs are aimed at “industrially significant technology” imports from China, including those related to the “Made in China 2025” program, and are set to be announced by Friday, with tariffs taking effect “shortly thereafter,” according to a White House statement. This comes after a Chinese government delegation visit to Washington on May 17-18 that ended with the United States temporarily dropping its tariff threat in place since March, as stated by Treasury Secretary Steven Mnuchin on cable news.

The Trump administration first proposed the tariffs following an investigation of China’s business practices under Section 301 of the 1974 Trade Act completed by the executive branch in March. That statute provides for trade remedies to be imposed in response to unfair business practices maintained by another nation. After the U.S. renewed its call for Section 301 China tariffs, the China Ministry of Commerce (MOFCOM) expressed disappointment in the Trump administration’s position. “We are both surprised and unsurprised at the statement, which is obviously contrary to the consensus reached between China and the U.S. in Washington not long ago,” a MOFCOM spokesperson said in a statement. “The Chinese side has confidence, capability and experience to defend the interests of our country and her people. We urge the U.S. to act in the spirits of the joint statement,” issued after the Chinese delegation visited Washington.

Responding to the Trumpf administration’s original March tariff threat, the Chinese government proposed 25 percent retaliatory tariffs against an equivalent amount of U.S. goods, to cover more than 100 items, including soybeans, cigarettes, beef, passenger vehicles and chemical products.

Supply Chain Panic. The turbulent environment is causing U.S.-based importers that source from China to consider potential alternative options, according to Lori Fox, vice president of customs brokerage services for American Global Logistics. Importers “literally panic” during the rollout of huge tariff changes, especially since there was little time to react to the May 29 White House announcement as many containerized goods were slated to arrive in U.S. ports after the June 15 implementation date, Fox said in an interview. “To adjust their supply chain that quickly takes some doing,” she said.

National Foreign Trade Council (NFTC) member companies generally believe the Trump administration acted too quickly to impose tariffs pursuant to its Section 301 investigation and would have preferred a negotiated settlement between China and the U.S. over the uneasiness of the bilateral trade landscape now in place, NFTC President Rufus Yerxa said in an interview. “Two things they hate: One is the uncertainty of the ‘on again, off again, on again, off again’ [tariff threats], and then secondly, the potential impact of these tariffs on the supply chain,” Yerxa said. “These are companies that have problems with some of the things China is doing, and some of it quite serious in the tech transfer and IP [intellectual property] area.”

The reauthorization of the Generalized System of Preferences (GSP) helps to provide alternate sourcing options for many importers willing to do business with vendors in less-developed countries, Fox said. “Obviously, other countries are not being taxed as China [could be], so it’s very likely that importers will look to other vendors in other countries to try to avoid long-term tariff increases,” Fox said. Foreign-trade zones potentially could offer an additional layer of flexibility for goods imported from China, as several companies use the zones to limit their exposure to antidumping and countervailing duties, especially in cases where potential rate changes are expected, Fox said.

Several attendees at a U.S. International Trade Commission hearing on the proposed tariffs in May cited China’s strong transportation and port infrastructure as one factor that could serve to prevent companies from diverting their sourcing to another country. Even considering the soundness of China’s infrastructure, Fox said some of her clients that import wooden bedroom furniture have found it more beneficial to import from Thailand or Vietnam. Wooden bedroom furniture imported from China is subject to AD and CV duties, which can present several complicating factors once goods are formally entered into U.S. commerce, such as retroactive changes to tariff rates and slow liquidation, Fox said, pointing out that the duty savings and fewer complications associated with sourcing elsewhere have helped those importers to remain competitive.

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