“Knowledge is Power.”
– Sir Francis Bacon
If Sir Francis’ wisdom always held true, Shapiro would benevolently rule all the world’s creatures, great and small, since we possess over a century of hard-won knowledge and expertise in Customs and international trade compliance. Fortunately for you, we are not power hungry – only hungry enough to empower you with the solid knowledge and powerful perspectives you need to prosper and grow during the first real trade war in generations.
- In what ways are your company and the competition being affected by the imposition of additional tariffs under Section 301?
- How will these additional costs and hurdles cut into your bottom line profitability?
- How can an importer respond to these tariffs? What are my options?
What better time than now to leverage Shapiro’s vast knowledge and experience as you attempt to digest the complexities and uncertainties surrounding the imposition of significant additional tariffs, which will undoubtedly complicate and likely obstruct your pathway to healthy profits?
The Section 301 Tariffs: A Timeline
As you are aware, on July 6, 2018, with the trade war between the U.S. and China looming, the United States Trade Representative (USTR) imposed an additional 25% duties on $34 billion of certain Chinese imports that contain “industrially significant technologies.” The finalized list of the 818 products subjected to the new tariffs, referred to as “List One”, can be found by clicking here.
On June 15, 2018, the USTR announced a second list (“List Two”), which included 284 additional subheadings – worth $16 billion – subjected to 25% additional tariffs. The final list of products affected by List Two can be found here; the additional 25% duties for this list went into effect on August 23, 2018.
On July 10th, a third list encompassing 6,031 items subjected to 10% additional duties and valued at $200 billion was released. The comment period for this list ended September 6, 2018. A finalized list of 5,745 lines of products subjected to these tariffs can be found here. Duties of 10% went into effect on September 28, 2018.
In December 2018, President Trump had announced that Section 301 List 3 tariffs, which were set to increase from 10% to 25% effective January 1, 2019, would remain at 10% for an additional 90 days, as a result of fruitful talks with Chinese President Xi Jingping at the G20 summit in Buenos Aires.
President Trump later announced another postponement of increased duties on List 3 tariffs on February 24th, just days before the 90-days were due to expire, as a result of positive and successful talks between China and the U.S. in regard to trade relations. The President reported his intention to plan a summit “to conclude an agreement” on U.S. soil in the weeks following his announcement.
On May 5th, just days before Chinese officials were set to arrive in the US to continue trade negotiations, President Trump elicited a tweet proclaiming a planned increase in Section 301 List 3 tariffs from 10% to 25% effective 12:01 am on May 10th (based on date of export). Furthermore, the USTR announced that goods shipped prior to May 10th that fall under List 3 will NOT be subjected to the additional 15% in duties if they arrive before June 15th.
The President also threatened a future “List 4” that would tax the remaining $325 billion worth of Chinese goods that have yet to be taxed at a rate of 25%. USTR published the new list containing “essentially all products not currently covered” by any of the three existing Section 301 tariff lists to be evaluated for future tariffs on May 14th. Officials asked for public commentary on approximately 3,805 HTS subheadings, totaling $300 billion in Chinese imports, being considered for additional 25% duties to be submitted by June 10th. Public hearings were held with importers from June 17th until June 25th in Washington.
The U.S. and China decided to restart trade negotiations following an enthusiastic meeting between President Trump and President Xi at the G20 summit in Osaka, Japan on June 29th. The trade talks continued during G20 with some seemingly positive results: President Xi agreed to immediately increase China’s purchase of U.S. farm and agricultural products, while President Trump vowed to lift certain sanctions put in place against Chinese telecom giant Huawei, in addition to temporarily postponing List 4 tariffs. It is important to note that additional 25% tariffs on Lists 1, 2 and 3 remained in effect.
On August 1st, President Trump announced that the U.S. will begin levying 10% duties on List 4 Chinese imports, as opposed to the originally threatened 25%, effective September 1st. Trump decided to walk-back his initial postponement of List 4 tariffs due to President Xi’s failure to uphold prior commitments made by the Chinese delegation to increase its agricultural imports from the U.S. and to cease its fentanyl exports to the U.S. Though Trump also threatened to make “no deal at all” should significant progress not be made between the countries, he said that the U.S. will continue to participate in trade negotiations with China.
In a rather unexpected twist, the USTR announced that certain List 4 products will not be subject to additional 10% tariffs until December 15th. According to the official notice published on August 13th, the decision to postpone certain List 4 goods was based on health, safety, national security and other factors that came to light during the USTR public comment and hearing process.
The list of items NOT subject to additional tariffs until December 15th, coined List 4B, includes roughly 600 HTS codes covering electronics, chemicals, food, sports equipment, clothes, wooden hangers, as well as many other items. However, there are still many items, including food, beverages, chemicals, glasses, blinds and clothing, that will remain subject to additional List 4 tariffs effective September 1st. Not surprisingly, this list is being referred to as List 4A.
On August 23rd, tensions flared once again, when China announced the imposition of retaliatory tariffs on $75 billion worth of U.S. products, followed by a separate response from President Trump which vowed to increase List 1, 2 and 3 tariffs on $250 billion worth of Chinese goods from 25% to 30% effective October 1st. The U.S. also revealed that the List 4A tariffs, set to take effect on September 1st, and the List 4B tariffs, which would be effective on December 15th, would be increased from 10% to 15%. At the time of the announcement, the USTR advised importers that the rate increases WOULD NOT affect any exclusions that have already been granted for List 1, 2 and 3.
On September 11th, President Trump decided to push the planned October 1st tariff increase on List 1, 2 and 3 Chinese products until October 15th, in honor of the People’s Republic of China’s 70th anniversary celebration. Trump’s decision to postpone (yet again) matched a similar conciliatory move made by Chinese officials the day prior, which granted a one-year exemption from Chinese tariffs for 16 U.S. products. Trump later postponed the additional rate increase just days before October 15th. According to reports, the delay was a result of China’s progress in addressing U.S. concerns over intellectual property, in addition to their willingness to purchase an additional $40 to $50 billion worth of American commodities.
Amid shifting tensions between U.S. and Chinese officials, the USTR has continued to advise, evaluate and process List 1, List 2 and List 3 importer exclusion filing requests. The USTR plans to implement a List 4 exclusion process in the near term, though no additional information has yet been provided.More information on the HTS subheadings excluded thus far is provided below in the Section 301 Reference Chart – U.S. Tariffs.
PLEASE NOTE: The USTR created a site designed to help importers navigate the Section 301 tariff process, including an HTS search tool, along with other helpful features.
Section 301 Reference Chart – U.S. Tariffs (Importers)
Here’s a quick snapshot of the details and important dates surrounding all of the U.S. tariffs:
Additional Tariff Rate
|Fourth Round||Approximately 3805 HTSUS subheadings||10%||Potential Rate Changes|
Yes, China has responded – with some tariffs of its own!
China’s response to all rounds of 301 tariffs imposed by the U.S. was swift, with President Xi Jinping approving tit-for-tat retaliatory tariffs. China’s response appears to target the populations they consider to be the Trump administration’s core supporters – U.S. farmers, ranchers and industrial workers.
Let’s take a closer look at the retaliatory tariffs and their targets:
List One Retaliation:
China imposed 25% tariffs on 545 U.S. products – totaling $34 billion. These tariffs went into effect on July 6, 2018 and specifically targeted soybeans, automobiles and various chemicals. A final list of all products affected by the list one retaliation can be found here.
List Two Retaliation:
In the wake of the United States’ announcement of List Two, China also implemented 25% tariffs on 333 goods – worth $16 billion. Tariffs went into effect on August 23, 2018; this time the focus was on coal, copper scrap, fuel, buses and medical equipment. A final list of all products affected by the list two retaliation can be found here.
List Three Retaliation:
In response to List Three, China issued tariffs of 5-10% on an additional 5,207 products, totaling $60 billion worth of goods. These tariffs went into effect on September 24, 2018 and targeted agricultural equipment, machinery, chemicals and textiles.
China paired these tariffs with published government documents that further express their bleak stance on the future of U.S.-China trade.
List Three Increase and List Four Retaliation:
China announced a new batch of retaliatory tariffs on 5,140 U.S. exports, totaling $60 billion, in response to the 15% increase (from 10 to 25%) in tariffs on List 3 products, as well as the proposition of a List 4.
Effective June 1st, 2019, an additional 25% tariff on 2,493 items, 20% tariff on 1,078 items, 10% tariff on 974 items will commence, as well as the continuation of a 5% tariff on 595 items.
Following President Trump’s announcement of an additional List 4A and 4B duties, China countered with plans to levy additional tariffs, ranging from 5% to 10%, on $75 billion of U.S. soybeans, automobiles and oil effective September 1st and December 15th.
Section 301 Reference Chart – Chinese Tariffs (Exporters)
Here’s a quick snapshot of the details and important dates surrounding the Chinese retaliatory measures:
Additional Tariff Rate
545 products – soybeans, automobiles, various chemicals
|Second Round||333 products – coal, fuel, buses, medical equipment||
5,207 products – agricultural equipment, machinery, and textiles
|5% – 10%||Final||
|Fourth Round||5,140 products – agricultural||5% – 25%||Final|
Carrier Response to Section 301
With the peak summer season heating up, the OCEAN Alliance, including CMA (and APL), COSCO (and OOCL) and Evergreen, announced plans to remove approximately 35,000 TEUs from 3 voided sailings in its Trans-Pacific trade lane this July.
The newest wave of cancellations follows nearly 25,000 TEUs of voided sailings in June, 10 sailings from March to April, on top of the 22 West Coast bound services and 13 East Coast bound services initially removed in February and early March in response to struggles with balancing supply and demand, bringing ocean transit reliability to a record low of 40%.
The decision to void sailings comes amid declining demand due to the low volume of Chinese imports resulting from Section 301 cargo front-loading, as well as the decrease in Eastbound Trans-Pacific spot rates from Asia to the West Coast.
According to Alphaliner, there will likely be additional void sailings announced in the coming weeks, as well as in the 4th quarter, as carriers remove ships from service ahead of the IMO’s January 1st low sulfur mandate.
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