Following through on President Trump’s March 22 announcement, the Trump Administration moved to impose $50B in tariffs on a wide range of Chinese imports under Section 301 of the Trade Act of 1974. The proposed list will target 1300 companies from electronics, aerospace and machinery to a number of obscure industrial products. Trump’s action continues his campaign to retaliate against China for intellectual property theft as well as his longstanding mission to reduce the U.S.-China trade deficit.
The snap Chinese response, catching many off-guard, took place less than 12 hours after the Trump Administration’s announcement and was more swift than their reaction to the $3B in steel and aluminum tariffs announced this past weekend; and their latest salvo of $50 B in U.S. products is squarely focused in the heart of states (and counties) Trump won in 2016.
The 1300 manufacturing sector products on the U.S. list will be slapped with a 25% tariff that officials at the USTR “compiled by selecting products from the ranked list with lowest consumer impact,” by using algorithms and are designed to minimize the impact to the U.S. economy.
China’s counter strike imposes a 25% tariff on approximately 106 U.S. products from aircraft and autos to soybeans and chemicals and is equal in scale to the $50 billion in U.S. imports and is contingent upon the timeline of the imposition of the U.S. tariffs on Chinese goods.
The Trump Treasury Department is also in the midst of imposing restrictions on China’s ability to invest in the U.S. – focusing on technologies where Treasury says China is looking to gain an advantage. And we’ve mentioned one additional action at the WTO with the USTR bringing forth a case targeting unfair licensing practices by the Chinese.
As mentioned in prior notes, it’s worth pointing out that the steel and aluminum tariffs using Section 232 of the Trade Expansion Act of 1962 levied on March 1 were executed amidst West Wing chaos with Trump’s inner circle, as well as officials at the Department of Commerce, caught off-guard by Trump’s announcement setting off a mad scramble to complete the measure. There was widespread opposition to the steel and aluminum tariffs from Republicans on Capitol Hill with a number of Senators threatening to nullify the tariffs through legislation. As expected, additional exemptions (temporary until May 1) to the Section 232 tariffs were announced by the Administration a month ago.
On the other hand, the USTR investigation under Section 301 into China’s forced technology transfer and intellectual property theft (find the report here) was more thorough and was initiated in August 2017 with the cooperation and coordination of other agencies, and explored whether acts, policies, and practices of the Government of China related to technology transfer, IP rights, innovation, or technology development are unreasonable or discriminatory and burden or restrict U.S. commerce.
To date, opposition to Section 301 has been much more muted and some support can be found in the Capitol for the latest round of action focused squarely on China, but there is growing concern - particularly by lawmakers in agricultural states - that retaliation against U.S. exports could be calamitous for U.S. farmers. Congress returns from a two-week recess next Monday and we anticipate a more vocal response once lawmakers digest the propsed U.S. and Chines tariffs.
Treasury Secretary Steve Mnuchin said that back-channel discussions between the U.S. and China will continue, but the tariffs will not be put on hold “unless we have an acceptable agreement that the President signs off on.” Trump has repeatedly stated that his goal was to alter Chinese behavior and reduce their $375B trade surplus with the U.S. by $100B and China has signaled changes are forthcoming. Whether those changes will mollify Trump before the latest round of tariffs will take effect shortly after the 30-day comment period ends in mid-May is anyone’s guess.
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