Tariffs & Import Sanctions: Retaliation Against China’s Unfair Trade Acts

At a glance

• The main takeaway: In response to China’s persisting unfair trade practices, President Biden has taken action to increase tariffs on certain Chinese exports to protect American workers and businesses.
• The impact on your business: These tariffs could increase the price of ascertaining materials to manufacture certain products ranging from medical supplies to electric vehicles (EV) and may impact the availability of these items in the US.
• Next steps: Schedule a consultation with Aprio’s Tariffs and Customs specialists to evaluate and mitigate the impact these trade restrictions may have on your company.

Background

In 2017, the Office of the United States Trade Representative (USTR) published Notice 82 FR 40213 that initiated an investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act. In April 2018, USTR released Notice 83 FR 4906 detailing the findings of their investigation, in which China’s trading practices were unfair and burdensome on US commerce and thereby actionable under Section 301.

China’s forced technology transfers and intellectual property theft contributes to as much as 90% of the country’s global production control of critical inputs necessary for American technologies, infrastructure, energy, and healthcare. Following these findings, USTR sanctioned certain products of China while also temporarily removing duties on certain products through product exclusions.

On May 5, 2022, USTR announced the tariffs imposed under the previous notices subject to termination on their four-year anniversary dates. However, only a few months later, USTR published Notice 87 FR 55073 announcing these actions would remain in effect, and, in accordance with the Trade Act, the Trade Representative would conduct a review to determine whether the tariffs achieved the investigation’s objectives, if other actions should be taken to achieve objectives, and measure the overall economic effect of the tariff actions in the US. USTR also opened a docket for the public to submit comments regarding the review, which received approximately 1,500 comments.

Recent news

Following the review, USTR released a comprehensive report detailing their findings on May 14, 2024. Ambassador Tai found that while the Section 301 actions were effective in eliminating some unfair trading practices, many of China’s restrictive acts, policies, and practices persisted. Regarding cyber intrusions and cybertheft, USTR found China had even demonstrated increased aggression since the imposed actions.

In response to this behavior, USTR has recommended new action to add or increase Section 301 ad valorem rates of duty for certain products of China in strategic sectors, as detailed in the newest Federal Register notice. Additionally, USTR has proposed an exclusion process in which interested persons may request temporary exclusions from Section 301 tariffs for certain subheadings regarding particular machinery used in domestic manufacturing. USTR also proposed granting 19 temporary exclusions for certain solar manufacturing equipment.

New sanctions

Following USTR’s proposed actions, President Biden announced an increase in tariffs under Section 301 on $18 billion of imports across multiple sectors from China. These tariffs will impact a range of industries and certain categories will be effective as of this year. The changes taking effect on August 1, 2024:

Product	Original Tariff	New Tariff
Steel & Aluminum	0-7.5%	25%
Electric Vehicles (EV)	25%	100%
Lithium-ion EV Batteries	7.5%	25%
Battery Parts	7.5%	25%
Critical Minerals	0%	25%
Solar Cells	25%	50%
Ship-to-shore Cranes	0%	25%
Medical Syringes & Needles	0%	50%
Personal Protective Equipment (PPE)	0-7.5%	25%

The changes taking effect on January 1, 2025:

Product	Original Tariff	New Tariff
Semiconductors	25%	50%

The changes taking effect on January 1, 2026:

Product	Original Tariff	New Tariff
Lithium-ion Non-EV Batteries	7.5%	25%
Natural Graphite & Permanent Magnets	0%	25%
Rubber Medical & Surgical Gloves	7.5%	25%

Exclusions

USTR proposed to establish a new exclusion process that targets machinery used in domestic manufacturing. Specifically, the proposal included 19 exclusions for solar manufacturing equipment as well as several 10-digit tariff codes in Harmonized Tariff Schedule of the United States (HTSUS) Chapter 84 and 85 that are only eligible for the exclusion.  

Public Comment Process

USTR will open a public docket to invite comments from interested persons regarding the proposed modifications. USTR will accept written comments from May 29 through June 28, 2024 for the following areas:

• the effectiveness of the proposed modification in obtaining the elimination of or in counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation;
• the effects of the proposed modification on the U.S. economy, including consumers;
• the scope of the product description to cover ship-to-shore cranes under subheading 8426.19.00 for transporter cranes, gantry cranes and bridge cranes;
• whether the tariff rates for facemasks, medical gloves, syringes, and needles should be higher than the proposed rates;
• whether additional statistical reporting codes under tariff subheading 6307.90.98 for facemasks should be included;
• whether the tariff subheadings identified for each product and sector adequately cover the products and sectors included in the President’s direction to the Trade Representative;
• whether the exclusion-eligible subheadings should or should not be eligible for consideration in the machinery exclusion process;
• whether the exclusion list omits certain subheadings under Chapters 84 and 84 that cover machinery used in domestic manufacturing and should be included; and
• the scope of each proposed solar manufacturing machinery exclusion, including any suggested amendments to the product description.

Additional Recommended Actions

In addition to implementing the President’s tariffs, USTR’s review also issued recommendations for:

1. Allocating additional funds to United States Customs and Border Protection for greater enforcement of Section 301 actions;
2. Greater collaboration and cooperation between private companies and government authorities to combat state-sponsored technology theft; and
3. Continuing to assess approaches to support diversification of supply chains to enhance supply chain resilience.

Expected impacts

USTR’s review found that the original Section 301 China tariffs decreased wages nationwide, led to a particular decline in manufacturing jobs, and did not force Chinese exporters to absorb any of the cost of tariffs—though it did note that mostly businesses, not consumers, paid the costs. Many companies and trade groups argued that the tariffs should be lifted, at least on certain items.

However, USTR’s report claimed that the movement away from Chinese sources offers multifaceted benefits: making supply chains more resilient, convinc­ing China to change its technology-transfer practices, and, with U.S. firms moving out of China, reducing U.S. exposure to technology theft and forced tech transfer. Other economic analyses, including that of the U.S. International Trade Commission, determined the Section 301 tariffs have already contributed to an overall reduction of U.S. imports of goods from China and an increase in imports from alternate sources, including U.S. allies and partners.

Despite the success of the original tariffs, many issues persist as China becomes more aggressive in pursuing technology and IP from US companies through cyber theft and intrusions. For this reason, USTR insists modifications to Section 301 tariffs are necessary to maintain leverage against China and eliminate unfair trade practices.

However, USTR’s review results did not indicate whether any of the remaining exclusions still in effect will be extended or expire as originally scheduled on May 31^st.

The bottom line

The modifications to Section 301 under USTR’s proposed actions are anticipated to reduce competition between American businesses and unfair trading practices for underpriced, imported goods. President Biden and USTR are hopeful these sanctions actions will strengthen cooperation to address shared concerns about China’s unfair practices and help support a strong domestic industrial base.

To learn more and discover how your business may be impacted by these restrictions, schedule a consultation with our team of Tariffs & Customs advisors. Our team can assist in preparing and filing comments and exclusion requests, as well as other duty mitigation planning for your company

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