US Firms Risk Getting ‘Wiped Off the Map’ From New Tariffs, Says CTA Trade Strategist

The customs value of smartphones imported from China last year under the Harmonized Tariff Schedule’s 8517.12.00 subheading exceeded $44.8 billion, said Chandler, citing International Trade Commission data. Slightly more than 171 million smartphones entered the U.S. from China in 2018, 11 percent fewer than in 2017, said ITC. Laptops and tablets imported under HTS 8471.30.01 were the next biggest category germane to CTA members, she said, worth $38.7 billion.

The broad assortment of goods imported under HTS 8517.62.00 was worth $23.9 billion in 2018 customs value, said Chandler. The category includes smart speakers, Bluetooth headphones, smartwatches and fitness trackers, she said. Those consumer products were removed from the final version of List 3 when the Office of the U.S. Trade Representative in September created a special new 10-digit subheading (HTS 8517.62.00.90) to contain them, while keeping intact the List 3 tariffs on modems, routers and network gateways in HTS 8517.62.00 (see 1809180020). List 4 now includes that 10-digit consumer-product subheading.

The eight Chinese import categories of biggest impact to CTA members totaled $138 billion in 2018 customs value, roughly 46 percent of the total $300 billion fourth tranche, said Chandler. The five other categories and their 2018 customs value: (1) Drones and e-toys (HTS 9503.00.00, $11.9 billion); (2) Videogame consoles (HTS 9504.50.00, $5.4 billion); (3) PC monitors (HTS 8528.52.00, $4.6 billion); (4) TVs (HTS 8528.72.64, $4.5 billion); and (5) Flash-memory devices (HTS 8523.51.00, $4 billion).

Though CTA did tariff “impact assessments” on TVs and Bluetooth devices that were included and subsequently dropped in previous rounds, the possible fallout in most of the other targeted categories is uncharted territory, said Chandler. The goods newly dutied in List 4 were “not tariffed for a long time, because, by their own account, the administration was seeking to have as little impact on US companies and American consumers as possible,” she said. USTR representatives didn’t comment Tuesday.

Consumer tech companies “have suffered enormously” from tariffs, said Chandler. “These final items on List 4 are maximum impact. Make no question about it, if the administration goes through with these questionably legal tariffs, American companies will be wiped off the map, and consumers will bear the brunt of sharp price hikes.”

Chandler’s reference to the tariffs as “questionably legal” revived for the first time in months CTA rhetoric alleging that the administration’s actions may run afoul of the 1974 Trade Act and possibly vulnerable to a court challenge. CTA argued in comments last summer that USTR lacks authority to impose new retaliatory tariffs without first launching a new Section 301 investigation into China’s allegedly unfair trade practices (see 1809070032).

CTA President Gary Shapiro used identical wording Monday when he blasted the “immense” new round of proposed tariffs as “exponentially worse for our country.” Imposing the new tariffs in “this questionably legal fashion hurts American families, workers and businesses," said Shapiro. CTA is “reviewing all options” on its next possible policy or judicial actions, spokesperson Tyler Suiters told us Tuesday.

On the big hit smartphones stand to take should the tariffs go through, CTIA declined comment for now, but may have something to say “in coming days as we discuss further with members,” emailed a spokesperson. AT&T, T-Mobile and Verizon didn’t respond to emails, nor did Apple or Samsung.

The tariffs already in effect have “hurt consumers, rattled supply chains for U.S. manufacturers and businesses, and created uncertainty across economies,” said Naomi Wilson, Information Technology Industry Council senior policy director-Asia. “Additional tariffs threaten to needlessly escalate this conflict and diminish the prospects for addressing longstanding trade issues with China.”

Though TV imports pale in comparison with volumes of smartphones in the ITC data, TV tariffs would deal a huge blow to Best Buy, which sources all its Insignia-brand private-label sets from China. The retailer didn’t respond to emails. It successfully defeated TV tariffs on List 1 with the help of testimony from Roku, where a spokesperson declined comment Tuesday.

The $4.5 billion worth of finished TVs imported from China last year under HTS 8528.72.64 was a 60 percent increase in terms of customs value from the $3.9 billion shipped to the U.S. in 2017, ITC data showed. With the threat of TV tariffs lifted from List 1 in mid-June, TV unit imports from China increased 28 percent last year to 24.1 million sets from 18.8 million in 2017, said ITC. The average value of TVs from China declined 10 percent last year to $187, it said.

As China gravitated more last year to a country of origin for commoditized TVs, Mexico became more of a haven for relatively upscale sets, said ITC. The U.S. imported just under $8 billion worth of TVs from Mexico, a 22 percent increase from 2017, it said. TV unit imports from Mexico increased 19 percent in 2018 to 17.4 million sets, raising the average value 3 percent from a year earlier to $460, said ITC.

The timing of the comments and hearings schedule for List 4 suggests USTR "would not be in a position" to impose the new tariffs until after President Donald Trump returns from the June 28-29 G20 summit in Osaka, Japan, and his anticipated meeting there with Chinese President Xi Jinping, blogged customs expert Ted Murphy with Baker & McKenzie. Post-hearing rebuttal comments will be due seven days after the hearings end, said USTR's notice.

The List 3 hearings took six days to accommodate the roughly 350 witnesses who asked to appear, and Murphy surmises the List 4 hearings will take at least that long, he said: "That means there is a (slim) chance that, if negotiations continue in the meantime, that a final resolution can be reached at that meeting and these additional duties will never be imposed."

The “issue” with not easily being able to shift supply chains away from China to avoid the tariffs is that “there’s no new China,” National Retail Federation CEO Matthew Shay told CNBC Tuesday. “You just can’t go somewhere else and replace China with Vietnam or Cambodia or Thailand or South or Central America,” he said. “You’re talking about replacing the capacity of a fire hose with the capacity of a garden hose.”