U.S. importers made smartphone shipments to the U.S. a nearly $60 billion business in 2021, with the highest yearly dollar volume since 2007, when handsets began to be tracked in Harmonized Tariff Schedule subheading 8517.12.00, according to Census Bureau data recently accessed through the International Trade Commission’s DataWeb portal. Inflationary trends from supply chain woes and semiconductor shortages, plus a higher mix of 5G-enabled handsets with higher average value, likely fueled the record-high dollar volume.
Section 301 Tariffs
Section 301 Tariffs are levied under the Trade Act of 1974 which grants the Office of the United States Trade Representative (USTR) authority to investigate and take action to protect U.S. rights from trade agreements and respond to foreign trade practices. Section 301 of the Trade Act of 1974 provides statutory means allowing the United States to impose sanctions on foreign countries violating U.S. trade agreements or engaging in acts that are “unjustifiable” or “unreasonable” and burdensome to U.S. commerce. Prior to 1995, the U.S. frequently used Section 301 to eliminate trade barriers and pressure other countries to open markets to U.S. goods.
The founding of the World Trade Organization in 1995 created an enforceable dispute settlement mechanism, reducing U.S. use of Section 301. The Trump Administration began using Section 301 in 2018 to unilaterally enforce tariffs on countries and industries it deemed unfair to U.S. industries. The Trump Administration adopted the policy shift to close what it deemed a persistent "trade gap" between the U.S. and foreign governments that it said disadvantaged U.S. firms. Additionally, it pointed to alleged weaknesses in the WTO trade dispute settlement process to justify many of its tariff actions—particularly against China. The administration also cited failures in previous trade agreements to enhance foreign market access for U.S. firms and workers.
The Trump Administration launched a Section 301 investigation into Chinese trade policies in August 2017. Following the investigation, President Trump ordered the USTR to take five tariff actions between 2018 and 2019. Almost three quarters of U.S. imports from China were subject to Section 301 tariffs, which ranged from 15% to 25%. The U.S. and China engaged in negotiations resulting in the “U.S.-China Phase One Trade Agreement”, signed in January 2020.
The Biden Administration took steps in 2021 to eliminate foreign policies subject to Section 301 investigations. The administration has extended and reinstated many of the tariffs enacted during the Trump administration but is conducting a review of all Section 301 actions against China.
Neither importer Cyber Power Systems (USA) Inc. nor the U.S. succeeded in persuading the Court of International Trade that their side was right in a tiff over the country of origin for shipments of uninterruptible power supplies and a surge voltage protector. Judge Leo Gordon, in a Feb. 24 order, denied both parties' motions for judgment, ordering the litigants to pick dates on which to set up a trial.
Sanctions, rather than additional tariffs, are the most likely result of political pressure to not look soft on China, Bank of America analysts Ethan Harris and Aditya Bhave predicted. The two wrote in a Feb. 18 note that it's not surprising that China did not purchase the volume of U.S. exports it promised, but "what's unusual is the lack of follow-through from either side so far, other than empty rhetoric."
The American Apparel and Footwear Association, after the government Consumer Price Index for January showed apparel prices up 5.1% and footwear prices 6.1% higher compared with January 2021, is arguing for an "immediate elimination and refund of punitive Section 301 tariffs on U.S. imports from China." CEO Steve Lamar asked the Biden administration Feb. 10 "to pursue swift and effective policies to immediately alleviate the increasingly overwhelming costs on companies and address the shipping crisis," and to get involved with the port labor negotiations for West Coast ports. That contract expires this summer.
With new data out about exports to China, economist Chad Bown of the Peterson Institute for International Economics says that China only bought 60% of the goods it promised, and about 57% of all it promised, when services are included. In all, China said it would buy $502.4 billion from U.S. sources in 2020 and 2021.
The following lawsuits were filed at the Court of International Trade during the week of Jan. 31-Feb. 6:
International Trade Today is providing readers with the top stories from last week in case they were missed. All articles can be found by searching on the titles or by clicking on the hyperlinked reference number.
Almost half of the Senate's Republicans and a third of its Democrats are asking U.S. Trade Representative Katherine Tai to open an exclusion process for all importers of Chinese goods covered by Section 301 tariffs, and to presumptively exclude any product of which nearly all the imports are coming from China. Lead authors Sen. Rob Portman, R-Ohio, and Sen. Tom Carper, D-Del., say that if importers haven't moved out of China after years of higher tariffs, that "suggests that moving these supply chains out of China is uniquely unlikely, and that our efforts to diversify production locales and reshore manufacturing would be better spent on other products."
The House passed its China package, the America Competes Act, on a nearly party-line vote, with one Democrat dissenting and one Republican voting for it. The America Competes Act and the Senate's U.S. Innovation and Competition Act both propose subsidizing American semiconductor manufacturing and both propose investing in science research to better counter China's play for technological dominance, but the House version spends far more money and includes some priorities that the Senate did not, such as $2 billion annually for climate change foreign assistance and a generous reauthorization of Trade Adjustment Assistance. The vote was 221-210.
The Court of International Trade heard oral argument on Feb. 1 over whether lists 3 and 4A of Section 301 tariffs were properly imposed, marking one of the largest cases in the CIT's history. The hourslong affair saw the judges push back on arguments made by both the Department of Justice and the plaintiffs, with significant attention paid to the procedural elements of the president's decision to impose the retaliatory Section 301 tariffs on billions of dollars worth of Chinese goods. In all, the three-judge panel of Mark Barnett, Claire Kelly and Jennifer Choe-Groves heard from the Department of Justice, counsel for the test case plaintiffs HMTX Industries and Jasco Products, and amici.