Fewer than one in three of the 3.9 million finished TV sets the U.S. imported from all countries in September originated in China, according to Census Bureau statistics released Nov. 7 through the International Trade Commission’s DataWeb tool. That nearly two-thirds of TV unit shipments in the month were sourced from Mexico showed the unmistakable measures U.S. importers took to eliminate exposure to the 15 percent List 4A Section 301 tariffs that took effect Sept. 1 on finished sets from China.
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.
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Fitbit filed one request from the 15 percent Section 301 List 4A tariffs for its core fitness trackers and smartwatches, saying it deserves credit for shifting production away from China at the U.S. Trade Representative’s public docket. Fitbit “began to adjust its operations" almost immediately after the Trump administration proposed tariffs on smartwatches and fitness trackers sourced from China, the company said. It "anticipates being able to make substantial additional changes to its supply chain in the foreseeable future," it said. Fitbit will shift production to "outside China" starting in January for “effectively all of its trackers and smartwatches” to escape tariff exposure, it said last month (see 1910090053).
Apple Can’t Find Sourcing Outside China, It Says in Each of Its 11 List 4A Tariff Exclusion Requests
Apple and SVS Sound were among the first tech companies to seek product exclusions from the 15 percent Section 301 List 4A tariffs when the Office of the U.S. Trade Representative began accepting exemption requests at noon on Oct. 31. Apple filed 11 requests, while Specialty Technologies, which does business as SVS, filed two applications, one each for the finished speakers and subwoofers it sources from China.
The International Trade Commission issued Revision 16 to the Harmonized Tariff Schedule. Changes in the new edition that take effect Nov. 1 include the restoration of eligibility of many Ukrainian goods for the Generalized System of Preferences, as well as implementation of the results of the Office of the U.S. Trade Representative’s 2019 GSP product review, which also requires minor changes to tariff subheadings for certain plywood. A new set of exclusions from Section 301 tariffs on products from China are also added to the tariff schedule.
Apple CEO Tim Cook downplayed the impact of a potential hit from tariffs slated for Dec. 15 on smartphones and other devices during the company’s fiscal Q4 earnings call on Oct. 30 The company was already paying some tariffs prior to September and after Sept. 15 when List 4A Section 301 tariffs took effect. Cook’s view of potential December tariffs is “very positive in terms of how things are going,” he said, saying Apple’s guidance reflects that optimism. The tone of trade talks “has changed significantly, and I have long thought that it was in both countries’ best interests to get to an agreement that maybe initially doesn't solve everything but solves some things that each party may want,” he said: “I'm hopeful that that's where we're headed.”
Timing of List 4B Section 301 tariffs, due to take effect Dec. 15 on smartphones, laptops, tablets and other goods, “could not have been worse" for a consumer tech sector already facing product innovation and demand pressures, Futuresource Consulting blogged. Tech companies need to be agile and resilient as global trade and geopolitical tensions have disrupted technology supply chains that were optimized for long-term cost efficiencies, the researcher said. Companies have to optimize for the disruptions, while using trade uncertainties as an opportunity to create a strategic competitive advantage, it said. Global consumer electronics supply chains are at increased risk of “fracturing” as a result of the U.S.-China trade dispute, said Futuresource, which sees a “short-term fix” as a survival strategy, allowing companies to re-evaluate classification and product routing of key components. Long term, tech firms should consider a “China Plus One” strategy whereby companies active in China augment existing investments with a second facility to diversify risk, cut costs and reduce over-reliance on China. That’s beginning to happen, with some companies announcing they’re transferring production facilities to Vietnam, for example, it said.
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The Office of the U.S. Trade Representative could be even tougher in its review of extension requests for Section 301 tariff exclusions (see 1910280059) than it had been previously, Sidley Austin lawyer Ted Murphy said in a blog post. "Any company that is relying on an approved product exclusion from the first batch of approvals should consider filing comments with the USTR," he said. "We expect that the bar for securing a renewal/extension may well be higher than it was to secure the original approval (i.e., the need to answer the question why you still need the exclusion a year later). Companies relying on other approved product exclusions (those not from the first batch) also should watch this process closely." Although the possibility of exclusions is welcome news, " it also means that the Administration believes that there is at least a meaningful chance that the U.S.-China trade war will carry on and that the Section 301 duties will remain in place well into 2020," he said.
The International Trade Commission has issued Revision 15 to the 2019 Harmonized Tariff Schedule. The only substantive change from the previous HTS edition is the removal of an exemption from solar cells safeguard duties for double-sided solar panels, as announced by the Office of the U.S. Trade Representative in early October (see 1910080054).