The two rounds of Section 301 tariffs, implemented July 6 and Aug. 23, account for less than 10 percent of the shipment volume FedEx does in the “China-U.S. lane bidirectionally,” and that volume represents about 2 percent of total revenue for the “whole enterprise,” said Raj Subramaniam, FedEx chief marketing and communications officer, on a Sept. 17 earnings call. New tariffs on the $200 billion worth of imports would raise the impact to a quarter of the commerce FedEx does between China and the U.S., he said. “The uncertainty around the issue and the potential for additional tariffs is affecting the market and we're beginning to see some of the economic activity in China starting to moderate as a result of that,” Subramaniam said about an hour before President Donald Trump announced the third tranche of tariffs would take effect Sept. 24. FedEx hasn’t yet seen “any significant shifts in the customer supply chain” as a result of the tariffs, he said. “However, if the situation continues for any amount of time, we do expect customers to diversify their supply chains and perhaps some of the trade patterns might change.” Subramaniam is confident that “the scale and flexibility of FedEx will enable us to deliver strong results in enterprise despite any uncertainty on trades and tariffs,” he said.
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.
That the Section 301 tariffs on $200 billion worth of Chinese imports take effect Sept. 24 gives potential litigants little time to weigh a court challenge blocking the duties if they are going to act before they become effective (see 1809170051). The extremely quick turnaround time, published in a notice that U.S. Trade Representative Robert Lighthizer released late on Sept. 17, bore out worries that the Trump administration would release its order imposing the tariffs soon after the comments period expired Sept. 6.
China will impose new tariffs on oak wood veneer, non-electrical machines, makeup, copper and natural gas, which are all among the top-volume items in 3,571 U.S. imports that will be subject to 10 percent retaliatory tariffs at 12:01 a.m. on Sept. 24. Another 1,636 tariff lines will be subject to an additional 5 percent tariff, with bleached wood pulp, cow hides, optical media and needles and catheters among the highest-volume goods. Together, the two lists accounted for about $60 billion in imports last year. China's tariffs come in response a newly released list of goods from China to face Section 301 tariffs in the U.S. starting Sept. 24 (see 1809170051).
Importers will have to pay an additional 10 percent on about 5,700 8-digit tariff lines starting Sept. 24, President Donald Trump said on Sept. 17. "If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports," said Trump in the statement.
A finalized list of coming Section 301 tariffs on China will be announced after the stock market closes, President Donald Trump told reporters at the White House on Sept. 17. "It will be a lot of money coming into the coffers of the United States of America," Trump said. "A lot of money coming in, but you’ll be seeing what we’re doing right after close of business today.". The Office of the U.S. Trade Representative proposed the third tranche of tariffs on about $200 billion worth of imports from China in July (see 1807100070).
The Consumer Technology Association “will decide our best course of action if and when the President imposes retaliatory tariffs,” said CTA President Gary Shapiro when asked if the association will sue the Trump administration to block proposed Section 301 tariffs from taking effect. The trade group filed its “objections” to the third tranche of Trade Act Section 301 tariffs on Chinese imports in Sept. 6 comments that also questioned the duties’ legality (see 1809070025).
The Miscellaneous Tariff Bill became law Sept. 13 with the signature of the president, the White House announced on Sept. 13. The tariff rate reductions on nearly 1,700 items will take effect Oct. 13 -- 30 days after enactment. The reductions, which will last through the end of 2020, only affect the Most Favored Nation rate and not Section 301 tariffs. The International Trade Commission developed the list, and most of the items are intermediate goods, but some are consumer goods that are not produced in the U.S.
The Trump administration should pursue a “plurilateral agreement among the world’s largest economies” to curb China’s allegedly unfair trade practices, commented IBM in docket USTR-2018-0026 in opposition to the third tranche of Section 301 tariffs on Chinese imports. IBM thinks that a global agreement with China’s “largest trade and investment partners” could help “establish broad new norms,” it said.
CBP created Harmonized System Update (HSU) 1813 on Aug. 21, containing 22 Automated Broker Interface records and five harmonized tariff records, it said in a CSMS message. The update includes changes related to the Section 301 tariffs on goods from China that took effect Aug. 23 (see 1808160049), CBP said. CBP intended to issue the message previously and was "unaware this message did not post successfully initially," it said. Modifications were also made in support of partner government agency message set functionality, it said.
The Information Technology Industry Council, like the Consumer Technology Association (see 1809070025), questions whether President Donald Trump's proposed third tranche of 25 percent Section 301 tariffs on $200 billion worth of Chinese imports "is legal" under the 1974 Trade Act, spokesman Jose Castaneda said in a Sept. 10 email. ITI has made no “final decision” whether to pursue “litigation” against the administration to block the tariffs from taking effect, he said.