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Columbia Business Monthly

Legal strategies for surviving Trump’s China tariffs

By Jay Rogers

Since July 6, 2018, there have been three waves of tariffs imposed on $250 billion in goods imported to the United States from China. The tariff actions have taken place under Section 301 of the Trade Act of 1974, which gives the president of the United States the right to impose tariffs on countries that are engaging in “acts, policies, or practices that are unreasonable or discriminatory and that burden or restrict U.S. commerce.” 

In recognition of the fact that there may exist valid reasons for not imposing these tariffs with respect to particular products, the Office of the U.S. Trade Representative (USTR) has set up a procedure by which American businesses, trade associations and other stakeholders may apply for an exclusion from tariffs on Chinese products. The deadline for applying for an exclusion for the first tranche of tariffs, however, is Oct. 9, 2018.  While the administration’s intent in imposing these tariffs is clearly to protect American industry, the stark reality for many American companies that import Chinese components in order to produce their own finished goods (and to provide services) is that these tariffs pose a tremendous challenge to their business model.

According to the Wall Street Journal, approximately 300 product line exemptions to Section 301 China tariffs have been granted through Sept. 18, 2018 (the date of the WSJ report).  

Generally speaking, there are three bases upon which the USTR office will consider whether to grant an exclusion:

1.      Whether the imported product is available only from China or is also available in the United States or from a third country.

2.      Whether the imposition of the tariff would cause “severe economic harm to the requestor or other U.S. interests.”

3.      Whether the product is strategically important and/or related to the much-heralded “Made in China 2025” industrial advancement program announced by the Chinese Communist Party or other Chinese industrial programs.

Those requesting an exclusion from 301 Tariffs must submit an exclusion request to the USTR.  A portion of the exclusion request will be available to the public, although the applicant is also permitted to submit a version of the request containing confidential or proprietary information, and this confidential version will not be disclosed to the public.

Significantly, if an exclusion request is granted, it will be granted to a product, not to a specific company. This aspect of the process is significant because even if a particular company has not submitted an exclusion request, if another company (even a competitor) or a trade association has submitted an exclusion request and the request is granted, then all importers using the same harmonized tariff schedule (HTS) code for that product will benefit from the exclusion.

If your business is dependent on the importation of components or other products from China, now is the time to address and/or begin planning for the imposition of tariffs on those products. Over half of all goods imported from China are now subject to tariffs of up to 25 percent, and the Trump administration has now threatened tariffs on essentially all Chinese goods in the near future. This tariff regime will radically transform the supply chain of any American business whose vendors source from China.

Applying for an exclusion from the administration’s China tariffs is only one strategy for dealing with this tariff challenge. Other strategies may include applying for a Foreign Trade Zone Subzone or adjusting the composition and/or HTS codes of your business’ supply chain.

As for the future of global trade generally, while the Trump administration has recently shown signs of easing up on its tariff threats against long-time allies, both the administration and the Chinese Communist Party have expressed views that the current trade dispute with China is more existential in nature.

Accordingly, the administration appears likely to eventually smooth over its trade disagreements with its NAFTA partners, the E.U., Japan, and others -- albeit with lots of noise along the way -- due in no small part to geopolitical calculations that offset purely commercial considerations.  

After all, no matter how angry Trump gets with Canada regarding its duties on American milk, there are no U.S. Navy warships facing off with their Canadian counterparts on the Great Lakes.

The opposite is true where China is concerned. There are U.S. warships facing off with the Chinese Navy in the South China Sea. Hence, the Trump administration views China as not only a commercial threat, but also a geopolitical adversary. This strategic calculus suggests that Trump’s 301 tariffs on the Chinese are not likely to go away any time soon.

Jay Rogers is an international business attorney in the Greenville office of Nelson Mullins Riley & Scarborough LLP.  He may be reached by phone at 864.373.2216 or [email protected].

Rogers will be a presenter at the November 1 European Chamber of Commerce-Carolinas discussion entitled Tariffs and Trade: Strategies for Coping with the New Era of Higher Tariffs.  The program is scheduled from 4-6 p.m. at 124 Verdae Blvd, Suite 503, Greenville. To register, go here