The Section 301 and Section 232 Trade Actions: Managing the Impact of New Trade Restrictions
Aug 07 2018
The first half of 2018 has seen the United States place sweeping import tariffs on steel and aluminum products, and on thousands of Chinese products. In response, China, the European Union, Canada and other countries have retaliated with tariffs of their own, focusing on U.S. agricultural and other politically sensitive sectors.
The Trump Administration justifies the tariffs as a necessary weapon to wield in support of broader trade talks between the U.S. and trading partners. But, U.S. consumers pay higher prices for the affected imported products, and U.S. businesses pay more for intermediate goods and inputs, making their end products more costly for U.S. consumers and less competitive in global markets.
The U.S. Chamber of Commerce estimates that $39 billion is needed to make U.S. industries whole as a result of the impact of the new tariffs. The Chamber’s analysis indicates that sectors requiring the most assistance are automotive ($7.6 billion), iron and steel ($4.6 billion), aluminum ($2.4 billion) and chemical ($960 million).
The Trump tariff initiative may serve to protect some U.S. companies challenged by foreign import competition. But, for other U.S. companies who depend upon imported products for customer sales or as input or components for other end products to sell in domestic and foreign markets, the tariffs can mean higher production costs and lost sales, leading to lower revenues, lost jobs, and canceled investment plans.
Understanding the recent tariff initiatives and how they affect your business will be critical to surviving what is at best an uncertain outcome to the current trade initiatives. Companies must also be mindful of options available to them to reduce the impact of the additional trade restrictions.
On April 19, 2017, the Department of Commerce initiated an investigation under Section 232 of the Trade Expansion Act of 1962 to determine the effects on national security of imports of steel. Subsequently, on April 26, 2017, Commerce initiated a companion investigation to determine the effects on the national security of imports of aluminum. Following completion of the investigations, the President imposed import duties for steel mill products (twenty-five (25) percent duties) and aluminum products (ten (10) percent duties) effective March 23, 2018. As of June 1, 2018, all countries except Argentina, Australia, Brazil, and South Korea are subject to the Section 232 duties on steel mill articles, and all countries except Argentina and Australia are subject to the Section 232 duties on aluminum articles.
Although talks between the U.S. and the European Union (EU) to address the Section 232 tariffs and EU retaliatory trade actions have been announced, the timeline for these negotiations is uncertain, as is the outcome. In the meantime, both the U.S. and EU have agreed not to place additional tariffs while negotiations are ongoing.
In an investigation launched in August 2017 using Section 301 of the Trade Act of 1974, the U.S. identified several unfair Chinese trade practices injuring U.S. business, including the country's rules requiring foreign companies to hand over sensitive technology as a condition of doing business in China, state-funded acquisition of U.S. companies' intellectual property to grow its own domestic industries, and state-backed hacking of U.S. firms to obtain sensitive business information. As a result, on July 6, 2018, the U.S. imposed a twenty-five (25) percent tariff on $34 billion worth of Chinese goods.
China matched the U.S. action with retaliatory tariffs on U.S. goods, prompting the Trump Administration to propose a second list of $16 billion worth of Chinese goods potentially subject to a twenty-five (25) percent tariff. Not yet done, the Administration then announced an additional $200 billion worth of Chinese products potentially subject to a ten (10) percent duty. Reportedly, because the initial tariff actions have not moved the Chinese to change their trade policies, the White House directed the Office of the U.S. Trade Representative (USTR) to consider increasing the tariff on the third list of $200 billion worth of Chinese imports from the original ten (10) percent to twenty-five (25) percent. In addition, the President has threatened to expand the list of affected Chinese imports to $500 billion worth of products.
Dialogue between the Chinese and Americans is ongoing, but no formal round of negotiations has been scheduled. Officials decline to say when USTR might make a decision on excluding any products from the list of $16 billion in Chinese goods that is slated to be hit with a 25 percent additional duty, or for the timing of decisions on the third list of $200 billion worth of products.
Actions are available to companies affected by the new tariffs to manage and perhaps blunt their impact.