This is an important week for the ongoing US Section 301 case against China. The public comment period closed last week—attracting a record number of submissions--2857 and counting. This week, the US Trade Representative’s (USTR) office will be holding public hearings on the matter. By the end of next week, the United States will be in a position to impose sanctions against China at any time.
Such sanctions may be delayed, of course, as a result of discussions in Washington with China’s top negotiator, Liu He.
In the meantime, it is worthwhile to examine the type of comments that arrived under the Section 301 request to see what level of support seems forthcoming for a hard reaction, represented by an opening salvo of 25% tariff increases on $50 billion in goods.
To recap, in August 2017, President Donald Trump ordered the US Trade Representative (USTR) to initiate an investigation under Section 301 of the Trade Act of 1974 into China’s practices related to technology transfers, intellectual property practices and innovation. The investigation concluded that China has forced or pressurized US companies to transfer their technology to Chinese companies through foreign ownership restrictions and discriminatory licensing processes. The report found that China manipulated investments and acquisitions to generate large-scale technology transfer.
Following the investigation, President Trump signed a memorandum in March 2018 that proposed an addition of 25 per cent ad valorem duties on 1,333 Chinese imports. The imposition of the tariffs is meant to rebalance their trading relations to achieve “more fair and reciprocal trade.”
A survey of the 2,762 comments sent to the USTR (last accessed on 15 May 2018) reveals minimal support for the tariff plan.
The comments show that the plan to hike tariffs against Chinese products are largely backed—not surprisingly—by producers who would like their industries to benefit from greater domestic protection. Industries in favour of subjecting Chinese-made imports to tariff hikes include downstream manufacturers reliant on steel and other metal inputs inputs, like refrigerator, steel construction and safe industries. These industries often cite substandard quality of Chinese imports as the reason to impose tariffs on those Chinese-made products, albeit with little relevance to technology transfer or intellectual property.
In contrast, there was substantial opposition expressed from a diversity of US industries about the imposition of additional tariffs on Chinese imports. Industries that are against the tariffs range from agriculture, construction, and consumer technology to medical devices.
Numerous companies are worried that the proposed tariffs will undermine their competitiveness in the global economy. They import Chinese-made components to fulfil their manufacturing needs in the first place because domestically produced components are not priced as competitively. If the proposed additional tariffs are implemented, these US companies will face greater competition from their foreign competitors who are able to import directly from China at a lower cost.
Additionally, US manufacturers and exporters face the problem of substitutability of Chinese-imported components. The 157 members of the Consumer Technology Association voiced out the difficulty in switching the sources of their components. Besides finding alternative sources, manufacturers need to adjust their design and manufacturing processes to suit the alternative options. The adjustment process would undoubtedly have a detrimental and immediate impacts on manufacturers affected by the new tariffs.
Besides consumer technology producers, 596 individuals are apprehensive that “American consumers can expect to pay up to $100 more on TVs from China” as a consequence of the proposed tariffs. Hence, both producers and consumers of the consumer technology industry are evidently alarmed that their cost of production and cost of living will increase respectively.
Small-sized companies will also be hit especially hard by the introduction of additional tariffs. These companies tend to rely on importing low-cost components for their products to compete against bigger firms. As smaller firms cannot absorb the increased the cost of production easily, these firms will lose their productivity or pass the costs to their customers.
Another group of manufactures implicated by the additional tariffs are downstream American manufacturers who are reliant on the affected industries. Consequently, the growth and profits of small companies and downstream manufacturers are impeded.
The fear of Chinese retaliation also ranks high amidst the concerns of American producers. After the White House announced plans to slap a 25% tariff on selected Chinese goods, China wasted no time in retaliating with an announcement of plans to impose additional tariffs on 106 US products. The list of products that are set to be subjected to Chinese tariffs features agricultural produce like soybeans, wheat and corn. As China is the second-largest agricultural export destination for the US, it is perhaps unsurprising that the Farm Bureau has been vocal in opposing barriers to trade with China. The Bureau had 428 members write in to argue that with the decline in commodity prices in recent years, access to open markets has become paramount for the sale of their agricultural products.
On a similar note, individuals expressed their concerns about Chinese retaliation. USTR received submissions from 364 individuals who fear that retaliation could lead to a loss of up to 450,000 American jobs. Instead of protectionism, these individuals advocated for tax reform and reduced bureaucracy to boost the American economy. Similar sentiments were echoed by 951 individuals who condemn the tariffs for “[hurting] Americans bottom line” as they predict that US exports would decrease by $33.5 billion dollars.
Besides concerns about the higher costs brought about by the tariffs, there were manufacturers who protested that certain low-tech products were unjustifiably subjected to additional tariffs. For instance, manufacturers in the air-conditioning industry raised the point that air-conditioning components did not involve technology, innovation and intellectual property.
As for producers of high-tech products, like optical scanners, they maintained that their intellectual property was not compromised by their manufacturing activities in China. Their intellectual property is secured because it is owned in the United States. Furthermore, some of these firms directly manage the manufacturing plants in China, thereby minimizing theft of their intellectual property.
In short, majority of the on-the-ground voices reflected the attitude that tariffs will ultimately be futile in targeting the USTR’s accusation of China’s “unreasonable, unjustifiable and discriminatory” trading policies. Given that the only visible impact of the proposed tariffs is Chinese retaliation thus far, these measures are perceived to be counterproductive for the American economy.
***This Talking Trade blog was written by Joyce Li, our newest Asian Trade Centre intern from Yale-NUS College in Singapore***