What a week for U.S.-China trade relations! On July 6, the United States began imposing 25 percent tariffs on approximately $34 billion worth of Chinese products imported into the United States. China then retaliated by imposing tariffs of its own on $34 billion worth of U.S. exports to China, which the United States called “inappropriate” and prompted the United States to announce plans to impose a 25 percent tariff on another $16 billion of Chinese goods. Next, the Office of the U.S. Trade Representative (USTR) indicated that it did not like China’s reaction and was considering imposing a 10 percent tariff on an additional $200 billion of imports from China.

To recap:

  1. U.S. Customs and Border Protection is now imposing a 25 percent tariff on numerous goods from China;
  2. the USTR is reviewing a supplemental list of Harmonized Tariff Schedule categories to possibly implement a 25 percent tariff on $16 billion worth of Chinese goods – a hearing on these categories will be held July 24-25; and
  3. the process for submitting comments and participating in another public hearing in late August regarding the proposed 10 percent tariff on the $200 billion worth of Chinese goods has just been announced.

If that weren’t enough, in testimony before the House Financial Services Committee on Thursday, July 12, Treasury Secretary Stephen Mnuchin was harshly questioned on the administration’s wisdom and strategy concerning these tariffs. Mnuchin denied that the United States is in a trade war with anyone, despite the views of other key trading partners. China’s Ministry of Commerce, for example, in its strongest statement yet, stated that the United States is “not only launching a trade war with China, but also with the whole world, dragging the world economy into danger” and becoming “an enemy to all.”

As reported in a Trump and Trade Update dated June 8, 2018, the Department of Commerce reached a superseding settlement agreement with Zhongxing Telecommunications Equipment Corporation of Shenzhen, China (ZTE Corporation) and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (ZTE Kangxun) (collectively, ZTE) to remove the Department of Commerce’s Bureau of Industry and Security (BIS) denial order imposed as a result of ZTE’s violations of its March 2017 settlement agreement. BIS has now published the superseding settlement agreement.

Even with this superseding agreement, the denial order on ZTE currently remains in place until the company fulfills all the necessary obligations under the agreement (i.e., replace its entire board of directors and senior leadership team; allow BIS to select compliance officials for monitoring purposes; and pay a $1 billion fine and $400 million for an escrow account that the United States will use for any future violations). On July 2, 2018, however, BIS issued a general authorization for all persons to conduct limited business with ZTE from July 2, 2018 to August 1, 2018, including (1) activities with ZTE necessary to maintain and continue operation of existing networks and equipment, (2) activities to provide service and support to existing ZTE phones, (3) disclosure to ZTE of information regarding security vulnerabilities in items owned or controlled by ZTE and (4) authorization to make and receive payments to or from ZTE for these allowable authorizations. This limited general authorization does not relieve U.S. persons from obtaining any necessary export licenses from BIS but is intended to provide clarification and relief to continue these limited transactions with ZTE while the terms of the settlement agreement are fulfilled.

Regarding the establishment of an escrow account to hold the $400 million in suspended fines, BIS confirmed on July 11, 2018, that it has signed the escrow agreement with ZTE and that a notice will be issued lifting the denial order once the deposit has been made. In its announcement, Commerce reiterated that the denial order “remains in full force and effect” until further notice is provided.

As reported in a prior post, the United States on July 6, 2018 began imposing 25 percent tariffs on approximately $34 billion worth of Chinese products imported into the United States. This was the result of the Office of the U.S. Trade Representative (USTR) undertaking a Section 301 investigation into “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.” Shortly after these tariffs were implemented, China retaliated by imposing tariffs on $34 billion worth of U.S. exports to China. In response, U.S. Trade Representative Robert Lighthizer announced yesterday, July 10, 2018, “As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports.” He added, “For over a year, the Trump Administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition. We have been very clear and detailed regarding the specific changes China should undertake. Unfortunately, China has not changed its behavior – behavior that puts the future of the U.S. economy at risk. Rather than address our legitimate concerns, China has begun to retaliate against U.S. products. There is no justification for such action.”

While the USTR is also in the process of considering a 25 percent tariff on another list of Chinese products worth $16 billion (see Trump and Trade Updates of June 18, 2018 and June 20, 2018), the agency will now begin a third round of review to consider the imposition of the 10 percent tariff on an additional $200 billion worth of imports of China. While a formal notice will be published in the Federal Register in the near future, a pre-publication version of the notice and the proposed list of 6,031 Harmonized Tariff Schedule (HTS) categories is available here. In selecting these proposed HTS categories, USTR staff took account of likely impacts on U.S. consumers and involved the removal of subheadings identified by analysts as likely to cause disruptions to the U.S. economy, as well as tariff lines subject to legal or administrative constraints. The list captures a wide range of products, including food, chemicals, pesticides, minerals, fabrics, construction materials, handbags, luggage, car parts, appliances, machines, televisions, items made from steel and aluminum, batteries, semiconductor assemblies and furniture.

In the notice, the USTR is seeking public comments on its proposed action against China of an additional 10 percent ad valorem duty on products of China with an annual trade value of approximately $200 billion. The USTR’s Section 301 Committee will hold a public hearing on this matter from August 20-23, 2018. Requests to appear and testify at the hearing are due by July 27, 2018. Any desired pre-hearing submission is also due on this date. The deadline for filing any written comments is August 17, 2018; and the deadline for filing any post-hearing rebuttal comments is August 30, 2018. The docket number for this proceeding is USTR-2018-0026. The request to appear at the hearing and all related submissions must be made through the Federal eRulemaking Portal.

China’s Ministry of Commerce has stated that this latest action by the Trump administration is “totally unacceptable” and indicated that it would impose further countermeasures and take all appropriate actions at the World Trade Organization.

On July 6, 2018, the United States implemented retaliatory tariffs of 25 percent on U.S. imports of approximately 800 Chinese products covering an estimated trade value of $34 billion in 2018. Pursuant to its Section 301 investigation into “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,” the Office of the U.S. Trade Representative (USTR) announced its determination to implement the tariffs in a June 20, 2018 Federal Register notice (see Annex B of the notice for the full list of covered HTSUS Codes). The USTR indicated that products under these HTSUS codes “contain products identified as benefitting from China’s industrial policies, including the ‘Made in China 2025’ program.”

With these tariffs in place, the USTR announced on Friday that it is instituting a request process for U.S. parties to seek the exclusion of any product subject to this additional duty. In a notice to be published in the Federal Register, the USTR provided the criteria and detailed guidance for any product exclusion request application. The USTR will consider “whether a product is available from a source outside of China, whether the additional duties would cause severe economic harm to the requestor or other U.S. interests, and whether the particular product is strategically important or related to Chinese industrial programs including ‘Made in China 2025.’” Each request must specifically identify a particular product, and provide supporting data and the rationale for the proposed exclusion. The USTR will not consider product requests using criteria that cannot be made available to the public. Each request will be evaluated on a case-by-case basis.

Parties interested in this Section 301 product exclusion process should be aware of the following dates and features of the process:

  • The public will have 90 days to file a request for a product exclusion; the request period will end October 9, 2018.
  • After a request is posted on regulations.gov under Docket USTR-2018-0025, the public will have 14 days to file responses to the request for product exclusion. After the close of the 14-day response period, interested parties will have an additional seven days to reply to any responses received in support of or opposition to the request.
  • Exclusions will be effective for one year upon the publication of an affirmative exclusion determination in the Federal Register, and will apply retroactively to July 6, 2018.

Once Docket USTR-2018-0025 is activated, the USTR will post a request form in the “Supporting Documents” section. While the form is not required, the USTR strongly recommends that interested parties use the form to submit exclusion requests.

Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. U.S. Customs and Border Protection will apply the tariff exclusions based on the product.

According to President Donald Trump, “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.”

Recent U.S.-China trade activity strongly suggests otherwise: The analysts at TrumpandTrade.com have been working hard to stay abreast of the daily trade salvos between the United States and China and to keep clients updated on the brewing conflict between the two global economic giants. As we reach the halfway point of 2017, we offer our readers a presentation on the U.S.-China trade dispute. Enjoy!

In March 2018, President Trump announced that under Section 232 of the Trade Expansion Act of 1962, the United States would increase tariffs on imports of certain steel products by 25 percent and imports on certain aluminum products by 10 percent on countries worldwide, including imports from the members of the European Union (EU) and Turkey. Although the EU was initially exempted from the imposition of tariffs, these tariffs came into place pursuant to two Presidential Proclamations issued on May 31, 2018. In response, the EU and Turkey announced their intent to impose retaliatory tariff measures.

On June 20, 2018, the EU announced the adoption of regulations putting in place “rebalancing measures” in response to the U.S. Section 232 steel and aluminum tariffs. The EU’s measures came into effect on June 22, 2018 and target a list of products worth $3.2 billion, ranging from industrial goods to consumer items and agricultural products. The EU’s announcement emphasized that (1) its steel and aluminum exports to the United States affected by the U.S. government’s Section 232 measures are worth approximately $7.1 billion, (2) the EU aims to rebalance $3.2 billion worth of exports immediately, and (3) the remaining rebalancing worth $3.8 billion will occur within the next three years or after a positive finding in WTO dispute settlement, whichever occurs first. A full list of U.S. products targeted by EU tariffs can be found here. The EU rebalancing measures will be effective for as long as the U.S. tariffs remain in place, in line with the WTO Safeguards Agreement and EU legislation. EU Commissioner for Trade Cecilia Malmström said, “We did not want to be in this position. However, the unilateral and unjustified decision of the U.S. to impose steel and aluminum tariffs on the EU means that we are left with no other choice.”

On June 21, 2018, Turkey also announced the imposition of retaliatory tariffs on select U.S. products. The announced tariffs follow Turkey’s notification to the WTO on May 21, 2018. U.S. products targeted by Turkish tariffs include coal, paper, walnuts/almonds, tobacco, unprocessed rice, whisky, automobiles, cosmetics, machinery equipment and petrochemical products. In announcing these tariffs, Turkey indicated that it had “repeatedly and clearly communicated that none of America’s stated criteria for imposing tariffs are applicable to Turkey or Turkish exporters” and that the United States has a trade surplus in steel commerce with Turkey. The total amount of targeted U.S. exports to Turkey equals $1.8 billion. A full list of products targeted by Turkey’s tariffs can be found here.

On May 23, 2018, Secretary of Commerce Wilbur Ross announced the initiation of an investigation to determine the effects on the national security of imports of automobiles – including cars, SUVs, vans and light trucks – and automotive parts. See Thompson Hine International Trade Update, dated June 1, 2018. At that time, the Department of Commerce established certain deadlines for submitting comments and for requesting to appear at a public hearing. In a June 21, 2018 Federal Register notice, the department extended the public comment period to June 29, 2018 and the rebuttal period to July 13, 2018. Requests to appear at the hearing are now due June 29, 2018. The hearing dates of July 19 and 20, 2018 remain unchanged.

As part of the Trump administration’s continuing efforts under Section 301 to pressure the People’s Republic of China (PRC) to change its intellectual property and forced technology transfer practices, the Office of the U.S. Trade Representative announced in the Federal Register today (1) which PRC products will be subject to a Section 301 25 percent tariff starting July 6 (Annex B), (2) which additional PRC products will undergo review to determine if they should be subject to the 25 percent tariff (Annex C) and (3) the review process for the additional PRC products.

The product lists in Annexes B and C were released last week. Today’s notice revealed for the first time the review process for the products listed in Annex C. Interested parties have until June 29 to file requests to appear at the July 24 public hearing; requests must include a summary of the expected testimony and may be accompanied by a pre-hearing submission. Parties filing written comments on the U.S. government’s proposed action must submit them by July 23, and post-hearing rebuttal comments are due by July 31. The hearing, which will start at 9:30 a.m. in the U.S. International Trade Commission’s main hearing room, will be limited to issues involving products listed in Annex C only. The notice did not address a product exclusion request process for the products listed in Annex B that will be subject to the 25 percent tariff on July 6, but indicated that a separate notice will be issued concerning that process.

Last Friday, the Trump administration released the list of imported products from the People’s Republic of China (PRC) that will be subject to an additional 25 percent tariff. The retaliatory tariffs are the result of (1) the U.S. government’s Section 301 investigation and report that assessed the PRC government’s intellectual property and technology transfer practices affecting U.S. companies and (2) the PRC government’s reluctance to address these U.S. government concerns so far. Tariffs on these products are scheduled to go into effect July 6.

The Section 301 investigation process, which included a public notice and comment period and hearing, reduced the first set of product lines under consideration from 1,333 U.S. Harmonized Tariff Schedule (HTS) line items to 818, worth approximately $34 billion in U.S. imports from China. In its Friday announcement, the Office of the U.S. Trade Representative also announced that an additional 284 HTS line items worth $16 billion in U.S. imports from China may be subject to the 25 percent tariff and would undergo further scrutiny as part of a public notice and comment process, including a public hearing. The second set of HTS line items includes, among others, products benefiting from PRC industrial policies, including the “Made in China 2025” program, which is an industrial strategy aimed to shift China’s economy into higher value-added manufacturing sectors, such as robotics, aerospace and energy-saving vehicles.

President Donald Trump and Chairman Kim Jong Un issued a joint statement at the conclusion of their summit in Singapore in which both countries committed to further negotiations and future cooperation for the development of new relations between the United States and the Democratic People’s Republic of Korea. In the statement, Trump committed “to provide security guarantees” to North Korea, and Kim reaffirmed “his firm and unwavering commitment to complete denuclearization of the Korean Peninsula.”

In a post-summit press conference, Trump stated that his meeting with Kim “was honest, direct, and productive … Today is the beginning of an arduous process. Our eyes are wide open, but peace is always worth the effort, especially in this case.” He added that all U.S. sanctions toward North Korea will remain in effect until “the nukes are no longer a factor.”