July 6th will mark the entry into force of Section 301 tariffs against China. Section 301 of the Trade Act of 1974 provides the president with the authority to respond to unfair, unreasonable, or discriminatory trade practices and gives the Office of the U.S. Trade Representative (USTR) the ability to take action to compel another country to eliminate the offending act, policy, or practice, with the president’s approval. Surprising no one, this president concluded that the United States is being taken advantage of in the global trade regime. What followed was a decision to impose tariffs on China and most of our other largest trading partners.  

The Section 232 Tariffs

Section 232 of the Trade Expansion Act of 1962, as amended, gives the president the authority to conduct investigations to “determine the effects on the national security of imports.” As of June 1st, the United States levied a 25% additional duty on U.S. importers of Steel and Aluminum Steel for goods originating from all countries of origin except South Korea, Brazil, and Argentina (agreed to quotas); and Australia (exempted). In addition, as of June 1st, the United States levied a 10% additional duty on U.S. importers of Aluminum for goods originating from all countries of origin except Argentina (agreed to quota); and Australia (exempted).

The administration has announced that a Section 232 investigation into the importation of Autos and Automotive Parts. The effective dates are yet to be determined.

The 301 Tariff List, First Half

A list of 818 Chinese products will be subject to an additional  25% duty as of July 6th. In case you’re unaware, the additional duty will not be paid by China but  the U.S. importer. The list covers the following chapters of the HTSUS:

Chapter 28  Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes

Chapter 40  Rubber and articles thereof

Chapter 84  Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

Chapter 85  Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

Chapter 86  Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signalling equipment of all kinds

Chapter 87  Vehicles other than railway or tramway rolling stock, and parts and accessories thereof

Chapter 88  Aircraft, spacecraft, and parts thereof

Chapter 89  Ships, boats and floating structures

Chapter 90  Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof

The estimate is that the value of these goods is $34 billion, hence an additional 25% duty represents a nice addition to the federal treasury. You see, the first quarterly data on tax revenue since the passage of the Tax Cuts and Jobs Act of 2017 is now available. The data shows a -35% differential in corporate tax income but a +16% for production and import tax income. The additional duties levied on U.S. importers ought to soon fully account for the drop-off in corporate tax collection.

The 301 Tariff List, Second Half

Subject to the outcome of a public notice and comment period closing on July 23rd, a public hearing on July 24th and, finally, the post-hearing rebuttal comments due July 31st ,USTR will issue a final determination on the products that will be subject to additional duties. The proposed list contains an additional 284 Chinese products roughly equivalent to $16 billion in imports will also be subject to additional 25% duties. The proposed list covers the following chapters of the HTSUS::

Chapter 27 Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes

Chapter 34 Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modeling pastes, "dental waxes" and dental preparations with a basis of plaster

Chapter 38 Miscellaneous chemical products

Chapter 39  Plastics and articles thereof

Chapter 70  Glass and glassware

Chapter 73  Articles of iron or steel

Chapter 76  Aluminum and articles thereof

As well as tariff lines not covered in the first Tariff List that appear in the following chapters:

Chapter 85  Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

Chapter 86  Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signalling equipment of all kinds

Chapter 87  Vehicles other than railway or tramway rolling stock, and parts and accessories thereof

Chapter 88  Aircraft, spacecraft, and parts thereof

Chapter 89  Ships, boats and floating structures

Chapter 90  Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof

The Counter

A time-honored tactic used in soccer is the counter attack. The counter attack is a play, typically a fast break, occurring in transition by the team that was on the defensive. A proper example is Belgium’s game winning counter in stoppage time against Japan.

In global trade, the equivalent of a counter are retaliatory tariffs. Unfortunately for the United States, we’ll not be contending with one but many opponents. For example:

• Effective July 1st, Canada imposed counter tariffs  of 10-25% against U.S.-origin steel, aluminum, and other products of an approximate value of 16.6 billion Canadian dollars. Effective June 22nd the European Union implemented retaliatory tariffs initially targeting a list of U.S. goods of an approximate value of €2.8 billion. Effective June 5th , Mexico imposed tariffs on, inter alia, U.S.-origin flat steel (hot and cold foil, including coated and various tubes), lamps, pork legs and shoulders, sausages and food preparations, apples, grapes, blueberries, various cheeses, among others. The amount of duty will be in the range of 7-25%. An exception list will be effective as of July 5th.

• Effective June 21st, India imposed retaliatory tariffs on approximately $10.6 billion worth of U.S.-origin goods. The amount of duty will be in the range of 5-100%. Also effective June 21st, Turkey imposed retaliatory tariffs on approximately $1.78 billion worth of U.S.-origin goods. The status of possible retaliatory tariffs by Japan and Russia is yet to be determined.

China, our largest nation trading partner, begun to levy retaliatory tariffs on U.S.-origin goods as of April 3rd in response to our Section 232 Tariffs.  Specifically, an additional tariff in the range of 15-25% was levied on 128 goods of an approximate value of $3 billion. The goods include, inter alia, fresh fruits, dried fruits and nut products, wines, modified ethanol, American ginseng, and seamless steel pipes, pork and pork byproducts, and recycled aluminum.

Effective July 6th and in response to our Section 301 Tariffs, China will levy a 25% additional duty on approximately $34 billion of U.S.-origin goods. The goods will include, inter alia, soybeans, electric vehicles, a range of hybrid electric vehicles, a variety of seafood, sorghum, and cotton. China has also announced that additional duties on another $16 billion worth of U.S.-origin goods will follow soon. These duties will target chemicals, medical equipment and energy products.

The Own Goal

The NCAA, Official Soccer Statistics Rules, Section 4, Article 1 (2) states “Although an "own goal" is scored by the defensive team, it still counts against the team's goalkeeper as a goal allowed.” The own goal typically occurs in situations where a defender attempts to clear an offensive strike and, through miscalculation or misfortune, directs the ball into his own goal resulting in a point for the opposing team. A proper example is Russia’s unfortunate own goal against Spain.

This administration imposed tariffs on our largest trading partners, ostensibly, to bring back manufacturing jobs to the United States. In fact, this sort of aggressive defending may have precisely the opposite effect. According to estimates by the Tax Foundation, if the tariffs are fully enacted by the United States and those of our trading partners, employment would fall by 341,459.

According to the Federal Reserve Bank of St. Louis, there were 312,800 jobs supported by the exported goods on China’s retaliatory tariff list. Specifically, the agriculture sector employed 126,200 workers contributing to the production of these exported goods, the manufacturing sector employed 91,200 such workers, while the service sector employed 86,700 affected employees.

It remains to be seen what this president’s actions will accomplish in terms of increased employment in the United States. We know that in 2002, George W. Bush placed tariffs on imports of certain steel products in an attempt to protect the domestic U.S. steel industry from foreign dumping. The unintended consequences of said tariffs led to a loss of nearly 200,000 jobs in the steel-consuming sector.