What You Need To Know

• The United States government is planning to expand tariffs on imports from China, including semiconductors, solar panels, batteries, electric vehicles, steel and aluminum products, and critical minerals.
• Regulators have invited stakeholders to comment on the plan and will soon issue a timeline, full list of covered products, and a new exclusion process for industrial machinery.
• Companies can evaluate their current and prospective supply and contract manufacturing relationships with China to consider options for diversification and other tariff-mitigation strategies.
• Companies should continue to consider government funding, tax credits, and other incentives for sourcing and producing covered items in the U.S.

On May 14, 2024, the Office of the United States Trade Representative (USTR) announced expansions to tariffs under § 301 of the Trade Act of 1974 (§ 301) on imports from China, including tariff increases on currently covered products and new tariffs on additional products. For the past six years, USTR has imposed § 301 tariffs against China, following its finding that China engages in unfair trade practices relating to forced technology transfers and China’s failure to protect intellectual property. Semiconductors, solar panels, batteries, electric vehicles, steel and aluminum products, and critical minerals are among the products affected by this action. Meanwhile, all other § 301 tariffs against China (covering a broad range of items) would remain in place, as currently implemented.

According to a press release, USTR will soon issue a Federal Register Notice (FRN) announcing the rulemaking with details on the specific products to be covered by the § 301 tariffs, a new exclusion process for industrial machinery (particularly solar manufacturing items), and a timeline for implementation. The proposed § 301 modifications are not yet in effect, and USTR will invite interested stakeholders to comment on the action through a public process.

§ 301 Modifications and Additions

Targeted products for new or increased § 301 tariffs, including timelines to come into effect, include:

Some of the above products are currently subject to § 301 tariffs, while others are new additions. USTR will publish the full list of products that would be subject to tariffs in its forthcoming FRN. It is not yet clear whether USTR intends to adjust tariffs on all items within the above categories or a subset of items.

New Product Exclusion Process

USTR will also establish a new exclusion process for machinery used in domestic manufacturing, with particular focus on solar manufacturing equipment. USTR has not indicated whether it will extend the current § 301 tariff product exclusions, which are set to expire on May 31, 2024. As with prior extensions, USTR may make an announcement near the expiry date, or it may announce an extension in the forthcoming FRN. If USTR allows the exclusions to expire, covered products would be subject to existing § 301 tariffs (ranging from 7.5% to 25%).

Opportunity for Comment

USTR will provide an opportunity for interested stakeholders to comment on the record about the proposed § 301 expansions and the new exclusion process, as the agency has done for other § 301 rulemakings. This notice-and-comment process affords the public an opportunity to provide views on a proposed rule. The USTR must respond, and the process will help it shape the final § 301 action. The FRN will include a deadline and details on how to submit comments.

Key Takeaways

The proposed § 301 expansion is the latest policy move by the Biden administration to counter China’s industrial policy in sensitive sectors, shift industrial supply chains away from China, and encourage a return of production back to the United States. The administration has paired this move with announcements about continuing investments into domestic production of these critical industry items—particularly green energy and battery products, semiconductors, and electric vehicles.

Companies should evaluate their current and any prospective supply and contract manufacturing relationships with China and consider options for diversification and other tariff mitigation strategies. To the extent companies already have implemented these strategies—such as changes in production to achieve a substantial transformation of products outside China—now would be a good time to confirm the accuracy of those determinations. U.S. Customs and Border Protection likely will be directed to increase resources and attention to enforcement of § 301 tariffs. Companies that may be affected by this § 301 expansion should also consider taking the opportunity to comment on USTR’s rulemaking, on their own or through an industry group. Finally, companies should consider all available options to partake in government funding, tax credits, and other incentives for sourcing and producing these items in the United States. Given the long lead times involved in qualifying new suppliers, companies may want to begin these steps as soon as possible.