In One Sentence

• After repeated delays, the Office of the U.S. Trade Representative finalized its actions on the statutorily required Section 301 China tariff review on September 13, 2024. 
• USTR confirmed that it will enforce a duty of 100% on Chinese EVs, 50% on solar cells, 25% on steel, aluminum, EV batteries and key minerals, and 100% on syringes and needles, which would become effective on September 27, 2024.
• In addition, USTR announced a 50% duty on Chinese semiconductors, including on silicon wafers and polysilicon, and a 50% tariff on medical gloves, which would take effect in 2025.
• Starting in 2026, the USTR plans to impose tariffs of 50% on face masks, 25% on non-EV batteries, 25% on natural graphite, and 25% on permanent magnets.
• Moreover, USTR decided to adopt 14 temporary tariff exclusions on Chinese manufacturing equipment for solar cells and wafers, while declining to adopt five temporary exclusions on solar module manufacturing equipment.
• USTR also decided to expand the scope of the exclusion process to include five additional categories of machinery imports from China, out of 312 proposed additions.
• The Biden administration announced plans to no longer grant de minimis exemptions to imports of items from China that are subject to Section 232, Section 301 or Section 201 tariffs, seeking to close a “loophole” that it says benefits “China-founded e-commerce platforms.”
• Meanwhile, on September 9, during election campaigning in Wisconsin, former U.S. president Donald Trump claimed if other countries intend to reduce the use of dollars, he will put a 100% tariff on these countries’ exported goods to the United States.

Mark the Essentials

• In addition to finishing up its repeatedly extended review of Section 301 tariffs on China’s exports to the U.S., the September 13 announcement implements the Biden administration’s May 14 Memorandum on Actions related to the statutory 4-year review of the Section 301 investigation of China’s technology transfer, intellectual policy and innovation-related policies and practices. Shortly after USTR’s announcement, China’s Commerce Ministry criticized the tariffs and labeled the U.S as a “disrupter of global industrial and supply chains” in its second annual report on the United States’ compliance with the WTO. 
• Among others, USTR’s action seals the Biden administration’s decision to impose a 100% tariff on Chinese electric vehicles (EVs). The Biden administration and other U.S. policymakers have argued that the tariffs are intended to “protect American workers and businesses from China’s unfair trade practices” arising from the latter’s subsidization of its EV sector, resulting in low and highly competitive EV price offerings. Others, though, attribute the significant price gap between U.S. and Chinese EVs to the comprehensiveness of the EV supply chain in China. 
• U.S. policymakers have long expressed concerns over China’s “dominance” in the solar industry, especially in the production of solar cells and modules. Nevertheless, downstream industrial users have resisted the imposition of tariffs or restrictions on Chinese solar imports. In 2022, for example, following an anti-circumvention investigation on Chinese solar panels by the U.S. Department of Commerce, the Biden administration nevertheless provided a 24-month tariff moratorium on solar panels shipped from Southeast Asia to avoid market and industry disruptions.
• Under existing customs practices, import shipments valued at US$800 or below are exempt from U.S. tariffs. According to the Biden administration, “some e-commerce platforms and other foreign sellers” have utilized the de minimis “loophole” to “circumvent” U.S. tariffs, including Section 301 tariffs on Chinese imports. As such, the administration has now instructed agencies to issue new rules to “improve accountability and enforcement in de minimis shipments,” with a particular focus on e-commerce platforms such as Temu and Shein. The White House has cautioned though that “comprehensive legislative reforms on de minimis” is required to fully address the issue.

Keeping an Eye On…

• Almost exactly four years to the day that a dispute settlement panel in Geneva had ruled that the Trump administration’s Section 301 China tariffs were inconsistent with the United States’ WTO obligations under the GATT, the Biden administration has formally decided to not only double-down on the tariffs but also selectively expand them. The first tranche of tariff increases will drop as early as September 27. For those who argue that the president does not enjoy the authority to ratchet tariffs upwards in a big way (Congress constitutionally, after all, gets to “regulate commerce with foreign nations”), well, they should think again. On the basis of delegated retaliatory tariff authority under Section 307 of the Trade Act, the president has just quadrupled an already-unlawful tariff on electric vehicles to 100%, without even so much as a preliminary investigation of China’s practices in the sector. Be that as it may, USTR’s September 13 decision on the tariffs is a useful moment to take stock of the self-defeating nature of the Section 301 tariffs. Granted that the tariffs have reduced the bilateral trade deficit by over $100 billion, which is not exactly chump change. And the argument for their selective expansion—which is, to protect the recent industrial policy interventions by way of the CHIPS Act and the Inflation Reduction Act—holds a certain logic. Nevertheless, ample data and analysis is now available that confirm that the tariffs have become a massive exercise in trade self-marginalization on the part of the United States. And that they are a ‘gift’ to Beijing from a political standpoint. First, even as China’s share of U.S. imports have slipped, China’s overall market share of global goods exports has increased over these past five years, meaning that the country has become more important to the rest of the global economy. In a related vein, EU-China trade ties have intensified too during this period, particularly in medium-skill and technology-intensive goods. This intensification is set to deepen over the next decade, notwithstanding the various subsidization-linked trade measures proposed by Brussels that target Chinese producers. Second, while there has been a relocation and diversification of production outside China to escape the Section 301 tariffs, this diversification is limited and shallow. Nearshoring to Mexico and friendshoring to Vietnam has dominated this trend. Yet even here, the evidence suggests that final assembly of items in these countries continues to depend on China-sourced intermediate inputs. This ‘lengthening’ of supply chains runs counterintuitive to the logic of supply chain resilience which was the supposed reason—or, rather, the excuse—given to ‘derisk’ dependence on China. Third, much of the foreign direct investment supporting this supply chain diversification has tended to arrive from non-U.S. and non-Western sources. Which, in turn suggests, that it is East Asian and most likely Chinese investors providing the FDI that is driving this trade diversification. So much for ‘decoupling’ from China. And just as Japan. Inc.’s forced relocation of domestic production to East Asia due to American badgering to revalue the yen four decades ago spawned the remarkable region-wide production networks, so also the Section 301 tariffs will come to be seen as a blessing that equipped Chinese firms to internationalize and entrench their world-beating operations globally and obtain valuable ‘learning by doing’ experience along the way. Finally, the Section 301 China tariffs have turbocharged calls for protectionism—rarely ever a good idea—within the U.S. body politic. Like salted peanuts, the more they are dispensed to favored industries, the more they will be, and are being, demanded. The Section 301 tariffs (along the steel and aluminum Section 232 tariffs) have also dislodged the long-held trade policy consensus within the Beltway from its pro-liberalization moorings, with trade policy today shot through with streaks of populism and protectionism. At a time when most major economic players continue to liberalize their trade policy frameworks, albeit at a slower pace, Washington’s tariff play has been a grand exercise in self-deluding marginalization on the global stage. Whatever one’s view may be of the technology policy decoupling that Washington has pursued over the past half-decade, its trade policy counterpart has been an undiluted lose-lose proposition. It is set to continue with no turnaround in sight even on the distant horizon. And in the meantime, China will not just continue to intensify its trade linkages with much of the Global South and (the rest of the) North but also rack up wins vis-à-vis Washington at the WTO dispute settlement panel stage along the way.

Expanded Reading

• Ursula von der Leyen gives top economic jobs to interventionist EU countries, Financial Times, September 17, 2024
• USTR Finalizes Action on New and Increased Section 301 Tariffs, Holland & Knights, September 16, 2024
• Chinese EVs still cheaper than Teslas in U.S. after tariff hike, Nikkei Asia, September 15, 2024
• China’s Shein and Temu face end to tariff-free imports into U.S, Nikkei Asia, September 14, 2024
• New Tariff Rules Could Reverse a ‘Paradigm Shift’ in Retail, New York Times, September 14, 2024
• FACT SHEET: Biden-⁠Harris Administration Announces New Actions to Protect American Consumers, Workers, and Businesses by Cracking Down on De Minimis Shipments with Unsafe, Unfairly Traded Products, The White House, September 13, 2024
• Biden Administration Ratchets Up Tariffs on Chinese Goods, New York Times, September 13, 2024
• US locks in steep China tariff hikes, some industries warn of disruptions, Reuters, September 13, 2024
• How China and a tariffs row cast a shadow over booming US solar power, The Guardian, September 10, 2024
• Donald Trump escalates tariff threat in vow to protect dollar, Financial Times, September 9, 2024