A Closer Look At Section 301 Tariffs
As we look back at the previous year in trade policy, it may very well be remembered as the year the trade war shifted from rhetoric to reality. In fact, in many ways, 2018 represents the culmination of President Trump’s trade promises: threatened tariffs were imposed and at least one existing agreement that was at risk was re-negotiated. Yet, despite these activities, we know the uncertainty that reigned in 2018 is very likely to continue in 2019 with more tariff hikes promised and new agreement negotiations just getting started.
In this environment, the promotional products industry faces real risks, and the greatest risk of all are tariffs on imports from China. The American business community has long complained about how the Chinese government treats U.S. businesses seeking to do business in China. These complaints range from conditioning access to the Chinese market on participating in joint ventures with Chinese companies that can often be state-owned enterprises to outright theft of American companies’ intellectual property. Although recent Democratic and Republican administrations engaged in high-level diplomatic talks with their Chinese counterparts, little progress was made in changing how the Chinese sought to achieve prosperity.
In August of 2017, just six months after coming into office, the Trump Administration picked up a rarely used tool to bring China to the table: Section 301 of the Trade Act of 1974. Used only once in the past 18 years, President Trump launched an investigation into unfair Chinese trading practices and concluded eight months later in an exhaustive report that China’s technology strategy unfairly discriminates against U.S. companies.
Section 301 not only allows the president to launch an investigation into other countries’ activities, but to take action, which includes imposing tariffs on their exports to the United States to remedy the harm that has been done. As a result, the president, who had been threatening tariffs on products from China since at least his 2016 campaign, proposed his first round of tariffs on Chinese imports in April 2018, and has been imposing and proposing new tariffs on Chinese goods in the months since. Currently, the United States has additional tariffs in place under Section 301 on imports from China valued at nearly $250 billion—more than half of all Chinese imports.
The most recent set of tariffs took effect in September and includes many products that are sold within the promotional products industry.
Handbags and travel goods. In 2017, the United States imported over $6.25 billion in handbags and travel goods from China, all of which now face additional tariffs. This includes products like briefcases, leather handbags, golf bags, gun cases, gym bags, musical instrument cases, toiletry bags, wallets, purses, tool bags, sports bags, vanity cases, glasses cases, backpacks, insulated food or beverage bags and suitcases.
Hats. In 2017, the United States imported more than $1.5 billion in hats and headgear from China, and 80 percent of those imports—roughly $1.2 billion worth—are now subject to additional tariffs, including wool knit caps and traditional baseball caps.
Notebooks. In 2017, the United States imported about $575 million in paper diaries, journals, notebooks, address books, memo pads, folders, and stationery, which are all included on the tariff list.
Fabrics. Whether they are derived from cotton, wool or synthetic sources, all textile inputs—including yarns and fabrics—are on the tariff list. The United States imported over $3.6 billion of textile products in 2017.
Sporting Gloves. Baseball and other sporting gloves are also included on the list. The United States bought $17.5 million in plastic baseball gloves and other gloves used in sports from China last year.
The tariff on these products is currently set at 10 percent but is scheduled to automatically jump to 25 percent on January 1, 2019.
It is also important to note that some product categories do not yet face additional duties, such as ink pens, jackets and apparel of any material whether knit or woven.
Unfortunately, the torrent of tariffs promises to continue. In recent months, President Trump has threatened, on multiple occasions, to apply duties to all of the remaining imports from China. For example, aboard Air Force One on September 7, the president told a group of reporters that, “We’ve taxed them $50 billion—that’s on technology. Now, we’ve added another $200 billion. And I hate to say this, but, behind that, there’s another $267 billion ready to go on short notice, if I want.”
As this issue went to press, the president was set to meet with Chinese President Xi Jinping at the G-20 Summit at the end of November, where the issue of these tariffs was expected to be discussed. According to public reports, if the meeting failed to produce any significant breakthroughs or the Trump Administration was not satisfied with Chinese progress in reforming their industrial plans and practices, then President Trump was expected to announce the next round of tariffs in early December with the potential for implementing them in February.
With threats still very much on the table and few public indications of attempts to resolve this dispute by the Chinese and U.S. leaders, the trade war appears headed only towards escalation in 2019.
Find the full list of products subject to tariffs, along with their HTS codes, at bit.ly/2yUkHG0.
Suppliers and distributors need to act now to keep their customers informed and manage the impact on their businesses amid the changes and uncertainty of these tariffs.
Stay in the know. Do your research by talking with your supply chain partners on a regular basis.
Communicate. Talk with clients about the potential impact the tariffs may have on current and upcoming orders. Don’t assume they are aware of the impact on products being considered.
Manage expectations. Engage with customers regularly as you receive updated information and work to manage their expectations on pricing, delivery dates, etc. so there are no last-minute surprises on either end.
Joshua Teitelbaum serves as counsel in the public law and policy practice of Akin Gump Strauss Hauer & Feld LLP and advises clients across a diverse array of industries on issues related to trade and health policy, among others. Prior to joining Akin Gump, he served as deputy assistant secretary of commerce for textiles, consumer goods and materials with the International Trade Administration in the U.S. Department of Commerce (DOC).