US CHINA TRADE WAR–SECTION 301 IP CHINA TARIFFS, MORE TARIFFS RETALIATION–LET IMPORTER BEWARE

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 20, 1986

US CHINA TRADE WAR – JULY 18, 2018

Dear Friends,

This newsletter will go into detail about the Section 301 China IP case and the Exclusion process in those cases.

Recently, I was interviewed on the supply chain brain about Trump and trade issues.  See http://www.supplychainbrain.com/single-article-page/article/the-trade-war-of-2018-report-from-the-front/

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

SECTION 301 INTELLECTUAL PROPERTY FROM CHINA CASE–$50 BILLION IN TARIFFS FOLLOWED BY $50 BILLION IN CHINESE RETALIATION NOW FOLLOWED BY ANOTHER $200 BILLION IN TARIFFS ON CHINESE IMPORTS

REAL IMPACT OF 301 TARIFFS—US COMPANIES THAT IMPORT PRODUCTS

Many US companies that import products have contacted me about the Section 301 China IP case and the tariffs on potentially $250 billion in Chinese imports on numerous different items.  Many US companies are very, very concerned about the impact on their US manufacturing operations and businesses.

This is especially true about the $16 billion in additional tariffs because comments on the $16 billion requesting exclusion are due on July 23rd.

On June 15th, in the Section 301 case against China’s misappropriation to US intellectual property rights, through the United States Trade Representative (“USTR”), President Trump announced tariffs on $34 billion of Chinese imports.  The $34 billion will be followed with tariffs on another $16 billion in tariffs for a total of $50 billion.

The Section 301 case is focused on the Chinese government’s policy of forcing US companies to transfer their IP and technology to Chinese companies to do business in China.  As stated in the attached USTR June 15th announcement, USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices _ United States Trade Representative:

The Office of the United States Trade Representative (USTR) today released a list of products imported from China that will be subject to additional tariffs as part of the U.S. response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property.

On May 29, 2018, President Trump stated . . .USTR shall announce by June 15 the imposition of an additional duty of 25 percent on approximately $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy. Today’s action comes after an exhaustive Section 301 investigation . . . in which USTR found … that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and burden U.S. commerce.

“We must take strong defensive actions to protect America’s leadership in technology and innovation against the unprecedented threat posed by China’s theft of our intellectual property, the forced transfer of American technology, and its cyber attacks on our computer networks,” said Ambassador Robert Lighthizer. “China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies like ‘Made in China 2025.’ Technology and innovation are America’s greatest economic assets and President Trump rightfully recognizes that if we want our country to have a prosperous future, we must take a stand now to uphold fair trade and protect American competitiveness.”

$36 BILLION LIST

USTR is issuing tariffs against $50 billion in Chinese imports on two separate lists.  The first list of $34 billion is attached, FIRST SET OF $50 BILLION.  For those products in list 1, an additional duty of 25% was levied on July 6, 2018 and is effective today.

$16 BILLION LIST

The second list of $16 billion is also attached, SECOND SET OF $50 BILLION.  This $16 billion list was created because USTR excluded $16 billion in imports from its original $50 billion list,

The June 20th Federal Register notice providing for written comments on the $16 billion is attached, SECOND LIST 301 WRITTEN COMMENTS.

The time schedule for comments and the hearing as set forth in the attached June 20th notice is as follows:

Written Comments due: July 23, 2018

Public hearing: July 24, 2018

Written Rebuttal Comments due:  July 31, 2018

There is a lot of machinery and other products on the lists, “containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy”.  But the lists also include many consumer products and food products, including seafood, which are not high tech.  Please look at the lists closely and see if your company or your customers will be affected by these actions.

CHINA RETALIATION

As expected, the Chinese government immediately announced its own retaliation against US exports into China.  See attached two lists, China 301 Retalation June 18 part 1 CHINA 301 RETALIATION LIST JUNE 18 PART 2, showing the tariff categories and the impact on Washington State exports.  Many of the products on the Chinese retaliation lists are agriculture products aimed at hurting President Trump’s constituents in the rural and agricultural sectors.

$200 BILLION LIST

In response to the Chinese government’s retaliation, President Trump has ordered the USTR to create a new list imposing a 10% tariff on imports of $200 billion from China.  That $200 billion list is also going through a public comment and hearing process.  The July 17th Federal Register notice with the additional $200 billion list is attached, $200 BILLION USTR NOTICE.

The deadlines are as follows:

July 27th Deadline to request to appear at USTR hearing regarding additional $200 billion in tariffs

August 17th Deadline to file written comments asking for exclusion of products from $200 billion

August 20-23rd USTR hearing on the additional $200 billion

August 30th Posthearing Rebuttal Comments.

USTR SECTION 301 EXCLUSION PROCESS

On July 11th USTR also issued the attached notice, 301 EXCLUSIONS FED REG NOTICE, which will allow “US stakeholders” to file an exclusion request to exclude specific products within a tariff category.  The arguments in the exclusion request filed by the US stakeholder will be to exclude specific products because they are not produced in the United States.

The deadline to request exclusion of specific products, as compared to tariff line items, is October 9, 2018.

CONCLUSION

Section 301 cases are usually settled through a negotiated settlement between the two countries.  To date, however, the Chinese government has offered to simply buy more products from the United States.  This is the same strategy the Chinese government has followed for decades when there has been a major trade dispute with the United States.  Send buying teams to the US to buy more US products, but after a couple of years the purchases disappear and China continues to have an enormous trade surplus with the United States, which in 2017 was $375 billion.

President Trump and the USTR, however, are not doing business as usual.  They want systemic concessions, true changes in the Chinese government’s policy regarding the forced transfer of American technology to Chinese companies as the price of doing business in China.  There will no settlement of the Section 301 case until the Chinese government straightforwardly addresses and makes changes regarding its policy on the forced transfer of US intellectual property to Chinese companies.

It is difficult right now to predict the end game in this Section 301 case.  This is a game of chicken and the question is which country will blink first.

To understand Trump’s trade policy, however, one should start with a simple fact   The US Trade Deficit in goods with the World in 2017 was $810 billion, almost a trillion dollars.  The major part of that US trade deficit was the trade deficit in goods with China in 2017 of $375 billion.

Trump apparently believes that the US cannot follow the same trade path because the US simply cannot afford it.  My firm belief is that President Trump will not blink.  Will China?

If anyone has any questions about this Section 301 process and exclusions, please feel free to contact me.

Best regards,

Bill Perry

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