US import tariffs remain a challenge

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Publication August 9, 2018

US import tariffs remain a challenge.

The US started collecting a 25% tariff on July 6 on a list of Chinese goods that accounted for $34 billion in imports last year. Similar tariffs will go into effect on another $16 billion in imports on August 23. The $16 billion in additional products are mainly industrial goods — iron and steel products, machinery, motors, batteries used in some electric vehicles, voltage regulators, electronic integrated circuits, electrical meters, insulated electric conductors, locomotives and railroad equipment — but they also include solar cells and panels.

China retaliated promptly by imposing a 25% tariff on 545 US products on July 6 and announced another 114 US products on which tariffs will be collected starting in late August.

The US then upped the ante by releasing a separate 194-page list of another $200 billion in Chinese products on July 11 on which tariffs may be imposed as early as the fall. The US Trade Representative has scheduled four days of hearings from August 20 to 23 to hear from industry representatives who want to strike items from the $200 billion list. The experience to date suggests items are hard to remove. The smaller $16 billion list originally had 284 articles on it. After hearings, the US Trade Representative removed five.

The $200 billion list includes 28 pages of foodstuffs, 39 pages of minerals and chemicals, plus iron, steel, copper, nickel, lead and zinc products, cobalt, cadmium, steam turbine parts, various kinds of batteries and solar inverters. The original Trump plan was to collect a 10% tariff on the $200 billion list, but he raised the amount to 25% on August 1.

China retaliated on August 3 by announcing it will impose tariffs at varying rates of 5%, 10%, 20% and 25% on another 5,207 US products that account for about $60 billion in US sales. No date was set. It said the date depends on US actions.

A 25% tariff would apply to US LNG exports. The action could jeopardize a planned $43 billion Alaska LNG pipeline that had hoped to supply about 75% of its LNG to China. The project was already facing an additional $500 million in construction costs due to US import tariffs on steel. China was the number three customer last year for US LNG exports, according to the US Energy Information Administration. It bought 15% of US exports.

Trump threatened in separate interviews in July first to subject another $200 billion in Chinese products to tariffs and then later to impose tariffs on all $505 billion in Chinese imports unless the Chinese stop retaliating with their own tariffs.

At some point soon, what is on the target lists will cease to matter if close to all Chinese products are covered.

The Chinese renminbi has dropped 9% in value since April against the US dollar negating some of the effects of the US tariffs, but also making it harder for US goods to find a market in China. The dollar has been strengthening against all currencies. Economic theory suggests that tariffs eventually make US trading partners less able to afford US goods and services.        

Meanwhile, the Canadian government is challenging in the US Court of International Trade a 30% tariff that the United States started collecting on imported solar panels and cells last February on grounds that it violates US obligations to Canada under the North American Free Trade Agreement. A similar suit by three Canadian solar manufacturers failed after a US appeals court indicated, while turning down a request for an injunction, that the three manufacturers were unlikely to prevail on the merits.

Six countries have filed complaints with the World Trade Organization about tariffs the United States is collecting on imported steel and aluminum. The six are the European Union, Canada, China, Mexico, India and Norway. The US position is that the WTO has no say over the US actions because the tariffs were imposed on national security grounds. At the same time, the US has asked the WTO to declare illegal retaliatory tariffs that most of the same countries imposed on $23.4 billion in US goods in response to the US tariffs.

Separately, the Senate passed a bill that waives US tariffs on around 1,800 raw materials and intermediate goods that US manufacturers use to make other products. The measure will require another vote in the House in September after the Senate amended the House bill. This miscellaneous tariffs bill has been in the works since 2016 before Trump took office. Congress directed manufacturers who want exemptions to petition the US International Trade Commission. The commission whittled 2,500 requests down to a list of around 1,800.

Both the House and Senate have rules against consideration of earmarks for individual companies. The measure was considered under a suspension calendar under which Congress suspends its rules.


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