Pending court case will determine whether USTR followed implementation rules.
A case now pending before the United States Court of International Trade (CIT) could net companies $161 billion if the court finds that the U.S. Trade Representative neglected procedures required to implement tariffs ordered by the Trump administration on imports from China. The case was argued before a three-judge CIT panel in early February; an appeals court, and possibly the Supreme Court, will likely review the matter eventually.
At issue are the Section 301 tariffs that Trump first imposed on $50 billion of imports from China in the summer of 2018, after determining that China’s technology transfer and intellectual property policies and practices harmed U.S. companies. The ensuing trade war led the USTR to impose a series of escalating tariffs eventually hitting $360 billion worth of Chinese goods with tariffs of up to 25%. The Biden administration has defended Trump’s right to impose the duties.
USTR and 301 Tariffs
CIT initially found that the Trump administration had the authority to impose the tariffs, but that the USTR’s failure to respond to the 10,000 comments elicited in response to the tariff proposal violated the Administrative Procedure Act. The court sent the case back to USTR for further action, and it’s now back before CIT because the plaintiffs, which include thousands of companies and industry groups, maintain that USTR failed again to adequately respond to the comments.
“USTR’s inability to provide a bona fide rationale for collecting…tariff duties must be met with the appropriate legal action,” said Kathleen McGuigan, executive vice president and deputy general counsel of the Retail Industry Leaders Association (RILA), one of the plaintiffs. “Federal agencies should not be permitted to continue collecting tariff duties that cannot be legally justified.”
Coincidentally, the USTR last spring invited industry stakeholders to comment on the efficacy of the tariffs as part of a four-year review process required by the Trade Act of 1974. The window for filing comments as part of a second phase of that process ended on January 17, 2023.
Many of the hundreds of respondents complained about the effects of the tariffs, and some who supported the tariffs in principle found problems with their implementation. The issues reflected in many of the comments highlight the policy choice faced by the Biden administration as it contemplates the future of the 301 tariffs—whether geopolitical maneuverings or the health of the U.S. economy take priority.
Manufacturers’ Speak Out on 301 Impact
Newport Metals, LLC, a supplier of magnesium anodes headquartered in Jersey City, N.J., reported that the Section 301 tariffs resulted in “a 25% price increase for our customers” and that “end users pay an extra 35% to 40%,” according to Thomas Rosensweet, the company’s president.
U.S. tariff policy discourages manufacturing anodes in the U.S., Rosensweet argued, because “the U.S. has a 100% antidumping duty on the form of magnesium that would be used,” making it “uneconomical” to manufacture the anodes in the U.S. China controls over 80% of the world’s supply of magnesium and provides the mineral at a lower cost than other sources.
Panasonic Corporation of North America, which recently broke ground on an electric vehicle battery factory in De Soto, Kansas, faces a similar dilemma with high tariffs on EV battery minerals like graphite, cobalt, lithium, nickel, and manganese, most of which is mined in China. “Lower overall tariffs on imported finished lithium-ion battery cells from China,” noted Joshua Blume, a senior trade manager, “puts our U.S.-based manufacturing of EV battery cells at a distinct disadvantage.”
The technology giant IBM Corporation claimed that the “301 tariffs have significantly raised costs for IBM’s advanced manufacturing operations in the United States,” centered in Poughkeepsie, N.Y., where the company makes the System Z mainframes used by companies and government entities to run their operations and cloud infrastructures. “The imposition of Section 301 tariffs,” wrote Michael DiPaula-Coyle, the company’s head of international trade, “has raised sourcing costs by tens of millions of dollars each year.”
iRobot Corporation, the maker of robotic vacuum cleaners, through its Executive Vice President Glen Weinstein, stated that it “agrees with the goals and objectives of the Section 301 tariffs. However, we believe that the current structure of the Section 301 tariffs limits their efficacy in preventing China’s actions.
“The impact of the 25% tariffs has been disproportionately borne by U.S. companies that depend heavily on U.S. sales and are not subsidized by the Chinese government,” Weinstein’s comment noted. “iRobot initially sought not to pass the tariff on to our consumers, but this was not economically viable.”
AJ Tool & Manufacturing of Hubertus, Wisconsin, wrote that “the current tariffs have helped to make domestic tooling more affordable for manufacturers in North America.” But, added Robert Binyon, a company vice president, “there is still concern about the workarounds China has come up with to get past the tariffs. By sending mold components separately from the mold base, they can…legally say they are not shipping a tool, just supporting parts.”
Removing Tariffs To Improve Competitiveness
These comments bear out the conclusions of a recent study from the American Action Forum, a center-right policy institute, which found that U.S. consumers paid $48 billion in Section 301 tariffs to import goods from China in 2021. Most of those additional costs, the study found, were placed on imports used by U.S. manufacturers as production inputs.
“Removing the tariffs would increase the competitiveness of U.S. firms by lowering their costs,” the study concluded, “and in turn spur additional economic output and growth by the U.S. goods-producing sector.”
A study released in mid-January by RILA also highlighted the “detrimental economic impacts of Section 301 tariffs,” as tariffs on imports of apparel and footwear are among the highest in the U.S. tariff code, even before the Section 301 duties. An October 2022 International Trade Commission report concluded that the tariffs disproportionately impact women “because tariff rates are much higher on women’s clothing than on men’s clothing.”
As for the tariffs’ future, it’s possible that USTR will cure its procedural defects and that the courts will allow them to continue. If that’s the case, the Biden administration must grapple with two competing goals: confronting China on the world stage and helping U.S. manufacturers and consumers at a time of inflation and economic uncertainty.