News & Insights
Chicken or Chess? The Games Continue: Increased U.S. Tariffs and Retaliation by Key Trading Partners
In March of this year, the U.S. imposed increased tariffs on certain steel and aluminum products imported into the United States from all countries for national security reasons in response to an investigation conducted by the Commerce Department’s Bureau of Industry and Security (“BIS”) under Section 232 of the Trade Expansion Act of 1962. Later that month, the Trump Administration announced that it would also impose increased tariff rates on certain goods imported from China under Section 301 of the Trade Act of 1974. Section 232 gives the Executive Branch the ability to conduct investigations to assess the effects of imports on U.S. national security. In addition, Section 301 authorizes the Office of the United States Trade Representative (“USTR”) to investigate unreasonable and discriminatory trade practices.
Section 232 – Key Developments
In January 2018, the BIS’ Section 232 reports on steel and aluminum concluded that the quantities and circumstances of imports of these products threaten to impair national security. Accordingly, the Commerce Department recommended that the President act to protect the long-term viability of the U.S. steel and aluminum industries. As a result, on March 8, 2018, the President issued proclamations announcing increased import tariffs on certain aluminum and steel products imported into United States from all countries. Exemptions to the increased tariffs were made for certain countries. For example, imports from Canada, Mexico, and the European Union were exempted until May 31, 2018, on which date the U.S. formally began imposing the tariffs on these countries. Tariff exemptions for Brazil and South Korea continue in effect as those countries negotiated quotas restricting steel and aluminum exports to the United States. Australia and Argentina also continue to be exempt while negotiations continue with the U.S. There is also a process by which U.S. persons may request product-specific exclusions from the Commerce Department.
On May 24th, the Commerce Department formally announced the commencement of an investigation of the impact of certain automotive imports on U.S. national security under Section 232. The investigation targets imports of cars, SUVs, vans, light trucks and automotive parts, and will focus on whether the decline in U.S. production of these products threatens the economy of the United States.
Earlier this month, Senate Foreign Relations Chair Bob Corker (R-Tennessee) introduced legislation that would require the President to obtain formal congressional approval before imposing increased tariffs under Section 232. Senator Corker intended to attach the proposed bills as an amendment to the National Defense Authorization Act. However, we have heard that there is a procedural challenge to this plan, as there is a “blue slip” requirement mandating that bills relating to revenue must originate in the House of Representatives—not in the Senate.
Section 301—Key Developments
The USTR recently investigated China’s practice of requiring U.S. companies to transfer their intellectual property rights (“IPR”) and technologies to Chinese companies in order to obtain business licenses and approval to invest in China. The USTR determined that these practices were unreasonable, discriminatory and restrict U.S. commerce. Therefore, on April 3, 2018, the USTR published a proposed list of 1,300 Chinese products that would be subjected to additional 25% tariff rates. The targeted products include: chemicals and pharmaceutical products; certain rubber products; products of iron and non-alloy steel; airplanes and helicopters; aluminum; boats; electrical machinery; firearms; glass and microscopes; motor vehicles; tires and conveyor belts; and, TV image and sound recorders and reproducers. However, on May 20th, Treasury Secretary Steven Mnuchin announced that the US was putting the trade on war with China on ice pending further negotiations with China on the US trade deficit and intellectual property rights protection.
Retaliation by U.S. Trading Partners
In response to the US actions, the European Union, China, Japan, Russia, Turkey, and India have each notified the World Trade Organization (WTO) of their plans to retaliate against the Section 232 tariffs on steel and aluminum products per the WTO’s Safeguards Agreement. Canada has also requested the establishment of a NAFTA dispute panel on the issue as well. The retaliatory measures by China, the EU, Canada and Mexico are as follows—
China: On April 2, 2018, China increased import tariffs on 128 U.S. goods. Specifically, China imposed a 15% tariff on nuts, fresh and dried fruits, grape wine, denatured ethyl alcohol, ginseng roots, and seamless tubes, pipes and hollow profiles of iron and steel. It also imposed a 25% tariff on aluminum waste and scrap, as well as pork products. On April 4th, China proposed a second set of potential retaliatory tariffs on 106 U.S. products including: aircraft and automobiles, including parts and components; industrial equipment and machinery; plastic products; agricultural products; alcohol; and, tobacco.
Canada: Canada announced a trade-restrictive tariff list targeting U.S. products that will formally take effect on July 1, 2018 and will remain in effect until the U.S. terminates the Section 232 increased tariffs on Canada. The list provides that steel and aluminum products will be assessed a 25% tariff rate, and the following products will be assessed a 10% tariff rate:
- Dishwasher detergents
- Pens and markers
- Iron or steel beer kegs
- Refrigerators, freezers, dishwashers, washing machines
- Certain water heaters
- Certain vegetables
- Handkerchiefs, cleansing tissues, facial tissues, towels
- Plastic household articles
- Inflatable boats, motorboats, sailboats
- Insecticides and herbicides
- Licorice, toffee
- Manicure and pedicure products
- Maple sugar and syrup
- Mayonnaise, salad dressing, condiments, seasonings, sauces
- Lawn mowers
- Nut and fruit purees, pastes, jams and jellies
- Orange juice
- Liquid or cream skin products and preparations
- Iron or steel parts for stoves, ranges, grates, cookers, BBQs, and similar non-electric domestic appliances
- Playing cards
- Perfumes or deodorizers for rooms
- Prepared meals, pizza, soups and broths
- Postcards and greeting cards
- Shaving products
- Sleeping bags
- Tablecloths, tableware and kitchenware
- Toilet paper
- Waters (still or aerated, with or without sugar, sweetening, flavors)
European Union: In May, the EU published two retaliation lists targeting U.S. exports which will be imposed in two phases. In the first phase, tariff concessions will be suspended as of June 20th on U.S. products including corn, cranberries, tobacco, cosmetics, clothing and steel products. The second phase of tariffs will either be implemented on March 23, 2021 or the 5th day following the date of the WTO’s finding that the Section 232 tariffs violates the WTO—those tariffs would target:
- Apparel and footwear
- Ceramics, glass
- Fishing vessels
- Household articles
- Motor vehicles and boats
- Washing machines
Mexico: On June 5th, the Ministry of Economy published a decree suspending the NAFTA preferential tariff benefits on certain U.S. products and increasing the Most Favored Nation (MFN) duties as follows—
- 15% – 25% tariffs on steel products (flat-rolled products, hot and cold rolled sheets, steel or iron wire rods)
- 5% tariff on steel tubes
- 15% – 25% tariffs on aluminum products (raw aluminum, bars, rods, profiles, plates, sheets, strip, castings and forgings)
- 25% tariff on pork products (shanks, shoulders, hams, sausages)
- 20% tariff on agricultural products (apples, grapes, potatoes, cranberries, parmesan and grated cheese)
- 25% tariff on Tennessee or bourbon whiskey, fresh cheese.
- 7% – 15% tariffs on certain metal furniture, lamps and lighting fittings, fans and air pumps, aluminum kitchen wares and motor boats.
The Ministry of Economy also established a quota for U.S. pork products that will allow for the importation of up to 350,000 tons without the assessment of the increased duties.
Both the Section 232 and Section tariffs imposed by the United States, as well as the retaliatory measures (both taken and proposed) by U.S. trading partners, continue to be fluid situations. It is critical for U.S. companies to review the products that may be subjected to the tariffs proposed by the United States and its trading partners, assess how these measures may impact their international operations, and stay up-to-date on new developments as they rapidly arise to ensure that they have sufficient lead time to adapt to changes that will impact their international supply chains.
If you have any questions pertaining to the increased tariffs under Sections 232 or 301 or other international trade issues, please contact Melissa Proctor (email@example.com) or Peggy Chaplin Louie (firstname.lastname@example.org) at Miller Proctor Law PLLC (email@example.com).
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