Trump Directs USTR to 'Consider' Hiking 3rd Round of Tariffs to 25% From 10%

The possible policy change prompted Lighthizer's office to extend to Aug. 13 the deadline for filing requests to appear at public hearings on the tariffs, still apparently scheduled to begin Aug. 20, said Lighthizer's statement. The origiinal period for filing those requests expired on Friday. The USTR also extended by six days to Sept. 5 the deadline for filing post-hearing rebuttal comments, though it’s unclear whether the original Aug. 17 deadline for filing pre-hearing written comments remains intact. Also unclear is whether Lighthizer's office will extend the public hearings to more than the four days they were apportioned in the agency's July 10 notice. Lighthizer said the changes will be outlined in a new notice to be published soon in the Federal Register.

CTA, reacting with uncharacteristic swiftness to Lighthizer's announcement, said it thinks the U.S. “has every right to fight for American businesses that are treated unfairly by China's policies.” But the higher tariffs amount to “a consumer tax,” said Sage Chandler, CTA vice president-international trade. The trade war with China “will hurt low-wage workers, cost hundreds of thousands of jobs, slow down U.S. innovation and make goods more expensive," she said. "By doubling down on tariffs, we're forcing American businesses and entrepreneurs to incur costs that make them uncompetitive with their foreign competitors.” Chandler urged the administration “to roll back its proposal and continue negotiations with China."

The National Retail Federation, acting only on the reports that the administration would soon hike the duties, and before any official word was released, said Wednesday that “increasing the size of the tariffs is merely increasing the harm that will be done” to U.S. consumers and families. “It’s even more than that -- it’s two-and-a-half times the amount originally proposed,” said NRF. “Tariffs are an unacceptable gamble with the U.S. economy and the stakes continue to rise with no end in sight.”

It remains to be seen how Lighthizer's office will accommodate all who have requested to testify in five-minute slots during the public hearings -- compounded all the more now that the deadline for requesting to appear is extended for two more weeks, and with a higher rate of duty in play. Well more than 300 people in various industries filed requests in docket USTR-2018-0026 by the original Friday deadline to appear at the hearings, virtually all of them to say they will testify against the tariffs, all doing so with the assumption the duties would be levied at 10 percent, not 25 percent.

Even before Lighthizer released word of a possible hike in the duties, tech interests were increasingly focusing their opposition on the one Harmonized Tariff Schedule line item they said would disrupt the IoT supply chain if new duties aren’t defeated on products imported from China under that classification (see 1807300002). HTS 8517.62.00 includes servers, gateways and modems critical to the IoT “ecosystem,” plus ubiquitous consumer products such as Bluetooth headsets, speakers, fitness trackers and smartwatches, said CTA. Tweeted FCC Commissioner Jessica Rosenworcel Tuesday: “In 8517.62.00, @USTR proposes tariffs on ‘machines for the reception, transmission, conversion & transmission or regeneration of voice, images, or other data.’ This is the #InternetofThings & the damage these tariffs could do to innovation here is real.”

JLab Audio, which supplies Bluetooth earbuds and headphones to Best Buy, Target and other big-box retailers, said it may need to trim payroll to absorb the higher costs of tariffs on goods it imports from China under HTS 8517.62.00 (see 1807310050). Others like Fitbit joined in. HTS 8517.62.00 “covers a wide variety of wireless products, including fitness trackers and smartwatches, which comprise nearly all of Fitbit' s products,” said the company in Friday comments posted Tuesday. Tariffs on those goods “will negatively affect not only Fitbit, but American retailers and consumers generally,” it said.

Fitbit wants the USTR to remove HTS 8517.62.00 goods from the tariffs list, it said. “At the very least, wrist-wearable products classifiable in this subheading should be removed,” it said. Tariffs on HTS 8517.62.00 “would place U.S. companies like Fitbit at a competitive disadvantage in the U.S. market,” and could “compromise” U.S. market-share leadership in wearables, it said.

The Chinese wearables brands Xiaomi and Huawei “are already among the top four suppliers of wearables in the world, and are aggressively targeting additional U.S. market share,” said Fitbit. “Unlike U.S. companies, such as Fitbit, that maintain major, U.S.-based research efforts, Chinese companies can survive on razor-thin margins and easily absorb this tariff, potentially with state-backed support. This would ultimately work to the advantage of Chinese competitors seeking to gain U.S. market share and access to U.S. consumers' health and fitness data.”

Dell Technologies opposes tariffs on four USTR line items, including on the network switches it imports from China under 8517.62.00, said the company. Dell manufactures “advanced technology products” at its plants in Franklin, Massachusetts, and Apex, North Carolina, it said. “Tariffs will increase the costs of vital parts and components for our U.S. services and manufacturing operations. Driving up the costs of manufacturing key Dell products in the United States will inevitably undermine U.S. technology leadership, as well as put good-paying U.S. jobs at risk.” American consumers also will “suffer” if the Trump administration “raises the cost of key technologies, diminishing access and increasing the digital divide,” said Dell.

Smart home startup Brilliant Home Technology fears tariffs on goods it imports from China under two HTS classifications, not including 8517.62.00, will stop the company in its tracks before it even launches its first smart product, it said. The Brilliant Control is a new type of smart-home device “that has never existed before, and the intellectual property, which includes electronics, mechanical design, and software, is created entirely by Brilliant in the United States,” it said. Though the Brilliant Control isn't yet commercially available, “engineering work is complete, production samples have been provided to partners, and the product is in the manufacturing process,” it said. The device is scheduled to launch in the first week of September, it said.

Brilliant sources the “main device” from China under HTS 8537.10.91, and also a “faceplate unit that is believed to fall” under HTS 3925.90.00. Both classifications, which are on the tariffs list, “are based on our best current understanding, with the proviso that the Brilliant Control is a new type of product that may not fit cleanly into existing classifications, and these classifications therefore may be subject to revision,” it said.

Pricing on the Brilliant Control is “carefully calibrated” to fit “our understanding of the market needs, and the cost to make the product,” said the company. “Our margins are relatively low for a consumer electronics product because we are a startup and do not yet have the advantage of economies of scale.” The “sudden introduction” of a higher tariff “would render our business at those prices impractical,” forcing Brilliant to raise pricing. “which may have an adverse impact on our negotiated business relationships, our sales, and our business,” it said. Pricing on the Brilliant Control, billed as the “world’s smartest light switch,” starts at $249, says the company’s website.

Though CTA members, by last Friday's deadline for filing requests to appear at the hearings, identified 302 tariff lines in the latest round as those with the potential to damage their businesses, “it’s just really hard to say” how much that list might increase in the weeks to come, CTA's Chandler told us Monday. Members “are still trying to figure out impact from this list,” because there’s “so many things on it,” she said.

Many in the supply chain “don’t necessarily know if they’re going to get hit,” said Chandler. “They’re still struggling to work with all their importers of record. If a company isn’t the one that’s bringing the stuff in, then they have to rely on their suppliers, or their suppliers’ supplier. You can imagine the world right now, where all these people are trying to assess, but they’re not even the ones holding the information on what exactly is coming in.”

Amid the three rounds of proposed or enacted Chinese tariffs announced since early April, “you’re seeing this world where, pretty easily, costs are going up significantly.” said Chandler. “What I’m thinking through is, the administration never put into words or anything coherent, what the objective of all this is.” USTR representatives didn’t comment Wednesday.

Kimber Kable President Ray Kimber wants to testify at the hearings that just the proposal to impose tariffs “has already resulted in a kind of illogical scramble by customers and suppliers,” he said in his Friday comments. “This kind of panic is simply not good business or good government.” Kimber worries the tariffs “will damage my company, along with my employees and my customers,” he said.

Though the company does most of its sourcing within the U.S., two classifications of parts (HTS 8546.90.00, electrical insulators, and HTS 8536.69.80, plugs and sockets for making connectors) “would be very difficult to procure except from China,” said Kimber. “These parts are in our lists of components required for many of our products. To have our costs increased would damage our ability to sell some of our finished goods. More than that I have a real worry that a tariff might trigger an exodus of other customers from these Chinese suppliers and cause these specialized Chinese suppliers to simply stop production at any price. Like an avalanche effect.”