USTR Notice Gives CTA Short Play Clock as It Weighs Court Action to Block Tariffs

CTA, reacting to the notice, ratcheted up its legal rhetoric from 10 days earlier when it had said only that it was “skeptical” the tariffs could survive a court challenge (see 1809070032). The new tariffs "run afoul of the carefully tailored provisions” of the 1974 Trade Act, “which require any action to be within the scope of the Section 301 investigation," said President Gary Shapiro Monday.

Congress didn't give the administration "a blank check to pursue a trade war" when it crafted the law, said Shapiro. In recent days, Shapiro began calling the tariffs “retaliatory,” in keeping with CTA’s argument that Lighthizer is exceeding his Trade Act authority to take “appropriate” action against China. CTA argues there’s no precedent in the law’s 44-year history for a USTR to use a Section 301 investigation as justification for retaliating against another country.

Though CTA concedes the law gives the USTR authority to modify tariff actions already imposed, it argues there are limits to that authority, and that Lighthizer exceeded them when he proposed raising the tariffs to 25 percent from 10 percent. Lighthizer announced Monday that the duties that take effect Sept. 24 at 10 percent will rise to 25 percent after Jan. 1.

Beijing immediately retaliated, announcing it would slap 10 percent duties on $60 billion worth of U.S. goods starting when the USTR's tariffs take effect. "The Chinese side will have to take countermeasures" that "resolutely safeguard its legitimate and legal rights and interests, and uphold the global free trade order," said a Foreign Ministry spokesman Tuesday. President Donald Trump threatened Monday to "immediately pursue" another tranche of tariffs on $267 billion worth of additional imports if China retaliates for the duties taking effect next week.

CTA did credit the administration for having spared smartwatches, fitness trackers, Bluetooth equipment and other connected consumer devices from the new tariffs list. But “we are especially concerned” that printed circuit assemblies, routers and networking equipment remain on the list, said Shapiro. Levies on those products “will stifle our global leadership in 5G, create an internet tax on businesses and cause uncertainty for companies,“ he said.

JLab Audio, which markets Bluetooth headphones and earbuds through big-box retailers (see 1807310050), was among Monday’s big winners. “I'm thrilled that our comments were heard and that adjustments were made,” emailed CEO Win Cramer Tuesday. Cramer testified Aug. 21 before a USTR hearing that tariffs on products comprising 80 percent of JLab’s business would have been “catastrophic” for the company. With JLab now in the clear, Cramer, asked if he nevertheless favors CTA going to court to block the remaining tariffs, said: “I generally support any action that helps keep taxes off of consumers.”

Some tech startups fared poorly, including Cao Gadgets, which develops wireless sensor tags for a variety of IoT uses and markets them through its own online store (see 1808160001). Owner Mike Cao argued for removing the 8531.90.15, 8531.90.30 and 8534.00.00 tariff lines because he worried about the impact tariffs on components he imports from China under those tariff codes would harm his small business. All three classifications were kept intact on the final list released Monday. Owner Cao didn’t comment Tuesday.

Startup Brilliant Home Technology also argued unsuccessfully for removing the 8537.10.91.60 tariff line on components it sources from China for the smart-home control device it debuted at CEDIA Expo (see 1809050065). "I've been making the point all along that startups lack the lobbying capabilities of larger companies," emailed CEO Aaron Emigh Tuesday. "What I saw in the omission of certain specific categories from the final list is evidence that large companies such as Apple were able to exert influence to get categories that are important to their business removed from the list, while the concerns of startups like Brilliant were generally not addressed." Apple successfully argued this month that “because all tariffs ultimately show up as a tax on U.S. consumers, they will increase the cost of Apple products that our customers have come to rely on in their daily lives,” including the Apple Watch.

That the USTR invoked a "two-tiered system" of assessing 10 percent duties to start, hiking them to 25 percent after Jan.1, makes no "substantive difference to Brilliant," said Emigh. "We are just starting to ship, so by far most of our shipments will be after January 1. I suppose that the two tiers are designed to put additional time pressure on the Chinese, and time will tell if that is effective, but it's not a big reprieve for businesses."

Emigh stands by what he told us recently that he hopes and believes the tariff and trade war issues would soon "blow over" because that "is the rational point of view," he said. "Trade wars are terrible for the United States and I hope that the damage that is being caused is for short term negotiating leverage and will not persist." Emigh bases that on his "observation and opinion and not something I have personal knowledge of, so I cannot be confident in the long-term outcome," he said. "It's bad news that the tariffs are really being imposed, so in that sense I'm more pessimistic, but I continue to hope that the administration will ultimately act in the interests of US businesses, consumers, and workers."

Asked if he favors CTA going to court to block the tariffs from taking effect, Emigh said: "I am not a lawyer and do not have a legal opinion on the administration's authority to impose these tariffs. From a pragmatic point of view, I believe the tariffs are bad for America and I hope that they are lifted, through whatever mechanism that comes about."

Element Electronics, which bills itself as the only company assembling LCD TVs in the U.S., was a big winner when the USTR deleted LCD panels and motherboards under the 9013.80.90 and 8529.90.13 codes from the final tariff list. Element argued in hearings last month that tariffs on those components sourced from China would doom the remaining 126 jobs at the company’s assembly plant in Winnsboro, South Carolina (see 1809130047). Element didn’t comment Tuesday on whether removal of the tariffs definitively now means that closure of the plant will be averted. We also sought comment about any damage the plant sustained from Hurricane Florence.

The tariffs were something of a mixed bag for Logitech, which argued successfully for the removal of wireless headsets imported from China under the 8517.62.00 tariff code but failed to persuade the USTR to remove 8471.60.90 goods from the list (see 1809140031). Logitech believes “these tariff actions will negatively impact the U.S. consumer and regrettably they are going forward,” emailed a spokeswoman. “Our consumers are our primary focus. With that in mind, we will continue to ensure that our products are properly classified and that the overall impact on our customers is minimized.”

Tech groups uniformly blasted the tariffs as counterproductive to the administration’s stated goal of winning concessions from China. The decision imposing the tariffs was “reckless and will create lasting harm to communities across the country,” said Information Technology Industry Council CEO Dean Garfield. “If implemented, these tariffs will have both short- and long-term effects on the United States -- from increased prices at the checkout counter to decreased leadership on the emerging technologies that will shape our future.” ITI, like CTA, questions the tariffs’ legality but has made no “final decision” whether to pursue litigation to block them, a spokesman told us last week.

The Telecommunications Industry Association fears the tariffs will cause hundreds of millions of dollars in “financial damage” to the U.S. telecom equipment industry, said Cinnamon Rogers, senior vice president-government affairs. The tariffs will “undermine the American adoption of strategic technologies including 5G, exacting long-term economic costs and hurting U.S. strategic competitiveness,” she said. “Taxing the network equipment used to deliver these services and devices will handicap America amid a global race for technology leadership.”

The tech products targeted for tariffs are “critical to strategic economic and national security priorities” for the U.S., including its “global leadership” in artificial intelligence, 5G and IoT, said Elizabeth Hyman, CompTIA executive vice president-public advocacy. “This irresponsible and ineffective trade war will only punish American consumers and companies while doing little to actually change China’s trade practices.”

The Computer & Communications Industry Association is “disappointed” the administration “seems to continue to misunderstand the complexities and reality of global trade,” said CEO Ed Black. “There are many legitimate trade concerns U.S. companies have in the global marketplace, but tariffs are unwieldy and often counterproductive to address those problems. We’d like to see the administration be a collaborative leader with like-minded countries to improve the global trading system.”

The U.S. “cannot afford further escalation” of the trade war with China, “especially with the holiday shopping season right around the corner,” said National Retail Federation CEO Matthew Shay. “The mere talk of tariffs on all remaining Chinese imports is of serious concern to retailers since tariffs of that magnitude would touch every aspect of American life. Achieving better trade deals is an important priority, but there is nothing better about it when American families are forced to pay higher prices for everyday purchases.”