Witnesses Warn Higher Tariffs Will Hurt Sales, Not Solve China Abuses

Central air conditioners have an outdoor unit, he explained, and when the system is shipped together, that's classified as 8415.10.90. But if they're shipped separately, they fall under 8415.90.80. He said shipments under 814.90.80 are up more than 35 percent in the first quarter of 2019 compared with the same period, before finished air conditioners from China were subject to Section 301 tariffs.

Branson said if Chinese competitors are priced out of the U.S. market, Rheem has the "capacity to react to increases in domestic demand." Branson was one of just two witnesses asking for tariffs who testified on the first morning of testimony on List 4 of Chinese goods. Every other importer or manufacturer who uses imported components said that the tariffs would create inflation for consumers, which could hurt sales.

Back in August, the Office of the U.S. Trade Representative removed or partially removed 297 tariff lines from List 3, with child safety seats, HTS 9401.80.80.21, one of the most significant removals by dollar amount (see 1809180016). Three baby product companies and the Juvenile Products Manufacturers Association argued again that raising prices on those products would make it more likely that parents would buy used seats that might not be as safe as the latest product. Several noted that 20 percent of parents of young children are in households with less than $25,000 in annual income.

Lisa Trofe, managing director of the Juvenile Products Manufacturers Association, said that a 25 percent tariff on child car seats would result in a 15 percent jump in price at the store. Timothy Gallogly, director of legal affairs for Dorel Juvenile Group, said that company would welcome that price jump, because it could make way for an expansion of its 700-employee company in Columbus, Indiana, where, Gallogly noted, Vice President Mike Pence grew up. Dorel produces 3 million of the 10 million child car seats sold annually, and could easily expand to produce 4 million, he said.

Witnesses who have spent decades in their industries talked about how their industries once manufactured in the U.S., but that that capacity can't be recreated. Kenneth Cole Productions CEO Marc Schneider said years ago his company made shoes in Maine and New Hampshire. Its former New Hampshire factory is now condominiums, he said. Next, the company went to the Dominican Republic. But for about 20 years, China has been dominant, and 69 percent of shoes purchased in the U.S. were made there, he said.

Kenneth Cole now contracts with factories in China, India and Vietnam. and Schneider said he was considering Mexico, but the threat of 5 percent tariffs on all Mexican imports that came out of the blue scared him off. Another witness also noted her company was considering moving production there, but the threat stopped that exploration.

Government officials on the panel frequently tried to determine how much of that 25 percent tariff on various products would get passed on to the consumer, and how much would be absorbed by Chinese manufacturers, wholesalers or the retailer. Witnesses often avoided answering that question. However, Schneider broke it down.

Take a pair of shoes that the vendor sells for $15. Tariffs are $2 or $3 on it. The wholesaler then marks it up 45 percent to 50 percent, he said, and the retailer marks it up 65 percent. Both those markups will also apply to the tariff, so the tariff ends up being the value of the retail price, not the vendor's price, he said.

Two companies said that if their goods were not removed from the tariff list, their companies would either leave the U.S., or might go under. Leading Lady, which imports nursing and full-figure bras and panties, was founded in 1939, and has just 16 employees in its headquarters outside Cleveland, Ohio, and about 20 employees in its warehouse. Mark Corrado, president and grandson of the founder, said Leading Lady once had five domestic factories, but those skills are long gone. Leading Lady sells to Wal-Mart and Hanes, and is trying to re-establish its brand through e-commerce. Corrado said, "We are barely profitable now," and with a 25 percent tariff on its imports the company faces "the very real prospect of going out of business."

David Baer, general counsel of Element Electronics, told the panel that the government's decision not to put LCD panels and main boards on List 3 -- and their inclusion on the Miscellaneous Tariff Bill -- meant the company added more than 100 jobs over the last year. Before the passage of MTB, Element paid 4.5 percent tariffs on LCD panels while importers of finished TVs from China paid 3.5 percent, he said.

But if a 25 percent tariff is put on this most-valuable component of a TV, the South Carolina factory will use up its inventory and then close. Production will resume in Mexico, he said.

Most of the witnesses said their products are low-tech and have nothing to do with the Made in China 2025 plan or the unethical practices of Chinese businesses that steal designs from U.S. companies. But even though iRobot founder and CEO Colin Angle said his company has been a victim of IP theft, he said tariffs on the goods he invented isn't the answer.

The Roomba was already on List 3, and iRobot absorbed the 10 percent tariff through December before raising prices. Angle asked that robotic mops and the soon-to-launch robotic lawnmower be excluded from List 4. Higher prices will slow adoption, he said.

His company won a 337 patent infringement case (see 1705220033), he said, and when hackers stole IP, iRobot brought legal action, and two were indicted, he said. The company has more than 700 American employees, and contracts nearly all manufacturing in China, with a minor amount of production in Malaysia.