Details on Exclusions, 301 Hikes Coming Next Week; Rates to Go Up About 90 Days Later

The Section 301 tariff review report, issued May 14, listed more than 100 8-digit tariff lines covering industrial and agricultural machinery as exclusion-worthy in headings 8417-8420, 8422, 8429, 8430, 8432-8439, 8441, 8442, 8444-8449, 8451-8465, 8468, 8475, 8477-8479, 8486, 8514, 8515 and 8543, along with an additional 19 machines used to make solar panels and their components, listed in a separate appendix. A Federal Register notice next week will announce an opportunity for comments on the administration's proposed tariff modifications, as well as the industrial machinery tariff exclusions' length and scope. That notice will also provide details on how the machinery exclusions process will be implemented. The HTS codes for the goods that the administration plans to hike tariffs on will also be in that FR notice.

After U.S. Trade Representative officials have read and considered comments, a final notice will be issued on the exclusions process and the coming tariffs, a USTR spokesperson said.

The report did not say what will happen to the existing tariff exclusions, which are scheduled to expire at the end of the month; the spokesperson said an announcement on those exclusions will come ahead of expiration.

No items on the current Section 301 list will have their tariffs removed permanently, and there will be no reduction in rates. After this round of adjustments to the Section 301 tariffs, its rates on Chinese semiconductors will double to 50% in 2025. Medical gloves, lithium-ion batteries with uses outside EVs, natural graphite and permanent magnets will face 25% tariffs in 2026, to give domestic producers time to ramp up.

Ship to shore cranes, the critical minerals covered by this action, including graphite, and permanent magnets currently enter duty free. Some tariff lines in metals don't face Section 301 tariffs, but are covered by Section 232 tariffs. The batteries and battery parts are now on the lowest 7.5% tranche of the Section 301 tariff.

Although the Biden administration chose to mostly preserve the Trump approach on China tariffs, President Joe Biden still drew a contrast with his once and future ballot opponent. "He signed a trade deal with China. They were supposed to buy $200 billion more in American goods. Instead, China imports from America barely budged," Biden said in a Rose Garden speech on the tariff action, in which he repeatedly promoted union workers. He also said that the tariffs protect the billions in investments the administration has made in the technologies of the future.

In the news release announcing the action, the administration said it intends to work with allies "to strengthen cooperation to address shared concerns about China’s unfair practices -- rather than undermining our alliances or applying indiscriminate 10% tariffs that raise prices on all imports from all countries, regardless whether they are engaged in unfair trade." In his speech, Biden said a blanket 10% tariff would drive up costs for families by an average of $1,500 annually.

USTR's review found that the Section 301 China tariffs decreased wages nationwide, that it led to a particular decline in manufacturing jobs, as the tax on inputs made companies less competitive, and that Chinese exporters did not absorb any of the cost of tariffs -- though it said it was mostly businesses, not consumers, who paid the costs here. More companies and trade groups argued that the tariffs should be lifted, at least on certain items, than argued for keeping them. But the nearly 200-page report said that the movement away from Chinese sources has a triple benefit -- making supply chains more resilient, convincing China to change its technology-transfer practices, and, with U.S. firms moving out of China, reducing U.S. exposure to technology theft and forced tech transfer, the reasons for the imposition of tariffs six years ago.

Tariffs will go up on $18 billion worth of goods, though in some cases, those tariffs will rise in 2025 and 2026. Tariffs will go up in approximately 90 days, a USTR spokesperson said, on steel and aluminum, solar cells (including in modules), ship to shore cranes, electric vehicles, lithium-ion EV batteries, battery parts, some critical minerals, certain respirators and face masks, syringes and needles.

China's Commerce ministry said that the U.S. increased tariffs "out of domestic political considerations," and said it is strongly dissatisfied with the moves. " The WTO has already ruled that Section 301 tariffs violate WTO rules. Instead of correcting the situation, the United States insists on going its own way, making mistakes again and again," it said.

In an embargoed call with reporters the day before the announcement, a reporter asked if the administration considered lowering tariffs on any of the Section 301 targets as it planned for these hikes, perhaps to lower the chance of Chinese retaliation.

An anonymous administration official said China continues to take American intellectual property, through forced tech transfers and through cyber-espionage, and so is not "entitled to a reduction in tariffs in light of its behavior."

Coalition for a Prosperous America Chairman Zach Mottl, an ally on trade during the Trump administration, reacted to the news saying: "The Biden administration’s action to increase the China tariffs is a strong signal that we are in a new bipartisan era of utilizing tariffs and industrial policy to promote fair and balanced trade, and to protect American workers and manufacturers from China’s illegal, predatory trade activity."

The political response in Washington seemed to suggest Mottl is right.

House Ways and Means Chairman Jason Smith, R-Mo., issued a statement that said: "Only the Biden Administration would need over two years to figure out that the Trump tariffs combating China’s unfair trade practices were, in fact, a good thing."

He complained that the Biden administration has not held China to task for not fulfilling the phase one agreement Trump signed. "With the release of this review, it is clear that the Administration’s top priority when it comes to Section 301 enforcement is to serve its Green New Deal climate agenda, as this announcement lacks comprehensive updates to hold China accountable across the board," he added.

Although the EV tariff is the highest on the list, it would not affect imports of Chinese-brand EVs made in Europe or North America. However, an advance notice of proposed rulemaking on connected vehicles could lead to trade restrictions or even a ban on those cars (see 2402290034).

Sen. Debbie Stabenow, D-Mich., and House members from Michigan attended the Rose Garden speech, and the Ways and Means Committee's top Democrat, Rep. Richard Neal, issued a statement that said, "After conducting a thorough and thoughtful review, the tariffs announced today are well-justified, targeted, and will protect our people and economy from China’s brazenly unfair trade practices."

Senate Finance Committee Chairman Ron Wyden, D-Ore., issued a statement that said, "There’s no question that the Chinese government intends to monopolize the production of solar panels, batteries, and other climate-related technologies that are crucial to the future of manufacturing and good-paying jobs in Oregon and nationwide. However, tariffs are only one pressure point, and I hope to work with the administration to further support U.S. workers in these industries and others facing China’s unfair trade practices."

And his Republican counterpart, Sen. Mike Crapo, R-Idaho, who once pushed for more exclusions for importers, was silent.

That left trade groups to argue the policy is a mistake.

American Apparel and Footwear Association CEO Steve Lamar said the Biden administration unfortunately "doubled down on a flawed tariff policy, despite the Biden Administration's own acknowledgment that this policy has failed in its goals, and overwhelming public input that supported a different outcome."

According to the report, USTR received 261 comments to retain tariffs, with mentions of 1,857 specific tariff lines; 25 comments that asked for 33 tariff lines to be added to the action and 1,035 comments arguing for the removal of 4,688 specific tariff lines.

Those who wanted a rollback of tariffs said products weren't available outside of China. In some instances, 301 duties led to tariff inversions, the harm to U.S. consumers was disproportionate to the benefit gained, and that duties on raw materials and inputs harmed domestic manufacturing. (The report said economic studies showed that last argument was based in fact).

The National Foreign Trade Council said after the announcement: "If tariffs were going to solve these complex issues, they would have done so by now."

The report noted that the majority of comments said the tariffs hurt U.S. workers, because lower profitability at importing firms led to job reductions or lower wages. The majority of comments said small businesses were hurt, and some said there was disproportionate harm to small businesses, though others said the tariffs helped small businesses "compete with large multinational companies that rely on cheap imports."

National Retail Federation Executive Vice President of Government Relations David French said the trade group is "extremely disappointed" that Biden is keeping and expanding the tariffs. French said rather than taxing imports, "we need new free trade agreements that focus on both market access and tariff reductions, and we need Congress to pass long-standing trade preference programs which remain expired," as that would give companies an incentive to shift supply chains out of China.

The report said data show that since the tariffs were imposed six years ago, China’s market share of U.S. imports has decreased significantly.

Several trade groups said they appreciated a new exclusion process, but regretted that it doesn't cover the vast majority of products subject to the action.

Americans for Free Trade noted "today’s announcement is silent on the existing exclusions that are set to expire at the end of May," and asked USTR to renew them.

However, dozens of those exclusions cover medical supplies, and Biden said he wants to erect trade barriers to imports of personal protective equipment, syringes and the like because the pandemic taught us we must have a domestic supply of these goods.

The American Medical Manufacturers Association cheered the new tariffs. Its executive director, Eric Axel, said that the administration "understands that domestic manufacturers face an onslaught of underpriced, subpar Chinese imports."

The National Council of Textile Organizations, which represents domestic fabric mills, didn't thank USTR for recommending that companies wanting to buy knitting and sewing machinery from China be allowed to import it tariff-free, even though it has argued for that approach since 2018. Instead, NCTO complained that the agency didn't increase tariffs on Chinese apparel. "We believe an opportunity was missed to address China’s continued dominance in the U.S. textile market and to counter the devastating impact of its predatory and illegal trade practices on domestic textile manufacturers and workers," CEO Kim Glas wrote. She said "the administration must consider dramatically increasing tariffs on finished textile and apparel imports from China," and recommended 25%, 50% or 100% actions.

However, the Solar Energy Industries Association called tariff exclusions for machinery that makes solar panels and cells thoughtful, saying it would make it less expensive to make products here. "We are also pleased that the Administration will delay the tariff increase on batteries for energy storage systems," SEIA said. "This move provides a runway for continued production and deployment of energy storage to meet growing demand for electricity."