Though Hasbro products have escaped three rounds of Trade Act Section 301 tariffs implemented or proposed on Chinese goods, the toymaker is talking with the Trump administration and its congressional delegations “to ensure we’re communicating just how terrible an impact an ongoing tariff or trade war” would have on the company and the U.S. economy, CEO Brian Goldner said on a July 23 earnings call. “Thus far we’ve only seen non-material changes to the tariff schemes of other countries that don’t really impact our business,” he said. Hasbro’s toy business “has not been part” of Section 301 duties that took effect July 6, “but we continue to monitor the situation,” he said. “We continue to talk and firmly believe in a free-trade environment as the best course for our company and for the industry.” Hasbro sources about 65 percent of its product in revenue terms from China, but “we’re moving more production outside China,” Goldner said. “We found some great new partners and territories that provide very-high-quality product that can meet with our specifications,” he said. Hasbro also draws about 25 percent of its U.S. revenue from products sourced from manufacturing sites it runs in five states, Goldner said.
Section 301 Tariffs
Section 301 Tariffs are levied under the Trade Act of 1974 which grants the Office of the United States Trade Representative (USTR) authority to investigate and take action to protect U.S. rights from trade agreements and respond to foreign trade practices. Section 301 of the Trade Act of 1974 provides statutory means allowing the United States to impose sanctions on foreign countries violating U.S. trade agreements or engaging in acts that are “unjustifiable” or “unreasonable” and burdensome to U.S. commerce. Prior to 1995, the U.S. frequently used Section 301 to eliminate trade barriers and pressure other countries to open markets to U.S. goods.
The founding of the World Trade Organization in 1995 created an enforceable dispute settlement mechanism, reducing U.S. use of Section 301. The Trump Administration began using Section 301 in 2018 to unilaterally enforce tariffs on countries and industries it deemed unfair to U.S. industries. The Trump Administration adopted the policy shift to close what it deemed a persistent "trade gap" between the U.S. and foreign governments that it said disadvantaged U.S. firms. Additionally, it pointed to alleged weaknesses in the WTO trade dispute settlement process to justify many of its tariff actions—particularly against China. The administration also cited failures in previous trade agreements to enhance foreign market access for U.S. firms and workers.
The Trump Administration launched a Section 301 investigation into Chinese trade policies in August 2017. Following the investigation, President Trump ordered the USTR to take five tariff actions between 2018 and 2019. Almost three quarters of U.S. imports from China were subject to Section 301 tariffs, which ranged from 15% to 25%. The U.S. and China engaged in negotiations resulting in the “U.S.-China Phase One Trade Agreement”, signed in January 2020.
The Biden Administration took steps in 2021 to eliminate foreign policies subject to Section 301 investigations. The administration has extended and reinstated many of the tariffs enacted during the Trump administration but is conducting a review of all Section 301 actions against China.
In more than 2,300 comments on the possibility of tariffs on imported autos and auto parts, only three support the idea, according to Jennifer Thomas, vice president of federal government affairs at the Alliance of Automobile Manufacturers. Thomas, who represents all companies with American plants, was one of 45 witnesses testifying at the Commerce Department July 19, as the department investigates whether an increase in auto parts imports impairs the economic security of the auto industry or the ability of the military to benefit from advanced technologies such as autonomous driving (see 1805240002).
Lawmakers, farmers and agriculture trade groups voiced worries about the effect of tariffs on rural communities during a July 18 House Ways and Means Trade Subcommittee hearing. "Most of our agriculture producers today rely heavily on export markets, and unfortunately, many of these farmers and producers are now facing the loss of not just one of their top international export markets, but their top 2, 3 and 4 export markets -- all at once," Chairman Dave Reichert, R-Wash., said in an opening statement. "They are facing severe and devastating uncertainty -- and that goes right to their profitability." In response to recent sections 232 and 301 tariffs, "U.S. agriculture is now facing retaliatory tariffs from the EU, China, Mexico, Canada, Turkey, Russia and India," he said. "Now, I know that the administration did not intend for U.S. agriculture to be hurt, but the damage is entirely predictable."
China filed an additional complaint at the World Trade Organization over the U.S. Section 301 tariffs. A 10 percent tariff on $200 billion in Chinese imports has not yet been imposed, and will not be imposed until public input on the more than 6,000-product list is received (see 1807110050). In the past, the U.S. has accepted consultations in Geneva with China even before tariffs begin (see 1804190039).
A Display Supply Chain Consultants analysis of International Trade Commission data found the firm’s initial read that the Chinese-sourced display product lines targeted July 10 for proposed 10 percent Trade Act Section 301 tariffs (see 1807110055) accounted for minuscule import shipments in 2017, DSCC President Bob O’Brien told us. Of the 21 Harmonized Tariff Schedule (HTS) product codes listed in the Office of the U.S. Trade Representative notice under the “8528" heading for displays, only four of those classifications of imports had customs values exceeding $1 million last year for all countries of origin, including China, O’Brien said.
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The Section 301 tariffs on goods from China do not apply to covered imports that are part of a set if that set is classified under a subheading that is not included in the Section 301 list, CBP told the National Customs Brokers & Forwarders Association of America. "If the product that imparts the essential character to the set (i.e., the [Harmonized Tariff Schedule of the U.S.] under which the entire set is classified) is covered by the Section 301 remedy, then the entire set will be subject to the additional 25% duties," CBP told the NCBFAA. "If the HTSUS under which the entire set is classified is not covered by the Section 301 remedies, but the set contains a component that is classified in a subheading covered by the 301 list, the 301 duties will not be assessed on the individual component at this time."
With the publication of the Office of the U.S. Trade Representative’s notice in the July 11 Federal Register on procedures for requesting exclusions from Trade Act Section 301 tariffs on Chinese imports (see 1807100049), docket USTR-2018-0025 for posting such requests became active in the regulations.gov portal. No requests were posted yet as of International Trade Today's deadline. Exclusion requests are due by Oct. 9, and if granted will apply for a year retroactively to July 6, the notice said. Though Oct. 9 is the deadline for the exclusion requests, international trade lawyers at BakerHostetler are advising "clients to file as soon as possible in anticipation of the large administrative backlog that they expect,” the law firm said.
Over a two-day review at the World Trade Organization on China's trade policies, China insisted that intellectual property violations are no longer a major issue; that its support of state-owned enterprises is no different from Fannie Mae; and that its overcapacity in steel is not a problem for global steel prices, because China only exports 9 percent of its steel. Moreover, China's Commerce Vice Minister Wang Shouwen said, addressing overcapacity needs collective actions and China stands ready to join hands with other countries to tackle this problem together.
The International Trade Commission recently posted Revision 7 to the 2018 Harmonized Tariff Schedule. Coming just days after the ITC’s mid-year HTS update, the new edition adds provisions implementing a 25% Section 301 tariff on $34 billion in imports from China that took effect July 6. It also reflects the restoration of African Growth and Opportunity Act benefits for Eswatini, and the country’s renaming from Swaziland.