Last night, the President issued a statement advising that the United States would impose a 10% duty on an additional $200 billion in imports from China, if China goes ahead with its plans to impose retaliatory duties on U.S. imports. A copy of the President’s statement is attached for your reference.
In this latest round of escalating rhetoric, the President directed the U.S. Trade Representative to identify an additional $200 billion in imports from China (this is in addition to the first list of approx. $34 billion and the second list of approx. $16 billion) to hit with an additional 10% duty, if China goes ahead and imposes its proposed retaliatory duties on July 6th. If China retaliates to this measure, then the United States will seek to impose duties on another $200 billion worth of imports from China.
The President is attempting to show China that he is serious about the forced technology transfer issue and about using duties to get China to change its behavior. He is also demonstrating that he intends to use the U.S. trade deficit with China in his favor. Since the U.S. imports far more from China (approx. $505 billion), than China imports from the United States (approx. $130 billion), President Trump appears to believe that he has the ability to raise the stakes beyond what China can afford (i.e., the U.S. is threatening to impose additional duties on $450 of the $505 billion worth of imports from China; China can only retaliate up to the $130 billion worth of imports from the United States). Given the complexity of the relationship, it is not clear whether this is in fact the case (e.g., China has said it is ready for a trade war and could take action other than increasing customs duties).
What is clear, is that the imposition of additional duties is having a meaningful negative impact on many U.S. companies. If duties are imposed on an additional $200 billion (or $400 billion) worth of imports from China, then more companies in more industries will be impacted (e.g., it is hard to imagine that the Administration will be able to avoid consumer products, as they have largely done to date, with the next list of $200 billion). While there is still time for the two countries to reach a negotiated settlement and avoid a trade war (the first tranche of duties does not go into effect until July 6th), that does not appear likely, at this point. As a result, all companies that import from China should be reviewing their options. In particular, companies that import from wholly foreign-owned enterprises (“WFOEs”) should consider joining our coalition of companies pursuing a categorical exemption from the additional duties. We continue to be in discussions with different parts of the Administration and with members of Congress on a possible exemption for such imports.
We trust this is helpful. If you have any questions, or if you would like to discuss these issues further, please let us know.