China Trade and Tariffs 2019, 2020, 2021
Unresolved Relationship Threatens China Trade
What we do not have in U.S.A.-China trade is resolution or certainty. The world is watching and hoping that the trade dispute does not slow global investment or economic growth. As, 2021 show signs of global recovery, these hopes mean even more. As we see from ports on the West Coast, trade is strong between Asia and the U.S.A.
Businesses on both sides hope the two parties move toward productive trade negotiations and end retaliatory tariff actions.
Tariffs tax businesses and consumers. This taxation via tariff reduces confidence along the supply chain. Any lack of company confidence can hurt an economy. Also, tariffs and retaliatory effects make U.S. companies less competitive in global marketplaces.
Businesses hope the sides will resolve trade disputes to eliminate tariffs and work to resolve more challenging issues.
U.S. and China Tariffs
It may be essential to keep goods on order and shipping to avoid even higher tariffs or out-of-stock situations.
China Section 301-Tariff Actions and Exclusion Process
$34 Billion Trade Action (List 1)
$16 Billion Trade Action (List 2)
$200 Billion Trade Action (List 3)
$300 Billion Trade Action (List 4)
From Customs & Border Patrol (https://www.cbp.gov/node/213476): “Section 301 Trade Remedies to be Assessed on Certain Products from China”
In August 2019, the United States Trade Representative (USTR) published a Modification of Section 301 Action. 84 FR 43304, introduced additional tariffs on China's products with an annual trade value of approximately $300 billion, referred to as Tranche 4. The duties under Tranche 4 are in lists with different effective dates. Annex A contained the Harmonized Tariff Schedule of the United States (HTSUS) language for list 1. Annex B has a description of the products in list 1. Annex C contains the HTSUS language for list 2. Annex D contains a description of the products in list 2.
In August 2019, the USTR published their determination to update action from the Section 301 investigation; it increased the rate of additional duty from 10% to 15%. The increase is for the products of China covered by the $300 billion tariff action (Tranche 4). See 84 FR 45821."
Huawei and National Security
Earlier, the U.S accused Huawei of designing backdoors into network devices used in internet networks. These backdoors could compromise security for a commercial firm or a government office. As a result, the U.S. banned Huawei products from use in U.S. Government agencies. The ban caused a review and further bans by the USA's military allies, such as the United Kingdom.
China and Intellectual Property Issues
China has progressed in its recognition and enforcement of Intellectual Property Rights (IPR), such as Patents, Trademarks, Copyrights, Unfair Competition, and Trade Secrets. However, enforcement has not kept up with legal protections in China for Chinese and foreign companies. The Chinese culture has not understood or fully acknowledged IPR issues.
In March 2019, Fortune Magazine ran an article, One in Five U.S. Companies Say China Has Stolen Their Intellectual Property." These IPR theft challenges show why there are still so many issues about IPR between the USA and China. U.S. firms complain Chinese firms sometimes use tactics like corporate espionage or cyberattacks. Other firms complain China pressures U.S. companies to transfer technology to an alliance partner or subsidiary in China to get access to IPR with the intention to use it manufacturing in China. In many publications, claims of the value of I.P. losses are as high as US$600 billion.
The importance of Intellectual Property cannot be underestimated when you know that up to 80% of the valuation of U.S. companies is in intangible assets like I.P. (Source: HBR: https://hbr.org/2016/12/why-leaders-are-still-so-hesitant-to-invest-in-new-business-models).
The US-China Trade Council offers recommendations on protecting your IPR rights in China.
A Hong Kong newspaper, the South China Morning Post, notes that China and the U.S. are far apart in understanding each other's positions on IPR laws, theft, and protection. Just like U.S. companies, Chinese companies are trying to create intellectual property. China has made laws, staffed courts, and ruled on many more cases to address IPR rights in China, but although an improvement, the legal protections do not yet meet the rigid frameworks that U.S. and Western companies want.
Sources of more information on IPR include:
- WIPO World Intellectual Property Organization https://www.wipo.int
- World Trade Organization https://www.wto.org/
- U.S. Trade Representative https://ustr.gov/issue-areas/intellectual-property
Doing Business In China
The American Chamber of Commerce (AmCham) Shanghai (https://www.amcham-shanghai.org) released its 2019 Business Report. Tariffs imposed by both the USA and China had little impact on the profitability of companies operating in China during 2018. But now they felt the effects. Projections of revenue growth for 2019 are lower than in 2018. Optimism about revenue growth beyond 2020 has waned, and more companies are redirecting investment planned for China to other countries or regions.
Of AmCham members, only 50.5% expect 2019 revenues to beat 2018 revenue numbers. Thirty percent of AmCham Shanghai members believe that tensions in the USA-China relationship will continue for three years or more.
“Made in China 2025,” Industrial Policy
This Chinese government announced a 2015 , aims to reduce China's dependence on foreign technology and promote Chinese high-tech manufacturers in the global marketplace. It seeks to grow high technology industries, such as electric vehicles, information technology (I.T.), telecommunications, semiconductors, robotics, artificial intelligence (A.I.), agricultural technology, aerospace, materials, electrical equipment, bio-medicine, rail, and high-tech maritime engineering. The Chinese plan is based upon a German government Industry 4.0 development plan (reference https://www.gtai.de/GTAI/Navigation/EN/Invest/Industries/Industrie-4–0/Industrie-4–0/industrie-4–0-what-is-it.html).
Since the 1980s, under Deng Xiaoping, the ruling Chinese Communist Party (CCP) has combined socialist planning with private enterprise elements. It has been common for China to have multi-year plans to manage its high growth while maintaining social stability as more of its citizens move to the cities.
Investment & Capital Markets
In late September, the U.S. Government said it is considering preventing Chinese companies from listing shares on U.S. exchanges. The Financial Times quoted Nasdaq as saying, "One critical quality of our capital markets is that we provide non-discriminatory and fair access to all eligible companies. The statutory obligation of all U.S. equity exchanges to do so creates a vibrant market that provides diverse investment opportunities for U.S. investors." The F.T. notes that U.S. capital markets list 156 Chinese companies with a market capitalization of US$1.2 trillion.
Customs & Border Patrol's (CBP) statistics show trade enforcement and "trade remedy" measures, such as duty assessments, generated significant revenue, often at the expense of businesses relying on international trade. Listed below is a partial list of the annual financial impact as of September 2019:
- Section 301 Duty Assessment on imports from China: $30.8 billion
- Section 232 Duty Assessment on steel: $6.2 billion
- Section 232 Duty Assessment on aluminum: $1.8 billion
- Section 201 Duty Assessment on washing machines: $165 million
- Section 201 Duty Assessment on washing machine parts: $1.4 million
- Section 201 Duty Assessment on solar panels: $929 million
Besides tariffs, companies are open to audits, financial penalties, and product seizures. In 2018, CBP completed 435 audits, issued 1,385 trade penalties, and did 50,952 import seizures (including 33,810 IPR seizures).