Tariffs. It seems like that’s the one word supply chain professionals and everyday consumers alike can’t stop saying these days. Since accusations of intellectual property theft against China arose in 2017, many importers and exporters have felt like mere pawns in a larger political game. The U.S. first increased tariffs on imports from Chinese sellers in the spring of 2018, and every move since has felt a bit like a game of tug-of-war.
While imposing tariffs on a sovereign trading partner to achieve political goals is nothing new, the recent shifts we’ve seen are some of the most drastic in modern times, especially between two economies so largely based on trade. The rapid succession of changes and seeming volatility of these deals has left entire economies on edge. It’s no surprise that nearly every American company has been sweating and fretting recently, especially since the imposition of the increased 25% Section 301 tariffs this month.
To recap, 2019 changes to the U.S. – China tariffs are as follows:
- Section 301 List 3 – tariffs increased from 10% to 25% on May 10th. Goods exported prior to that date received a grace period until June 15th
- Section 301 List 4 – proposed on May 13th to add a 25% tariff to an additional $300 billion of goods from China. If they are allowed, tariffs covering nearly all imports from China would go into effect as soon as late July or August of this year. Tariffs would expand to include commodities like clothing, metals, agricultural products, and even confetti.
- The Chinese government has announced retaliatory tariff increases on U.S. exports to as much as 25%
Now that the increased tariffs are in place, and so soon after their initial proposal, many American companies are scrambling to find ways to offset increased costs and mitigate the consequences that may make their way to consumers. Luckily, exclusions on certain goods have started to go through, allowing some products and parts to be exempted from the tariffs.
While the rationale given for these moves has always been to bring manufacturing jobs to the U.S., recent news headlines have been filled with reports that tech giants like Apple, Nintendo, and Google plan to move large portions of their manufacturing out of China. However, instead of bringing these jobs back stateside, the majority of manufacturing jobs will either move to other Asian countries or Mexico. The jobs that have potential to make it back to the U.S. will likely be low-skill—domestically assembling parts that were produced in China as a means to circumvent tariffs.
As the reciprocal pull in this economic tug-of-war, China has left American agricultural producers reeling, placing tariffs on U.S. exports that make it nearly impossible for farmers to export their goods. The Chinese government has also taken significant steps in reducing tariffs for economies that compete with the U.S., in an effort to offset the costs Chinese companies suffer. Instead of following suit, the U.S. has made threats to impose lofty tariffs on imports from Mexico, though these may be on hold for now.
As the world awaits the outcome of the proposed Section 301 List 4 expected in late June, we are watching the meetings between President Trump and Chinese President Xi Jinping. Scheduled to coincide with the G20 Summit on June 28th and 29th, these talks will hopefully lead to an agreement on the deescalation of the trade war.
As you and your supply chain adapt to these changes, know that Navegate is always standing by, ready to help you make sense of it all. If you have questions or need compliance help, know you can always reach out to our global trade experts.
Compliance Division Manager