On August 1, U.S. President Donald Trump announced that Washington will impose a 10 percent tariff on USD 300 billion (EUR 267 billion) worth of Chinese imports, commonly referred to as “List 4” in relation to Section 301 of the Trade Act of 1974.
President Trump has also threatened that the latest round of tariffs could go “well beyond” 25 percent if the trade negotiations with China continue to stall, citing that Beijing has dragged its feet on increased purchases of U.S. agricultural goods following an agreement struck during the G20 Summit meeting between the two countries on June 29. Beijing denies that such an agreement has taken place and the purchases have failed to sufficiently materialize as a result.
The List 4 items cover 3,800 subheadings of the Harmonized Tariff Schedule of the U.S. (HTSUS) and cover all remaining products that are not already subject to Section 301 tariffs. These items include raw materials, intermediate goods, and finished products for the iron and steel, machinery, electrical machinery, chemicals, aluminum, and plastics sector, as well as retail and higher-end consumer electronics such as cellphones and laptop computers. As with previous lists, List 4 notably leaves out rare earth minerals and Chinese-made pharmaceutical components that are widely used for the production of cancer treatment drugs, surgical supplies, and pacemakers.
U.S.-China trade tensions
The latest developments come following reported ‘constructive’ face-to-face meetings that took place in Shanghai from July 30-31 and after the U.S. confirmed that additional talks were planned for September. President Trump reportedly resisted internal advice from U.S. Secretary Steven Mnuchin to provide Beijing with advanced warning of Washington’s intention to impose an additional 10 percent tariffs on USD 300 billion Chinese goods. President Trump confirmed that the 10 percent tariffs on List 4 items will come on top of 25 percent tariffs that were placed on USD 200 billion (EUR 178.6 billion) of Chinese imports on May 10 for List 3 products.
From Beijing’s perspective, China is running out of U.S. imports to slap tariffs on and would risk hurting its own domestic economy should it decide to respond with further retaliatory actions. On May 13, China announced that it was imposing retaliatory tariffs of 5 to 25 percent on 5,140 products imported from the U.S. worth USD 60 billion (EUR 53.3 billion) following Washington’s announcement that it would be raising tariffs to 25 percent on USD 200 billion List 3 Chinese imports.
In light of the recent developments, organizations with significant presence in Greater China should anticipate greater regulatory and market restrictions which may include an accelerated rollout of China’s unreliable entities list; increased inspections and regulatory scrutiny; delays for customs clearances and required licenses; export restrictions on key strategic supplies such as rare earth minerals to the U.S.; and potential consumer boycotts of U.S. products due to rising nationalistic sentiments.
The latest escalation would all but suggest that a prolonged stalemate could further deteriorate trade relations between the two countries. President Trump has already openly mused on Twitter that Beijing may choose to wait until after the 2020 U.S. Presidential Election to negotiate a new deal with a Democratic candidate. Chinese state media outlets stated that Beijing will likely no longer give priority to controlling the scale of the trade war, but may instead focus on developing a national strategy for coping with prolonged conflict. It remains unclear as to whether the previously planned September trade negotiation meetings between Washington and Beijing will take place given recent developments.
Considering the volatility and unpredictability of the situation, supply chain professionals should, therefore, conduct proper due diligence on exposure to both countries, identify alternative suppliers if necessary, and develop contingency plans to mitigate the impact of the U.S.-China trade war. In addition, manufacturers with deep supply chains in China should take into account all risks associated with switching to a new supplier which may include the cost of inventory, logistics costs, transfer pricing, and the financial stress suppliers may be under due to the trade dispute. Organizations should also continue to apply for tariff exclusion requests for all Chinese imports subject to Section 301 tariffs with the deadline set for September 30 for List 3 items.
Follow Resilience360’s ongoing coverage of the situation, and download our special reports on the U.S.-China trade war, which cover the sectoral impact of U.S. tariffs on List 3 and subsequent tariffs under List 4 on Chinese imports, as well as China’s own retaliatory tariffs.