Making Sense of the US Trade War Changes

A lot is happening on the trade war front presently. Tariff increases, deadlines, circumstantial changes, additional tariffs… We understand that this leaves many companies searching for accurate information as to what increases they face and when those increases are effective. The objective today is to provide you with a bit more clarity than may be present elsewhere.

CURRENT TARIFFS IN PLACE (China)

List 1: $34 Billion in goods at an additional 25%

  • Effective with US Arrival of July 6, 2018
  • Available here: https://ustr.gov/sites/default/files/enforcement/301Investigations/List%201.pdf

List 2: $16 Billion in goods at an additional 25%

  • Effective with US Arrival of August 23, 2018
  • Available here: https://ustr.gov/sites/default/files/enforcement/301Investigations/Final%20Second%20Tranche.pdf

List 3: $200 Billion in goods at an original 10%, with factors that will trigger 25%

  • 10% on all products effective September 24, 2018
  • Announced to increase to 25% with qualifying circumstances in May 2019 to include:
  • ETD Origin before May 10, 2019 & arriving before June 1, 2019 – Remain at 10%
  • ETD origin before May 10, 2019 & arriving after June 1, 2019 – 25%
  • **The above has been extended to June 15, 2019
  • ETD after May 10, 2019 – 25%
  • Available here: https://ustr.gov/sites/default/files/enforcement/301Investigations/Tariff%20List-09.17.18.pdf

List 4: Up to $300 Billion in goods, subject to as much as 25% (estimated) additional duties

  • This group is not yet official, public comment period is open until June 17
  • A preliminary list of items is available in the Federal Register

The most followed items currently are List 3 and 4. List 3 saw a last minute extension from June 1 to June 15 deadline on arrival that was published Friday, May 31, 2018 at approximately 5:06pm by the US Trade Office. Goods that departed before May 10, but not yet arrived or arriving now will avoid the increase from 10 to 25% for a short period if everything else remains unchanged. Unfortunately, due to the nature of the last minute changes, US Customs and Border Protection was not able to make modifications to the automated customs entry (ACE) portal in time for the entries being made. Importers may see duties allocated at 25%, resulting in a need to pay and await a refund. However, CBP is working aggressively to reset their system parameters and dates so that importers are not required to pay the higher rates until they actually become effective.

Talks with China have not appeared to turn toward a more positive track. Sunday, China released a White Paper on the trade discussions, challenging the reports and articles consuming US media presences. Critically, the white paper makes some very different claims including:

  • US Breach: The increase of tariffs on list 3 to 25% was a direct breach of the agreement President Trump and President Xi Jinping reached
  • US has been the party backtracking on talks and negotiating points “The U.S. government accusation of Chinese backtracking is totally groundless. It is reckless to cause China of ‘backtracking’ while the talks are still under way.”
  • Greedy U.S. Demands; China claims that many concessions were made and when nearly all demands were met, they requested a little compromise on the final points but the U.S. representatives refused to budge on any demand
  • the list goes on, but importantly, it argues against nearly all reports surfacing on the U.S. front

As if the trade war with China were not enough to handle, President Trump also announced a plan to assign additional duty to imports from Mexico last week, as well as removing India from the special trade program. Economists agree that the U.S. cannot afford to fight trade wars on multiple fronts. The Dow dropped below 25,000 Friday, the lowest point in four months. The Nasdaq was down 8%, its lowest since May of 2010. Economies the world over are suffering, rattled by the tensions and uncertainty that could follow. Morgan Stanley predicts a recession within nine months if List 4 is deployed.

As for the most pressing topic, List 3, we still do not know what will ultimately happen. Shipments to US west coast are already being hit by the higher duty since they departed after May 10. But the shipments to US East coast have the extension to June 15 as it stands today. Entries that were already made are showing subject to 25%, but the expectation is CBP will rush to update the rates before the duties are actually due. If this change occurs by early next week, importers will see only the applicable 10% charged.