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OUR PERSPECTIVES

The U.S.-China Reset: What Happens with 301 Tariffs?



President Joe Biden and China’s President Xi Jinping seemingly had a productive meeting and even lowered the escalating tension between the two nations. Much of the post-meeting attention was on military cooperation, communication, and the geopolitical landscape. One major issue that is not only unresolved but also quickly approaching, is the future of Section 301 tariffs on products imported from China -- a key priority of many businesses that rely on imported products and the supply chains that support them.


The U.S. Trade Representative (USTR) is finishing a four-year review of the tariffs, which will help inform the Administration's path forward. These were tariffs first implemented by the Trump Administration, which have largely gone unchanged since President Biden took office. Companies with products that have been excluded from the tariffs are, understandably, hoping that either the exclusions remain in place or the tariffs are removed altogether. Companies with products that are subject to the tariffs but have no exclusions are hoping for either a new exclusion process (which may get their product exempted) or for the tariffs to be eliminated altogether. Here are three issues to watch to better understand the current landscape around these 301 tariffs:


The 2024 Election: The Section 301 tariffs are unlikely to be eliminated prior to the 2024 election. The White House would face significant risk among their base (especially unions that are hoping for reshoring) and the campaign trail (as former President Trump would use a reversal of these tariffs to build a "soft on China" narrative around the President). There is not a lot of upside to quickly removing these tariffs, and the political and policy implications are significant.


White House Relationship Goals with China: Leading up to the meeting with President Xi, cabinet members were regularly visiting China to strengthen the relationship and work on issues of mutual interest. It is clear that the White House views a stronger relationship with China as an important goal. The removal of the exclusions (and a full reinstatement of all tariffs) seems misaligned with that goal. It would be surprising to see a significant move towards tariffs at this stage of "re-engagement" between the United States and China.


The Economy: The top issue for voters headed into the election is, as usual, the economy. Increasing tariffs by removing exclusions would risk impact on the economy and even higher prices on consumer products. It would seem that significant changes to increase the number of products subject to tariffs (by removing exclusions) would create some economic risk, which the White House is eager to avoid.


Going forward, we will need to closely watch the actions of the USTR and their four-year review to better understand if they have any interest in removing exclusions, creating a new exclusion process (especially for products not yet excluded), extending current exclusions, or even adjusting the current scope of the tariffs. While there is no clear path forward, the White House's goals for a relationship with China, worries about the campaign trail, and their focus on the economy may help protect existing exclusions from further tariffs.


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