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The U.S. Trade Representative Announces Mixed News for Existing 301 Exclusions

Just days after the Office of the United States Trade Representative (USTR) announced that tariffs on electric vehicles would be increased to 100% and tariffs on semiconductors would be increased to 50%, they also announced adjustments to Section 301 tariff exclusions to existing products imported from China – outlining that some of the existing exclusions would remain in place and others would be removed effective June 14th. Below are answers to many of the questions we are currently receiving from clients: 

Is the Recent Action on 301 Tariff Exclusions A Surprise? Part of the problem with Section 301 Tariffs has been their uncertainty. Companies have been forced to plan annually around the potential for exclusions to expire or to be continued with little advance notice. The uncertainty around these tariffs made it hard to know what the future of them would be. On the one hand, the Biden Administration has been aggressively working with China to reduce tensions, including regular cabinet secretary travel to China. But on the other hand, the Administration has been facing political pressure and difficulty from their policy allies (i.e., unions, Senate Democrats, etc.) to make adjustments to the existing tariff policies. Given that the Administration has traditionally issued full exclusions to all excluded products, the biggest surprise of this announcement was that they effectively picked “winners and losers” among the products and avoided extending everything.  


What is driving the Administration’s Recent Announcement on Trade? There is a mix of factors here, not the least of which is bipartisan concern around unfair trade practices from China that have continued. Tariffs are painful on China and the Administration sees them as a way to change behavior in China and force U.S. companies to move their operations outside of China. Of course, there is a political element here too…these tariffs were started by former President Trump and were a key policy priority during his term in office. With an election on the horizon (and former President Trump on the ballot), these policy changes help solidify President Biden’s position on China and reduces some political risk around being too “soft” on China. This is a good example of the confluence of policy and politics, which is not all that unusual with 160 days until the election.


How Did the USTR Determine What Product Exclusions Were Extended? USTR decided to extend exclusions where they “found that extending these exclusions will support efforts to shift sourcing out of China, or provide additional time where, despite efforts to source products from alternative sources, availability of the product outside of China remains limited.” This would indicate that the any extensions of exclusions are not intended to be continued well beyond the current extension period.


How Did the USTR Determine What Product Exclusions Would Expire? USTR indicated that exclusions that will not be extended into next year either did not receive any public comment or “public comments do not demonstrate that further extending the exclusion would aid efforts to shift sourcing out of China in the near term or do not demonstrate that products covered by the exclusion are unavailable outside of China.” In short, products that did not expressly highlight a near-term plan to move outside of China were terminated.    


Could The USTR Adjust This New Policy Down the Road? Technically, the exclusions could be reinstated by the USTR at some point down the road. However, that is politically impractical in the near-term. The Administration is working to solidify the credibility as being tough on China and adding new exclusions would not align well with that narrative. That said, after the election, anything is possible given the changes in political climate and adjustments in the policy landscape.

When Will Exclusions Expire? For products receiving a long-term extension, the exclusion will expire on May 31, 2025. For those whose exclusions are effectively going to expire, they will receive a short-term extension until June 14, 2024.


What Other Trade Policies Should Companies Watch? Regardless of who is in the White House, it appears likely that importing from China will have some roadblocks, including tariffs (i.e., Trump has suggested further increasing tariffs)  There are two policies that would align somewhat with this policy trend – re-starting the Generalized System of Preferences (GSP) and dramatically lowering the de minimis Threshold. 


The GSP allows for duty-free treatment on imports from developing countries (a win-win for both the U.S. and the developing trading partner). Unfortunately, Congress allowed the GSP to expire in 2020, which has forced companies to pay tariffs on imports since then. A retroactive re-start to GSP would allow companies to recover costs since 2020, while also providing meaningful incentives for companies to diversify their manufacturing footprint beyond China. Similarly, the current $800 de minimis threshold for importing products into the United States duty-free is both out of line with most of our trading partners and has opened the door for Chinese companies to undermine U.S. manufacturers and retailers. Passing GSP (retroactively) and lowering the de minimis threshold dramatically would have real and immediate impact on the concerns the White House has with China.






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