Chinese exporters react to U.S. Tariffs

Chinese exporters react to U.S. Tariffs List No. 4: “This will completely kill my US market.”

USTR announced an increase of special tariffs to 25% on $200 billion of U.S. imports from China on May 10 (“3rd List”), and then, on May 13, announced a “4th List” of $300 billion of imports from China subject to special tariffs, so the tariffs will cover all U.S. imports from China. Contact CTRMS for help moving sourcing from China to Vietnam, including “Advance Rulings” from U.S. Customs and Border Protection.

In China, some exporters were taken by surprise by the latest List No. 4. “Frankly, I am super upset, because this will completely kill my US market,” said one, whose company exports video game console controllers, 85% of which are sourced and manufactured in mainland China. This will kill our market because our products have a 12 to 15% margin; Imposing a 25% tariff would kill our profits.” Products such as smartphones, clothing, toys and other electronics had been excluded from previous tariff lists, reportedly as a way of shielding the US consumer from the worst effects of the trade war. However, their inclusion now brings the reality that consumer prices will most probably rise in the US, should tariffs on the products in List 4 be implemented. ‘It has already been quite bad. Actually our sales already dropped off significantly and I do not know what we are going to do about it,” she said.

 

China counters tariff hike: On Monday, May 13,China said it would increase tariffs starting June 1 on approximately $60 billion worth of American goods in response to the U.S. increasing tariffs on $200 billion worth of goods from 10 percent to 25 percent.

 

Michael Pillsbury, an outside adviser to Trump on China, said the Chinese response was restrained and indicated a willingness to let the process play out in the coming weeks. “Both sides need to recalculate the relative pain they will suffer,” he told Morning Trade. “The bottom line for both Xi and Trump are the economic growth rates they need to deliver to their respective bases.”

 

But there are some signs that talks may only get harder. Pillsbury said it was telling that Vice Premier Liu He lost his status as “special envoy” for Xi and that China told the American side not to use the title anymore in press guidance. That could mean the internal struggle in China is intensifying over a possible deal that hardliners had thought gave too much ground to the U.S.

 

“That suggested to me it’s not Xi Jinping personally in charge of this,” Pillsbury said. “He must have some kind of working group or task force and therefore it’s not Xi Jinping who sits alone.” Watch for more retaliation: “We should expect China this week to signal its intention to retaliate in kind and potentially other means, the most likely being harassment of American companies’ China operations,” said Scott Kennedy, a China expert at the Center for Strategic and International Studies.

 

Although China’s retaliatory response on Monday was proportionate, “the explanation to its domestic audience was couched in quite strong language emphasizing the “righteousness” of China to defend its sovereignty and its system,” said Kennedy, who is in Beijing this week.

 

China’s three “core issues”   and likely U.S. responses: Liu said China would never concede on “major issues of principle.” In a briefing Friday with Chinese media outlets that was summarized by the state-run Xinhua news agency, he laid out three “core concerns” that must be addressed for the talks to be successful:
(1) removal of all the tariffs if a deal is reached, But US officials expect to maintain the tariffs until China implements its commitments, since they, led by USTR Lighthizer, have often said that ensuring China lived up to its commitments was a critical element of the agreement, along with the substance of the agreement, because China has often flouted previous promises to reform its economic policies. In a hearing in March, Robert Lighthizer, Mr. Trump’s top negotiator leading the China talks, said the United States had to maintain the right to be able to raise tariffs “in situations where there’s violations of the agreement.” “That’s the core,” he added. “If we don’t do that, then none of it makes any difference.”
(2) a realistic U.S. demand on purchase amounts by China that should not change “randomly,” and
(3) a more balanced text that respects the “dignity” of China. However, USTR Lighthizer  believes that only by threatening China with a painful loss of access to the U.S. market will the Communist Party leadership consider changing direction. “Indeed,” he testified in 2010, “derogation  may be the only way to force change in the system, to prompt China to truly live up to the letter and spirit of its WTO obligations, and to put in place a sustainable and mutually beneficial relationship.”

 

In the U.S., GOP leaders“The tariffs are bad, but at least this time, Trump is taking on China — and not Canada or Mexico. “They can feel it. The farm community up till now has really supported the president without flinching,” said Sen. Roy Blunt (R-Mo.), the No. 4 GOP leader whose state is a major soybean producer. Yet he concluded: “If you’re going to have a trade fight, the trade fight to have would be  the China fight.”
Farmers are “disappointed but, you know, recognizing that China is the one that is forcing this,” said Sen. Joni Ernst (R-Iowa).
“The president’s right to hold China’s feet to the fire on this,” said Sen. John Barrasso (R-Wyo.). “They wouldn’t be negotiating at all if it weren’t for what the president has done. Of course, I’d like to see a deal done.”

What comes next?
Reneging on the reneging: On the U.S. side, outside advisers are urging Trump to get some assurances from Chinese President Xi Jinping that Beijing could reverse some of its backtracking initially blamed for the breakdown of negotiations. Trump and Xi have yet to speak following the 11th round of talks in Washington earlier this month.

“Lighthizer was only going to go back to Beijing if there was a Trump-Xi call,” said Derek Scissors, a China expert at the American Enterprise Institute.

China 2020: But there is a growing sense that the president might like how things are now, viewing his tough approach to China as an issue that will resonate with voters as election season nears.

“There is a sense the president thinks this is a winning issue and kind of wants to run with it and see where it goes,” said a source briefed on the state of play last week.

Conclusion

Growing trade tensions and disputes between the U.S. and China have added to concerns by U.S. importers, and are likely to continue for years. In the meantime, Vietnam is moving forward for sound reasons of national interest, led by able leaders at an accelerating pace. As far as can be foreseen, the progress being made provides more confidence to business and investment planners to bet on Vietnam – it’s the “right time.”

Disclaimer

All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

No one should act upon such information without appropriate professional advice after a thorough examination of the facts of their particular situation. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected.

NOTE: The U.S. Customs and Border Protection (CBP) requires that importers use “reasonable care when importing.

“For example, under Section 484 of the Tariff Act, as amended (19 U.S.C. § 1484), the importer of record is responsible for using reasonable care to enter, classify and determine the value of imported merchandise and to provide any other information necessary to enable CBP to properly assess duties, collect accurate statistics, and determine whether other applicable legal requirements, if any, have been met. CBP is then responsible for fixing the final classification and value of the merchandise. An importer of record’s failure to exercise reasonable care could delay release of the merchandise and, in some cases, could result in the imposition of penalties or, in certain instances, referral for criminal enforcement.”

“Have you consulted with a customs ‘expert’ (e.g., an attorney, licensed customs broker, or a customs consultant) to assist in the description and/or classification of the merchandise?”

For assistance, please contact the author, Nestor Scherbey, Licensed U.S. Customs Broker, at:

CTRMS Viet Nam
Ho Chi Minh City, Vietnam
Tel: +84 (0) 9 7772 2979
Email:[email protected]

Sources:

USTR Announcement, May 10, 2019
https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/may/statement-us-trade-representative 
“Earlier today, at the direction of the President, the United States increased the level of tariffs from 10 percent to 25 percent on approximately $200 billion worth of Chinese imports. The President also ordered us to begin the process of raising tariffs on essentially all remaining imports from China, which are valued at approximately $300 billion.”

USTR Announcement, May 13, 2019, with List of items on “4th List” (click the link for the Notice, scroll to page 7 to see the Annex – “Proposed Product List”)
https://ustr.gov/sites/default/files/enforcement/301Investigations/May_2019_Proposed_Modification.pdf

Posted: May 20, 2019 (Nestor Scherbey)

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