It’s Getting Harder for Companies to Escape Trump's China Duties

(Bloomberg) -- U.S. companies and industry groups are returning to Washington this week in an increasingly futile effort to get relief from President Donald Trump’s tariffs on Chinese imports.

More than 80 witnesses are scheduled to testify during the two-day hearing that started Tuesday on the $16 billion in Chinese goods targeted for 25 percent duties, which could be imposed after a comment period ends July 31. The administration imposed tariffs on $34 billion of products on July 6, after similar hearings in May.

The Office of U.S. Trade Representative has also identified an additional $200 billion of goods slated for a 10 percent duty after China retaliated in an escalating trade war, and Trump has said he’s “ready to go” with tariffs on $500 billion in imports -- roughly the value of China’s annual goods exports to the U.S.

While companies successfully lobbied to remove some consumer goods from the administration’s initial list of targets and the USTR will act in good faith, there’s less flexibility because items removed must be replaced to reach Trump’s total, said John Veroneau, a partner at Covington & Burling in Washington and a former deputy U.S. trade representative under President George W. Bush.

“Finding replacements is becoming more challenging,” Veroneau said.

Trade War

Trump is showing no sign of backing down from a global trade war that the IMF has warned could derail the strongest economic upswing in seven years. In a Twitter outburst last week, the president accused China and the euro area of manipulating their currencies, and complained that a rising dollar is blunting America’s competitive edge.

Trump on Tuesday said in a Twitter post that “Tariffs are the greatest!” and he’ll use them so nations pay the price if they refuse to level the playing field on trade.

The Consumer Technology Association at Tuesday’s hearing asked for the removal of 54 product lines including thermometers, motion sensors and semiconductors with an import value of $9.8 billion last year.

“The ultimate impact will be on the U.S. consumer,” said Sage Chandler, the group’s vice president of international trade.

There may be some accommodations made or attempts to shift products from the list of Chinese imports with a 25-percent duty to the one with 10 percent to soften the blow, but that’s hard to do when Trump is aiming for such a high number, said Gary Hufbauer, senior fellow and trade specialist at the Peterson Institute for International Economics.

Resins, Bikes

The hearing on Chinese imports this week focuses on products from resins and chemicals to large freight containers, electric bicycles and vaping devices. Most of the companies and business groups that have filed comments are seeking to have goods spared from duties on grounds the tariffs are ultimately a tax on consumers and hamstrings them with their global supply chains.

Joseph Cohen, chief executive officer of New Jersey-based Snow Joe LLC, testified again Tuesday after he successfully argued in May to have electric and cordless snow blowers removed from the tariff list that took effect July 6.

Now, he’s making the case that lawn products including tillers and log splitters on the $16 billion list should be removed, and the company’s pressure washers are among the $200 billion in goods targeted for the 10 percent duty.

“We’re still optimistic that the administration’s going to come up with a solution,” Cohen said before the hearing.

Companies and trade groups including the U.S. Chamber of Commerce have said they agree with the administration taking action to change China’s behavior on trade but that a negotiated deal, not tariffs, is the better approach.

Business Killer

Kimball Electronics Inc. of Jasper, Indiana, said it may be forced to move manufacturing outside of the U.S. -- just as Wisconsin-based Harley-Davidson Inc. announced last month -- to avoid Trump’s tariffs on diodes and electric integrated circuits.

“I do not exaggerate when I say that 25 percent duties on these products would kill domestic durable electronics manufacturing,” Donald Charron, chairman and chief executive officer, said in written comments posted online.

The semiconductor industry is asking that duties on almost 30 product lines that collectively would cost businesses more than $500 million a year be removed, according to SEMI, which represents companies in the manufacturing supply chain for the electronics industry.

The U.S. has long had a trade surplus in the semiconductor equipment industry globally and with China, and more than 40 percent of imports in the sector from China came from firms that are either U.S. based or owned, SEMI said in written comments.

Ohio-based Scotts Miracle-Gro Co. said in its written comments that the initial duties have already led to $200,000 of additional costs to produce a single product, and its subsidiaries face increases of $850,000 on components such as raw materials, filters, pumps, and compressors on the second duty list.

The company asked for at least 180 days before the tariffs become effective to identify alternative supply sources, where possible.

“An immediate effective date will create turmoil and unsustainable cost increases that will jeopardize American businesses,” Randy Coleman, the company’s chief financial officer, said in written comments posted online.

Some companies are arguing the tariffs on certain Chinese imports be kept or added. The Steel Manufacturers Association wants duties to be levied on fabricated structural steel that China is sending to the U.S. for bridges, airports and other critical infrastructure projects.

Trump authorized the tariffs after an investigation he ordered found that China was violating intellectual property rules and forcing American companies to transfer their technology. The China Chamber of International Commerce denied that in its written testimony and said the tariffs “will lead to nothing but confrontation between the two countries.”

©2018 Bloomberg L.P.