Leibowitz on Trade: "A New and Disturbing Turn"

Before taking their shortened break, the Senate passed the Miscellaneous Tariff Bill, suspending duties on hundreds of products important for U.S. manufacturers. This bill is the first under a new system adopted a couple of years ago to streamline the miscellaneous tariff bill process. The International Trade Commission has the job of evaluating bills to suspend duties. Only non-controversial bills are included in the package. That means that if there is an objection, a duty suspension generally does not make it into the bill. There are budget considerations, too. If projected revenue loss is more than $500,000, a budget offset (spending cut or revenue increase) needs to be found. That usually is an insurmountable obstacle. With all those nails on the highway toward passage, the Senate bill has more than 1,600 duty suspension items. The duties are usually (but not always) eliminated (down to 0 percent), and the suspension will last until the end of 2020. The House passed a similar bill last winter. Differences between the Senate and House bills will need to be ironed out. Final passage is expected this year.

Duty suspension is an interesting concept. These usually involve imports that create American jobs, because the imports are components, raw materials or equipment that are not available from domestic suppliers. The concept that imports are important to American manufacturers is recognized in this instance. However, the new Trump tariffs do not have a similar process to identify important raw materials.

Product exclusions are a feature of the Section 232 tariffs, as well as the China Section 301 tariffs (at least the first list). The exclusion process has resulted in a very small number of exclusions on steel and aluminum. Many have drawn objections. Critics of the exclusion process (and there are many) note that domestic steel companies object to exclusions for products they don’t make and have shown no willingness to sell. One recent case was for line pipe with a certain weld that is not made in the U.S. The Commerce Department denied the exclusion because another welding method (a much more expensive one) is offered by domestic line pipe producers. Other objections claim to offer semifinished products for sale, but with no supporting evidence. Most of these requests are still pending. If they are denied, steel re-rollers on the West Coast will be in serious trouble. Similar objections have been filed for finished steel products, as well. Domestic producers do not appear to believe that they need to sell more steel to make the tariffs work.

President Trump has asked the U.S. Trade Representative to consider new tariffs of 25 percent against $200 billion of Chinese imports, up from the initial proposal of 10 percent. This could stifle trade much more severely. We have noted that the 10 percent aluminum tariffs under Section 232 have resulted in much less disruption than the 25 percent steel tariffs.

Over the weekend, China announced new tariffs on $60 billion of U.S. imports. This was in response to the escalation of the tariffs on $200 billion of imports by the United States. The Chinese tariffs are not in effect yet; however, they are a clear sign that the tariff exchange is escalating. As the new tariffs become clearer, it will be useful to gauge the items that will disrupt supply chains and threaten jobs in the U.S. manufacturing sector. As the U.S. tariffs apply to a higher value of goods than China imports from the United States, observers will look for other methods of retaliation by China, including investment restrictions on U.S. companies operating in China. This would mean a new and disturbing turn in the trade war.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
1400 16^th Street, N.W.
Suite 350
Washington, D.C. 20036

Phone: (202) 776-1142
Fax: (202) 861-2924
Cell: (202) 250-1551

www.lellawoffice.com