Leibowitz on Trade: Importers’ Guessing Games

The situation is like buying a car, but not knowing how much sales tax you owe until a couple of years later—much later than when you decided to buy it. Faced with that dilemma, a lot fewer people would buy the car than if they knew the price from the beginning. Importers and traders are in that boat now. With the tariffs under the watchful eyes of Peter Navarro, Robert Lighthizer and Wilbur Ross, one feels that this guessing game is not an accident. 

One trade remedy field where this has been true for a long time is the realm of antidumping and countervailing duties.

In the last week, this lesson came home in aluminum “common alloy sheet.” A new set of products from 18 countries is now exposed to undetermined antidumping duties. As is typical of these stories, the media say things like: “The Commerce Department slapped dumping duties of 3 to 300 percent” on aluminum imports. Those are not duties, but “cash deposit rates” required at the time of importation. Final duties will be assessed a couple of years from now; they may be higher or lower than the cash deposit rates. As the only major country in the world that assesses duties on a “retrospective” basis, the U.S. government does not let importers know what the final duty will be until long after they import the product. The only way to know what the final duty will be is not to import.

Companies that deal in solar energy are learning a similar lesson. President Trump issued a new proclamation last week that revised upward the tariffs on these products, effective in February 2021. In another setback for some members of the solar industry, the president also announced revocation of an exclusion from tariffs for certain solar panels (“bifacial panels” with solar cells on both sides). The bifacial panel controversy has bled over into the courts because the Office of the U.S. Trade Representative attempted to remove the tariff exclusion late last year, but the Court of International Trade stopped the removal. The president is now attempting to do what the court said could not be done under the law. As of today, a new injunction prevents the proclamation from going into effect. But still, importers do not know whether their imports will ultimately be subject to tariffs, now or in the future.

The China tariffs have shared similar characteristics. Some of the China tariffs have been 25 percent since 2018. However, others have fluctuated—from 10 percent to 25 percent, from 15 percent to 7.5 percent, and so forth. Alterations nearly always catch product that was ordered months before but is “on the water” when a change is announced.

The USTR has issued thousands of exclusions from the China “Section 301” tariffs. The exclusions, unlike steel and aluminum exclusions, must be requested in certain “windows.” Those windows have closed, but there is an opportunity to apply to extend the exclusions. The Office of the USTR tends to be more reluctant to extend the exclusions than to approve them in the first instance. The extensions, however, are fairly short. For the third list of products hit by China tariffs (familiarly known as “List Three”), exclusions issued in January 2020 expired on Aug. 7, and some of them (by no means all) were extended in July until the end of 2020. It is already too late to place orders for products that have exclusions expiring at the end of the year because they will arrive on our shores after Jan. 1, 2021. More guessing games.

The steel and aluminum tariffs under Section 232 require importers to guess whether tariffs will be continued, reduced, increased or excluded. In March 2018, the president announced tariffs on steel and aluminum. Thereafter, he imposed new tariffs and quotas on Canada, Mexico, Brazil, South Korea, Argentina, and double tariffs on Turkey. And then, in January of this year, he imposed “derivative products” tariffs on steel and aluminum downstream products. Thus, whether there is domestic production of competing products or not, U.S. purchasers of these products must pay 25 percent on steel and 10 percent on aluminum “derivative” products.

The “guessing game” for importers, traders and U.S. customers pervades the tariffs imposed under all these provisions. Ambassador Lighthizer, a true believer in tariffs, has fostered the mindset that manufacturers using imported products are complicit in the unfairness that he believes plagues world trade. Imposing tariffs by surprise, increasing or removing tariffs seemingly at random, appears to some as inattention or even incompetence because of the disruption it causes to American importers and manufacturers. Others see it as a deliberate tool to change the behavior of American companies. If the message goes out that importing is a risky business, people will tend to avoid it.

One problem with that theory is that behavior does not change, at least not as much as some would like, because there is a shortage of reasonable alternatives. Companies wanting to ease their dependence on imports of components and raw materials can find alternatives to China, but not domestic ones. There are, by most accounts, few American factories starting up or resuming operations as a result of these protective tariffs. And even the exit of companies from China has not been as significant as many, including Ambassador Lighthizer, might have hoped.

The guessing game may be counterproductive to the American economy if the country fails to address the lack of available alternatives to imports.

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