Sunday, July 7, 2019

Trump’s Tariffs Target China’s Unfair Trade Practices

I applaud President Trump’s use of tariffs in response to China’s intellectual property abuse. I especially welcome the proposal to add all finished apparel and home textile furnishings to a fourth list of retaliatory tariffs. The U.S. has imposed tariffs pursuant to Section 301 of the Trade Act of 1974, which authorizes the President to take such action when a trading partner is found to have acts, policies, or practices that are unreasonable or discriminatory and that burden or restrict U.S. commerce. A seven-month-long investigation determined that China systematically engages in acts, policies or practices that are actionable under Section 301. The administration would be acting recklessly and with disregard of the facts documented in the 301 investigation if it failed to impose a traderemedy in the face of China’s unfair trade practices.

What will be the effect of a 25% tariff on apparel and home textiles of Chinese origin? For the American consumer the effect will be negligible. Back-to-school shoppers will fi nd shops and online vendors fully stocked with the articles they need, and at a price they can afford. Take for example, a pair of children’s blue jeans. Currently, as imported from China, those jeans, that retail at around $20, are imported at an average cost of $4.61. A 25% tariff would add $1.15 to the importers’ cost. Even if the entire increase were passed on to the consumer, that’s just a 6% hike. More likely most, or all, would be absorbed at the various levels of the supply chain. That is, if the brands and retailers decide to stick with Chinese sourcing.

Cost-sensitive brands and retailers might, however, decide that the increase is unacceptable. In that case, they can source elsewhere and avoid the 25% tariff. The U.S. has free trade agreements in place with 12 nations here in the Western Hemisphere. With a 25% tariff, in addition to the general duty, Chinese-origin jeans will cost $6.53. That makes sourcing from our regional FTA partners, at an average cost of $5.66, look very attractive. Additionally, when apparel is made in our regional partners, there is a good likelihood that it will contain U.S. inputs. Any shifting of sourcing away from China into our Western Hemisphere supply chain is certain to result in more U.S. textile production and more good-paying U.S. manufacturing jobs.

It is well past the time to do something to counter against China’s unfair trade practices. Year after year, since China’s WTO accession in 2001, USTR has issued an annual Reports to Congress on China’s WTO Compliance, and year after year, the report says the same thing — “Real progress was made, but much more work remains to be done” and “The Special 301 report again placed China on the Priority Watch List and the Out-of-Cycle Review of Notorious Markets featured Chinese markets prominently.” In our approach to China’s unfair trade practices we’ve been doing the same thing and expecting different results. That is why I appreciate this administration’s willingness to try a new, and I believe productive, approach to the China problem.

I understand the difficult situation some manufacturers are in, when inputs not available from any source other than China are on a 301 retaliation list. I urge the administration to release a transparent and expeditious exclusion process that is effective and mitigates the impact on textile producers. I note that for the first two lists, which had exclusion provisions that process is moving forward and, where merited, exclusions are being granted to some U.S. manufacturers who have become collateral damage in this trade action. The fact that some inputs can be sourced only from China should itself be a concern. Years of unchecked unfair trade practices on the part of China have driven other sources out of the market entirely. These tariffs, if maintained, can lead to both more U.S. production and a diversification of our foreign sourcing.