U.S. Tariffs on Imported Chinese Products – Rates and Alternatives
Shipping Chinese Goods Directly to the US
If you are a business owner looking to import goods into the US, you may have some concerns about the current US-China trade dispute which has provoked the US to burden many categories of Chinese products entering America with hefty tariffs. Since 2018, the US has maintained ad valorem tariffs ranging from 10% to 25% on $350 billion worth of Chinese goods to deter trade with their Asian competitor. And yet, importing Chinese goods may still seem inevitable to US business owners in light of certain product specifications and the concentration of manufacturing and other trade resources located in China.
Below, we outline procedures for checking and disputing Chinese tariff rates, as well as the viability of supply chain modifications as a means of avoiding the higher charges.
The Office of the United States Trade Representative sets out its list of tariffs in what it calls its ‘Section 301 Investigations’, subheading ‘China Section 301 – Tariff Actions and Exclusion Process’. There are four main sections of tariffs, divided according to product type and percentage value added:
· List 1 Products - $34 billion worth of imports: 25%
· List 2 Products - $16 billion worth of imports: 25%
· List 3 Products - $200 billion worth of imports: 10%
· List 4 Products - $300 billion worth of imports: 15%
You can find a guide on how to navigate the section 301 Tariff regime here. In summary, you should follow the procedure below:
1. Identify the product’s HTS (Harmonised Tariff Schedule) subheading – you can use the USITC’s lookup table if you don’t already know it;
2. Enter the 8-digit HTS subheading into search field (scroll to bottom of the ‘How to’ page) to check its article description and the s 301 tariff list to which it may belong
3. You may be able to submit an exemption from a tariff for your articles if they are included in one of the lists – the product will appear in the list with a ‘due date’ of the tariff that is hyperlinked to an electronic document allowing you to comment or submit a product exclusion request.
Tariff exemption: note that the exemptions are more likely to protect larger more monopolizing US companies which want to manufacture in China. For example, an iconic US motor company may easily obtain exclusion from the s 301 tariff when it imports from China on account of the very large portion of vehicles it manufactures there. The main factors affecting whether products will qualify for tariff exemption include:
(1) the availability of the product in question from non-Chinese sources;
(2) attempts by the importer to source the product from the United States or third countries;
(3) the extent to which the imposition of Section 301 tariffs on the particular product will cause severe economic harm to the importer or other US interests; and
(4) the strategic importance of the product to “Made in China 2025” or other Chinese industrial programs; and
(5) sometimes, US national security interests and whether there is demonstrable economic hardship from the tariffs for small businesses.
Adjusting the Supply Chain
If your products are on the lists, an obvious workaround may seem to lie in modifying the supply chain so that the products arrive in a third country after production in China and before arriving in the US. This alternative, however, is still insufficient to avoid Section 301 tariffs.
In more technical terms, Section 301 applies to products produced in the People’s Republic of China, a quality of the products that will stick regardless of the path of the products on their way to the US. The US Customs and Border Protection (CBP) applies the ‘substantial transformation’ principle to determine origin of goods, i.e. the country of origin is the one in which the goods were “wholly obtained” or in which they underwent a fundamental change in form, appearance, character, and in which significant value was added to the product, e.g. when flour, dairy and nuts are sourced from different countries to be manufactured in the country of origin. Merely moving the goods from the main producer or source of the goods to another country before importing them in the US will not change China as the country of origin for the purposes of Section 301 tariffs.
A remaining alternative to paying the tariff then lies in splitting production so that a ‘substantial transformation’ takes place in a country other than China rendering the goods the product of that third country. Tariffs on goods from many countries other than China are comparatively very low -- 94% of US merchandise imports by value are industrial (non-agricultural) goods and the average import tariff rate on those goods is 2%, while 50% of all industrial goods imported enter the US duty free. A split manufacturing process may therefore offer cost-effective alternative import pathways despite the additional costs of shipping resources to, setup, and maintenance of production processes in the third location. The costs of this alternative may be rendered especially inexpensive given that goods from territories located very nearby to mainland China, such as Hong Kong and Macau, are exempt from the tariffs on Chinese goods.
If you would like to know more about international trade and shipping strategies, don’t hesitate to contact Borderless Counsel at info@borderlesscounsel.com.