Analysis

Trump Throws A Curve With Two-Pronged Tariff Approach

Law360 (June 15, 2018, 8:56 PM EDT) -- President Donald Trump's decision to impose punitive tariffs on Chinese technology in a squabble over intellectual property policy arrived with a wrinkle as the administration primed one set of duties for July while keeping another batch for the future, adding a new layer of intrigue to the sprawling trade fight.

Trump and his advisers had been repeatedly touting their desire to slap duties on $50 billion worth of Chinese goods. That may well come to pass, but the administration's two-pronged approach Friday raised eyebrows within the trade bar.

First up is a set of 800 products that will be hit with a 25 percent tariff beginning July 6. That list, pared down considerably from the 1,300 items proposed in April, comprises a litany of IP-intensive technology goods, vehicles and medical devices. Taken together, the list covers about $34 billion worth of Chinese merchandise.

Separately, the administration unveiled a new list of proposed tariffs covering $16 billion in Chinese trade that it will now open for public comment. That list also includes technology items like integrated circuitry, but additionally covers valuable chemical compounds that have a bevy of uses in the market.

Politicians on both sides of the aisle leaped to blast the administration as taking a too-aggressive approach in its bid to undo China's rules requiring foreign companies to hand over sensitive technology as a condition of doing business and other controversial policies, but the reaction among attorneys varied. For her part, Baker Donelson Bearman Caldwell & Berkowitz PC partner Doreen Edelman thought it signified a welcome level of restraint by the White House.

"I thought logic prevailed, at least temporarily. The pullback on the tariffs shows that some thought and review went into the classifications that they actually put on the list," Edelman told Law360. "They had an opportunity to add additional tariffs to the list, and they didn't."

New tariffs may still come, but not before they have been subject to a round of public consultation just like the initial proposed list. The first consultation process saw a number of groups push back against the duties and it seems to have had some effect, as the administration trimmed about 500 products from the original list of 1,300.

Edelman also gave the administration credit for diving deep into the chapter headings of the U.S. tariff schedule and using a scalpel — rather than a sledgehammer — in crafting the duties.

"They clearly paid attention to the details because it was by eight-digit numbers or six-digit numbers, not how some of the industry lobbyists who were saying 'This whole chapter should be on there,'" she said, referring to the headings and subheadings in the official Harmonized Tariffs Schedule of the United States.

But others fear that the addition of yet another looming deadline and round of duties will inject even more uncertainty into what has already been a volatile policymaking process, particularly for importers and downstream suppliers.

"It really doesn't help them at all," Morris Manning & Martin LLP partner Donald Cameron told Law360. "People are trying to keep up with this stuff. All of this is going to translate into the economy through higher prices. There ultimately is going to be a price to pay. It's going to come at a huge cost to the economy."

Cameron was alluding both to the downstream costs of the tariffs themselves and to retaliatory duties that China has pledged to levy in short order.

Almost immediately after Trump's tariffs were made official, China's Ministry of Commerce unveiled its own tariff plans. They precisely mirrored Trump's, with a first round covering $34 billion in U.S. exports taking effect July 6 and another round covering $16 billion worth of goods held open for a future date.

Through that lens, the gap between the two swaths of tariff orders was viewed by some as a ploy to exert more leverage on China as the U.S. continues to talk with Beijing about changes it would like to see in its IP regime, including the elimination of the technology transfer rules.

"The extra list is just a pile-on to say, 'We're serious. We're doing it, and let's strike a deal,'" said Miller & Chevalier Chtd. trade adviser Welles Orr. "Everything about this administration is all about exacting leverage, but they don't have a lot to show for it."

In another attempt to blunt the effect of the tariffs, the Office of the U.S. Trade Representative said it will allow for product-specific exclusions from the duties, much like the U.S. Department of Commerce did with the Section 232 tariffs on steel and aluminum.

But the steel and aluminum tariff exclusion process has been a protracted slog beset with lengthy waits that will likely offer cold comfort to any company looking to get a new exclusion from the China tariffs.

"How that's administered and handled … the Section 232 hasn't left a good taste in anyone's mouth," Orr said.

Even as the administration did show a measure of restraint as it plunges deeper into its trade conflict with China, importers and other U.S. companies situated against the tariffs will still have plenty to keep an eye out for.

"I don't know what to tell them except the same thing I've been telling them all along: You've got to run on two tracks," Edelman said. "You've got to keep your plan as it is, and you've got to plan for the worst-case scenario and find other sources."

--Editing by Jill Coffey and Pamela Wilkinson.


For a reprint of this article, please contact reprints@law360.com.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Ask a question!