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China Tariffs Under a Microscope as Congress Moves to Advance Trade Bill

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Nearly four years since former President Trump hit China-made apparel, footwear and textiles with punitive tariffs, several factors are bringing the Section 301 duties back into the spotlight.

The United States Trade Representative (USTR) is embarking on the first stages of a four-year statutory review of the duties levied against China-made goods. Tariff List 3 and List 4 have been separately targeted for review by a Court of International Trade, which found last month that the USTR failed to adequately respond to public concerns before the duties took effect.

And Thursday will see new movement on a long-awaited trade bill. A House and Senate conference committee will convene for the first time to reconcile their respective versions of the legislation. The Senate’s U.S. Innovation and Competition Act (USICA), which passed with bipartisan support in June, calls for a revised tariff exclusion process and the renewal of expired exemptions.

While the House’s COMPETES Act does not include that provision, both sides of the aisle support a new process for tariff exclusions as a top trade-reform priority.

“With a Section 301 tariff exclusion process, American manufacturers will be better positioned to obtain the materials they need for production,” Senator Pat Toomey (R-Pa.) wrote in a “motion to instruct” memo to members of Congress last week. More than 130 Democratic and Republican House members issued a joint open letter to USTR Tai’s office in January asking that she “immediately” create a “comprehensive, fair, and transparent” tariff exemption process allowing U.S. producers and importers to request relief from Section 301 duties.

“I think Congress is really frustrated with the China policy review overall coming out of the USTR, because nothing’s really been done except for a couple of exclusions,” said American Apparel and Footwear Association vice president of trade and customs policy Beth Hughes. Amid the industry’s calls for financial relief amid record inflation and rising operational costs, the government reinstated tariff exclusions on 352 products, including several textiles, apparel items and bags, in March. Hughes believes economic concerns could finally drive Congress to advance the legislation “whether or not the USTR likes it.” Companies have struggled to understand the current process, leaving many confused about where their requests stand or why they’re denied, Hughes said.

AAFA and related groups have lobbied for the removal of Section 301 tariffs, claiming that China continues to act with impunity. Meanwhile, tariffs have led to higher costs for American brands and consumers, AAFA senior vice president of policy Nate Herman told Sourcing Journal.

The National Council of Textile Organizations (NCTO), by contrast, has “long called for a fair, transparent exclusion process to help domestic manufacturers compete globally,” said Kim Glas, president and CEO of the Washington, D.C.-based organization, which wants most of the punitive tariffs remain in place. “The textile industry was very active in requesting that the last administration move forward with penalty tariffs, because our industry has really been hard hit by the intellectual property theft associated with the Chinese marketplace.”

Textile and apparel goods coming into the country are among the top items seized by Customs and Border Protection (CBP). On Wednesday, John Leonard, deputy executive assistant commissioner for the Office of Trade at CBP, said the agency regularly faces an influx of suspected counterfeits and goods potentially made using forced labor.

NCTO believes tariffs provide a mechanism to hit back against these abuses, while encouraging American makers to strengthen domestic supply chains and invest in nearshoring with free trade agreement (FTA) nations. Glas wants to see the exclusion process revised so that certain machinery required for textile production, as well as a number of chemicals and dyes, can be imported duty-free. “There’s going to be about a billion dollars of investment in the U.S. and Central America this year, which is historic, and in part that’s happening because there are tariffs on finished products coming out of China,” she said.

While the Biden administration has yet to walk back Trump-era tariffs, officials haven’t said much about whether they’ve been effective. At an April event hosted by the Bretton Woods Committee, deputy national security advisor Daleep Singh said Trump’s imposition of duties “may have given the administration some negotiating leverage, but these tariffs served no strategic purpose.” The same week, Treasury Secretary Janet Yellen told Bloomberg that lifting the tariffs to combat inflation was a measure “worth considering” that could produce “some desirable effects” on the U.S. economy.

But so far, the USTR has been unwilling to reverse course. Speaking to the Senate Finance Committee in March, Tai said she was disappointed in China’s lack of progress with commitments made in the Phase One deal struck with the former Trump administration. While Tai’s office “launched a direct dialogue” with Beijing in October, “over time it became clear that the PRC would only comply with those trade obligations that fit its own interests.” Tai said it was time to “turn the page on the old playbook with China, which focused on changing its behavior,” and instead work to defend U.S. competitiveness and economic interests by making strategic investments in domestic capabilities and relationships with allies.

“We recognize that China’s unfair trade practices have posed supply challenges to the United States textile industry” and other sectors, Ambassador Sarah Bianchi, Deputy U.S. Trade Representative, said at the NCTO meeting Wednesday. Bianchi said she has had frequent “disappointing” conversations with her Beijing counterpart that have failed to advance President Biden’s agenda. But she stopped short of saying that the Section 301 duties would remain in place.

“We do have this new process coming up, that we’re required to do, by statute,” she said, referring to the mandatory four-year review of the Section 301 duties. That process, which is “really just getting underway,” is pressing the USTR “to take a look at tariffs and this tariff structure, and see what’s worked and what happens.” The USTR recognizes it’s time for a “pivot” that will “widen the approach… to address some of the issues of concern for the president,” she added.

This is “different language” than the USTR has used in the past, AAFA president and CEO Steve Lamar told Sourcing Journal one day after Bianchi’s remarks. “The ‘pivot’ is that I think they’re now finding that the imperative to do something is a lot stronger than it was even a couple of months ago.”

Tariff talk is rising because of growing concerns about inflation, “and the administration is signaling with their words, and increasingly with their deeds, that this is going to be a priority of theirs,” Lamar said. While the footwear, apparel, textile and travel goods sectors accounted for just 6 percent of imports last year, Lamar said the industry at large paid $21 billion in 2021 tariffs—about 25 percent of all import duties the U.S. government collects. Unhappy consumers are forcing lawmakers to take notice.

The popular narrative that “tariffs create leverage” has been tested over the past four years, and China has demonstrated that “it’s not going to work within that dynamic,” Lamar said. He believes the USTR may now be “trying to figure out a process or a pathway to kind of unwind the framework they were handed by the Trump administration.”

Addressing the Section 301 duties and a new exclusion process will be a top priority as the congressional conference committee meets this week. “There’s a lot of interest—and I think a lot of discipline, to be honest—about trying to keep the package moving,” Lamar said.

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