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If China Tariffs Take Effect, Here’s When to Expect Them and For How Long They Will Hurt

While some things in the apparel industry—like uptake in new and necessary technologies—may be moving haltingly, changes in trade, whether real or rumored, are happening often enough that it’s left much of the industry spinning amid the uncertainty.

Speaking on the state of U.S.-China trade and relations at the Sourcing Journal Summit in Hong Kong last week, Sally Peng, Asia Pacific leader for trade law firm Sandler, Travis and Rosenberg, said right now her efforts are aimed squarely at tariffs and their potential impact to supply chains.

And for now, the focus is on the $50 billion in tariffs the U.S. has introduced for China under Section 301, which hits at China’s intellectual property missteps. Targeted tariff lines on that list of 1,300 products, include much of the machinery used in apparel and textile production.

The Office of the U.S. Trade Representative is in the midst of hearings this week to get input from impacted industries over the proposed $50 billion in tariffs, and some leaders in the apparel space have made it clear to that the tariffs would impose both direct and indirect costs to the global supply chain, and send prices soaring.

But as far as Peng knows, a date has not been designated for when these tariffs might take effect, if they take effect at all.

“There’s no clear or definite dates in sight at the moment,” Peng said. The short answer, she added, is “nobody knows.” But looking further at the possibilities, nothing can happen until USTR sees this week’s comment period through and holds a hearing on May 23. From there, USTR has 180 days to decide how it will handle the tariffs and how much of which products will be targeted. “You’re not going to see the realization very soon. Plus, with the current environment, to say the least, there’s a lot of trade negotiations going on and we may not see this for a long time.”

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The timeline for tariffs taking effect aside, what the industry often fails to inquire about however, is how long an imposed 301 tariff can last. The answer, Peng said, is four years.

“Typically, it should be four years and within this four years, any item can change,” she explained, adding that if the tariffs take effect, it wouldn’t be a permanent imposition, but items in the industry could easily be added or removed, which itself leaves little in the way of certainty.

China has responded to the Section 301 tariffs with its own tariffs on 106 goods, including U.S. cotton, in retaliation, and before that, it responded with $3 billion worth of tariffs on things like fruit and pork after the U.S. set steel and aluminum tariffs in place.

And though little more has been said about the $100 billion in additional tariffs Trump alluded to in early April, it still hasn’t been taken off the table.

The U.S. and China have been in discussions in the last week, reportedly designed to quell their trade concerns, and according to people briefed on the talks, both sides are said to be nearing a deal that could see some of these tariffs set aside, The Wall Street Journal reported.

Last month the U.S. Commerce Department banned Chinese telecom company ZTE from importing American inputs for seven years over accusations of noncompliance with a ruling on sales to Iran. Now however, the U.S. appears to be considering relaxing that ruling on ZTE in exchange for China pulling back on its retaliation tariffs, easing up on some of the tariffs aimed at U.S. agriculture.

On Twitter Monday, President Trump said, “ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”

A follow up tweet Tuesday said, “Trade negotiations are continuing with China. They have been making hundreds of billions of dollars a year from the U.S., for many years. Stay tuned!”

No deal has so far been set, so all proposed tariffs remain a possibility.

Trade deficits have really been the thorn in Trump’s side when it comes to global relations, a fact evidenced, according to Peng, by U.S. Treasury Secretary Steven Mnuchin leading the U.S. trade delegation in Beijing.

With this as the impetus, it means more key sourcing countries could be on the chopping block for trade or tariff changes.

“Based on an April report, India for the first time really is on the trade deficit watch, and also Vietnam has the trade deficit also spiked,” Peng said. “For our industry, we tend to try looking for a China plus strategy—we’re getting out of China, we’re getting into Vietnam, we’re getting into India, of course Bangladesh—and all these trade deficit issues are something that we should be on the lookout for.”

For now, with tariffs top of mind, companies should be on the lookout for what’s to come from the first $50 billion in tariffs and whether the administration will move forward with the additional $100 billion. Though apparel, textiles and footwear haven’t been directly targeted yet, they’re not out of the running.

“Assuming the trade friction continues to get worse, in the next wave of products we will be on the list,” Peng said.

The best plan for preparing supply chains from the potential tariff lash?

According to Peng, there’s little companies can really do.

“You’ve already diversified your supply chain. You already work with your vendors,” Peng admitted. “What currently we can do is not much.”