China Tariff List 4 Risk Assessment

We have received many questions about the proposal to add nearly all the rest of U.S.-China trade to the Section 301 tariffs on September 1. The official record is quite unclear, all we can do is look to past experience and do a risk assessment. Keep in mind, as the financial guys say, "past experience is no guarantee...," but it is all we have to go on.

BACKGROUND

On May 17, 2019, the Office of the United States Trade Representative published in the Federal Register (84 FR 22564) [Docket Number USTR–2019–0004] Request for Comments Concerning Proposed Modification of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. This was the fourth proposed list (called a "tranche") of articles of Chinese origin to be subject to import duties in addition to the general rate. The additional rate was proposed at up to 25%. Tranche 1 and Tranche 2 have a 25% Section 301 duty. Tranche three initially had a 10% rate, but was increased to 25% as well.

Proposed Tranche 4 was opened for public comment and a hearing was held. The deadline to submit comments was the day of the hearing, July 17, 2019. In the normal course of things we would have expected USTR to announce the final tranche 4 about three to four weeks after the hearing. However, on June 29, even before the close of comments and the hearing, the President announce that he was putting list 4 on hold. On August 1, 2019, the President announced that he intends to go ahead with list 4, at 10%, starting September 1, 2019.

RISK ASSESSMENT

At Agathon Associates we are of the opinion that in view of short time before the tariffs are anticipated and the fact that USTR has already gathered public comments and testimony and started analysis, that USTR will likely issue the final list 4 within a few days. Based on our observations from lists 1 through 3, we believe it unlikely that USTR will remove much from list 4. We also believe that, given the current state of U.S.-China trade talks, which are at the coldest ever, there is little likelihood of averting tariffs, meaning the September 1, 2019, will likely stick. Finally, in view of the way List 3 went from 10% to 25%, we believe that if this trade dispute continues into 2020, there is substantial risk of 25% tariff of list 4.