The last few years have been difficult for U.S. importers, particularly of products from the People’s Republic of China. More than one frustrated importer has told me some version of, “I can plan for anything, I just need to know what to expect.” Therefore, many are asking how tariff and trade issues will develop under President-elect Joe Biden's administration. While in the short-term uncertainty will likely remain, there is reason for optimism.
Without addressing the likelihood of long-term trade agreements (such as a resurrected Trans-Pacific Partnership), several issues need to be addressed in the short term. Among them are significant tariff relief measures that expired on Dec. 31, 2020.
The first was the expiration of most exclusions to the notorious Section 301 25% and 7.5% tariffs on imports from China of thousands of Harmonized Tariff Schedule (HTS) codes. The tariffs, in place since late 2018, were broad-based, and the U.S. Trade Representative (USTR) provided scattershot relief by granting exceptions (technically called “exclusions”) for many products. The exclusions provided important relief for many U.S. importers who could not shift their supply chains outside of China.
However, the USTR has not extended the exclusions, causing them to expire and reimposing the higher tariff rate on thousands of products. This will put the new administration in a difficult position of having to decide whether to instantly (and perhaps retroactively) reimpose the existing exclusions, or come up with its own process for reevaluating the legitimacy of exclusions (which would take many months). The initial adjudication of exclusion applications was opaque and frustrating for many importers, but starting the process over will be extremely difficult and time consuming.
Initially, some importers were hopeful that Biden would simply remove all the Section 301 tariffs. That was never likely, as the tariffs are a useful bargaining chip in future trade negotiations with China. Biden confirmed this in early December by stating that he would make no “immediate moves” to reduce or remove the Section 301 tariffs. However, in the long run, it would be relatively easy to reframe these tariffs as harmful to U.S. importers and consumers and then sacrifice them in the context of broader trade negotiations. Given the fraught U.S.-China relationship, that will not be a fast process.
The second expiration on Dec. 31, 2020, was the end of the most recent three-year Miscellaneous Tariff Bill (MTB) that grants tariff reduction or removal on thousands of specific products based on petitions filed by U.S. importers. A new MTB was to be passed for the next 2021-2024 period, covering many of the same but some new products. Blame for this delay falls on Congress. The U.S. International Trade Commission completed its extensive work reviewing petitions and issued a final report in August 2020. However, the new MTB relief cannot go into effect until Congress approves it. While this temporarily raises tariffs for many products, it is likely that Congress will approve the new MTB rates relatively quickly. Even when passed, the new MTB bill is significantly different than the past three years, so importers should review the new rates to determine whether opportunities exist to reduce their tariff rates.
In other areas of trade restrictions and tariffs, importers are likely to see continued stability. For example, the Biden administration will likely retain new Customs and Border Protection orders restricting certain imports from the Xinjiang Uyghur Autonomous Region due to China’s ongoing human rights abuses. Importers are strongly encouraged to conduct due diligence on their supply chain to assess whether any components are potentially the product of Uyghur forced labor. Xinjiang-focused trade restrictions have broad bilateral support.
Biden’s choice of Katherine Tai as the incoming U.S. Trade Representative was a good one. She has been applauded for emphasizing multilateral cooperation and is likely to focus more on substantive economic benefits than on rhetoric. She has also reportedly pushed for stronger labor and environmental rules in the context of negotiations with Mexico and Canada, so will not simply be seeking the quickest path to lowering trade barriers. Whether Tai can successfully negotiate with China may depend on broader political considerations and the attitudes in Beijing. The continued reports of repression in Xinjiang and Hong Kong will make it difficult for Biden to take too conciliatory of a tone towards trade negotiations.
There are many other sector-specific tariff developments for importers to track. Among those are potential Section 301 tariffs on Vietnam, multiple ongoing U.S. investigations to protect domestic food producers, and whether Section 232 steel and aluminum tariffs (and related exclusions) will be retained or replaced. While beyond the scope of this note, importers should expect no instant relief (other than the MTB noted above). Instead, the optimistic view is to hope for calmer seas ahead, with stable land appearing on the horizon in coming months or years.