On May 14, the Office of the US Trade Representative (USTR) announced that it is proposing to add or increase tariffs on select Chinese-origin products in “strategic sectors,” pursuant to Section 301 of the Trade Act of 1974. This announcement is the culmination of USTR’s statutorily-mandated “four-year review” of the Section 301 tariffs that USTR imposed under the prior Administration on a wide range of Chinese-origin products.

USTR is proposing to add or increase tariffs on numerous product categories, including electric vehicles (EVs), lithium-ion EV and non-EV batteries, battery parts (non-lithium-ion batteries), natural graphite and other certain critical minerals, permanent magnets, semiconductors, solar cells (whether or not assembled into modules), steel and aluminum products, certain medical products, and ship-to-shore cranes. All other existing Section 301 tariffs will remain in place at their current levels. In addition, although it is not explicit, it appears that USTR does not intend to extend existing Section 301 exclusions, including those for certain medical-care products and products related to the US response to COVID-19, that are scheduled to expire on May 31, 2024.¹ The Biden Administration’s stated purpose for today’s action is “to protect American workers and American companies from China’s unfair trade practices” and “[to] encourage China to eliminate its unfair trade practices regarding technology transfer, intellectual property, and innovation.”

Concurrent with the USTR announcement, the White House published a memorandum from President Biden to USTR Katherine Tai directing her to increase the tariffs, as well as a Fact Sheet that further describes today’s action, which will reportedly cover $18 billion in imports. The details of the tariff increases are as follows:

In a 193-page report accompanying USTR’s announcement, USTR sets out its conclusions regarding the effectiveness of the Section 301 tariffs in achieving the objectives of the Section 301 investigation. On one hand, the report finds that the tariffs have been effective in changing some of China’s technology transfer related acts, policies and practices. On the other hand, it finds that other Chinese efforts persist and the burden or restriction on US commerce has increased. The report describes the tariffs as providing “leverage to induce China to resolve the unaddressed issues raised by the Section 301 investigation.”

In addition to the increases in tariffs, the USTR report also recommends: (1) establishing an exclusion process targeting machinery used in domestic manufacturing, including proposals for 19 temporary exclusions for certain solar manufacturing equipment; (2) allocating additional funds to United States Customs and Border Protection (USCBP) to allow for greater enforcement of the Section 301 actions; (3) increasing collaboration and cooperation between private companies and government authorities to combat state-sponsored technology theft; and (4) continuing to assess approaches to shift supply chains away from China and enhance the “supply chain impacts” of the Section 301 tariffs.

Today’s announcement did not include a list of HTS lines for the products subject to the proposed tariff increases. However, Appendix K of the USTR report does include a list of 8-digit tariff lines for the products that USTR is proposing to include in the exclusion process for machinery used in domestic manufacturing, which will be limited to certain machinery covered in Chapters 84 and 85 of the HTSUS. The 19 proposed temporary exclusions for certain solar manufacturing equipment appear in Appendix L.

According to the USTR announcement, USTR will issue a Federal Register notice next week that will announce procedures for interested persons to comment on the proposed tariff modifications, as well as information on the proposed exclusion process for machinery used in domestic manufacturing.

Today’s announcement marks the first time that the Biden Administration has proposed to add or increase tariffs under Section 301.² In reaching this decision, the Biden Administration appears to have in practice rejected requests that it reduce or eliminate tariffs on certain categories of products, including consumer goods and China-origin products that US companies use as inputs in their United States manufacturing operations. USTR’s reference to increased enforcement of compliance with the Section 301 duties by USCBP also signals the possibility of further tariff increases and other actions to expedite the shift of US supply chains away from China. For companies that have relied on tariff exclusions to be able to continue to source key inputs from China or hoped that the four-year review process would provide tariff relief, this announcement makes clear that the Section 301 tariffs are here to stay for the foreseeable future and that other trade restricting actions may be on the horizon.

Background

As WilmerHale previously reported, USTR initiated the review in accordance with Section 307(c) of the Trade Act, which requires USTR to terminate a Section 301 action after four years if neither the petitioner nor any representative of the domestic industry that benefits from the action submits a written request for its continuation. Today’s announcement comes just over two years after the May 5, 2022, initiation of the process.

WilmerHale continues to monitor these developments closely and is prepared to advise clients on how to respond to these latest developments.