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Tariff Update: U.S.-China Truce and List 3 Exclusion Process

July 01, 2019

U.S. and China called a trade cease-fire over the weekend

Following a meeting on the sidelines at the G20 summit in Osaka over the weekend, President Donald Trump and China’s Xi Jinping agreed to resume trade talks, while pledging not to apply new tariffs to either country’s imports. At stake were a fresh round of 25% tariffs on the remaining $300 billion in Chinese goods. Trump threatened to impose those tariffs after talks stalled back in May.

What do we know?

President Trump said that the United States will give China a list of American products to buy, and that China will increase its purchase of agriculture. However, a Chinese government summary of the truce did not mention such purchases.

While further tariffs are off the table for now, those already in place on $250 billion in Chinese goods will remain in effect. Last summer, the United States Trade Representative (USTR) imposed 25% tariffs on $50 billion in Chinese imports in crucial industries like car-making and the manufacturing of parts for nuclear reactors (Lists 1 and 2). The USTR then put 10% tariffs on $200 billion of a broader array of Chinese imports in September of last year, before raising those tariffs in May of this year to 25% (List 3).

President Trump also said he would loosen restrictions that his administration imposed on the shipment of tech equipment to Huawei Technologies. Those limits cut off the Chinese telecom equipment giant from the semiconductors and other technologies it needs. The Huawei decision was welcome news for the markets, but it has received some pushback from Congress.

What’s next?

No time limits were placed on any agreement and no schedule for new talks was released by officials from either Washington or Beijing. The results of the Osaka talks are similar to those when Trump and Xi met in December, resulting in a truce that left in place higher American tariffs on Chinese-made goods. That truce lasted until May, when the Trump administration accused China of backtracking on a partially completed agreement that would have replaced tariffs with broad structural changes in the Chinese economy.

The exclusion process is now open for List 3 of the Section 301 tariffs

The USTR last week announced the formal procedures for requests to exclude products under List 3 that covers $200 billion of Chinese goods. An online portal for submitting the exclusion requests opened June 30, with a submission deadline of September 30, 2019. The process is open to all interested parties, including trade associations.

Any exclusions granted will be retroactive to September 24, 2018, when the initial 10% tariffs were imposed. The exclusions will extend for one year after the publication of the exclusion determination in the Federal Register.

The request form is more detailed than the submission forms for Lists 1 and 2. Each request must specifically identify a particular product, and provide supporting data and the rationale for the requested exclusion.

Requests will be evaluated on a case-by-case basis, considering the stated rationale for the exclusion, whether the exclusion would undermine the Section 301 objectives, and whether the request defines the produce with sufficient precision. Additional information includes the quantity and value of the imported goods and sales and revenue numbers.

Other interested persons will have 14 days to respond to the request, indicating support or opposition. The requester will then have seven days to reply to the response.

Companies that import List 3 products should consider submitting an exclusion request. So far, the USTR has granted five rounds of exclusions on the initial $34 billion in tariffs (List 1), and the USTR is making progress on the second list of $16 billion.