The U.S. plans to unleash tariffs on up to $60 billion of Chinese imports have rattled a broad swath of business leaders who are bracing for additional costs and potential retaliation against U.S. exports to China.
Even as the Trump administration appeared to ready a tariff list, however, Treasury Secretary Steven Mnuchin said March 25 on Fox News that he is "cautiously hopeful" a deal can be reached with China before the tariffs are implemented.
President Donald Trump signed a memorandum March 23 instructing the Office of the U.S. Trade Representative to publish a proposed list of products targeted for increased tariffs by April 6.
Trump said at the signing ceremony that he will propose adding an additional 25% tariff on certain Chinese sector imports to the U.S., including aerospace, information communication technology and machinery. The memorandum stated that the tariffs will target "high technology." He noted that the value of the products targeted "could" be up to $60 billion, while two senior administration officials told reporters earlier March 23 that the products targeted would be valued at $50 billion.
According to the U.S. Census Bureau, total U.S. goods imports from China were valued at $505.6 billion in 2017, with cell phones and other household goods at $70.4 billion, the highest valued import category, followed by computers at $45.5 billion.
Trump has made reducing the $375.2 billion goods trade deficit by $100 billion a priority, which he said will be partly achieved by tariff increases on Chinese imports.
Chris Rogers, research director for Panjiva Inc., a division of S&P Global Market Intelligence that monitors global trade flows, said the targeted $50 billion to $60 billion range in Chinese imports suggests that everyday consumer products, such as cell phones and laptops, may not be targeted simply because of the sheer size and share of their U.S. import market.
Rogers said it is more likely that the tariffs could target industrial items including servers, telecommunication network components, electric fans and other telecom equipment such as modem routers.
According to the U.S. Census Bureau, telecommunications equipment, at $33.5 billion, was the third-largest import category to the U.S. from China in 2017.
Panjiva data also shows that the U.S. makes up 22.2% of China's computing, telecoms and semiconductor sector exports. Aerospace products, also floated as a possible target, are valued at $1.11 billion in U.S. imports from China.
"They'll have to lean heavily on tech and telecoms as the aerospace imports are quite small," Rogers said. "If they are aiming at $50 billion of products, they can afford to hit some fairly obscure stuff and mitigate the impact on consumer goods."
In a sign of the imported products that may be at risk, Robert Lighthizer, U.S. trade representative, or USTR, said in a March 22 Senate Finance Committee hearing that he would consider equipment from the aerospace, maritime, modern rail, new energy, agriculture and advanced medical sectors in his recommendations.
The tariffs stem from the USTR's Section 301 investigation launched in August 2017 into Chinese trade practices, including forced intellectual property rights transfers as a cost of doing business in China.
The Trump administration may target products that have benefited from years of intellectual property theft or forced technology transfer, said Dan Ikenson, director of the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies.
"Presuming the products will include information and communication technologies and their objective is to punish China and deter that kind of behavior, it's a very expensive way to do it," Ikenson said. "Because there's a lot of U.S. consumption of these products that are made nowhere else."
According to Panjiva, U.S. imports of cell phones, computers, semiconductors and network equipment totaled $116 billion in the year preceding January 2018, a 16% year-over-year rise.
Consumer goods could also be at risk
Although technology has been mentioned as the likely target of the tariffs, there is fear in the broader retail sphere that other consumer products, including apparel, footwear and travel goods, also could be targeted.
A group of 25 retailers and producers, including Walmart Inc., Target Corp. and Levi Strauss & Co., sent a letter to Trump on March 19 citing concerns over the products they offer. A group of more than 80 footwear companies, including Nike Inc. and Under Armour Inc., sent their own letter to the president.
The average import duty on U.S. imports of Chinese footwear in 2017 was 10%, the highest in 15 years, said Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, or FDRA.
According to the group, 1.7 billion pairs of shoes were imported from China, the United States' largest supplier, in 2017.
Not only would this mean higher priced shoes for consumers, Priest said, but because footwear production requires a substantial amount of machinery and other tools, relocating supply chains would prove very difficult.
"You can't just pick up and move out like you're making a t-shirt," Priest said. "We're really concerned about it. We think it's a disastrous consideration."
According to Panjiva, China exported $48 billion worth of apparel to the U.S. in 2017, as well as $30 billion of furniture and $18 billion of travel goods.
"It's across the board," Jon Gold, vice president of supply chain and customs policy for the National Retail Federation, said of what could be included. "Consumer electronics, furniture, apparel — you name it. It could be covered in this."
Josh Teitelbaum, an attorney with Akin Gump in Washington, said he believes that the tariffs could be announced as soon as this week, adding that it is still very possible that apparel and other consumer goods could become a target of the tariffs. He said he has never seen a trade action of this scope before.
"The tariffs are not well-targeted to the problem that the Section 301 problem identified," Teitelbaum argued.
According to the American Apparel & Footwear Association, the effective duty rate on travel goods is 10.8%, while it is 14.2% for knit apparel and 13.2% for woven apparel. According to the group, China accounted for 84% of all travel goods imported into the U.S. in 2017, as well as 72% of all footwear and 41% of all apparel.
The biggest hurdle encountered by apparel makers, in particular, would be the lack of production infrastructure in the U.S., Bud Konheim, the co-founder and CEO of fashion company Nicole Miller, told S&P Global Market Intelligence. Konheim noted that an additional 25% tariff on apparel would harm the biggest clothing sellers the most, simply because China has developed factories and talent over the past several decades to accommodate mass production.
"I'm higher end, so we could do it," Konheim said. "But we don't have a big unit volume."
"You raise the price of imported clothing by 25% so that's going to be big incentive to make in the U.S.," he added. "But who's going to do it? We're not making patterns. Who's going to be the cutter? The grader? Who's going to do all the work they do in [Asia]?"