Biden Administration to Raise Section 301 Tariffs on Chinese Imports in Strategic Sectors

On Tuesday, May 14, 2024, the Office of the U.S. Trade Representative (“USTR”) completed its long-awaited four-year review of the tariffs on goods from China imposed under Section 301 of the Trade Act of 1974 (“Section 301”), resulting in the release of a new report. The announcement comes just over two years after USTR first initiated the review, and approximately six years after the United States began imposing tariffs on Chinese goods following USTR’s finding of unfair Chinese practices with respect to forced technology transfer and failure to protect intellectual property. That investigation led to the application of tariffs on over $360 billion worth of imports from China.

The four-year review will result in significant tariff increases in sectors deemed strategic by the Biden Administration, with the new tariff rates effective in 2024, 2025, or 2026, depending on the product. These tariff increases apply to specific Chinese imports—detailed below—relating to the green economy, semiconductors, medical supplies, port infrastructure, and steel and aluminum. The Administration alleges that “China is…flooding global markets with artificially low-priced exports” in these sectors. USTR also announced a new exclusion process through which firms can seek relief from existing tariffs for imports of certain types of machinery used in U.S. manufacturing operations. Finally, the report recommends that U.S. Customs and Border Protection (“CBP”) be allocated additional funds for enforcement of Section 301 and other tariffs, suggesting the need for increased diligence around import compliance. This alert explains the announced tariff changes and their implications, and how Covington can help navigate this changing tariff environment.

1. New Tariff Increases for Strategic Product Sectors

USTR has determined that while its Section 301 actions have been effective in encouraging China to take steps toward eliminating certain technology transfer-related practices, China has not eliminated many unfair practices. To address the continued burden of these practices on U.S. commerce, USTR has proposed increasing Section 301 tariff rates on the following categories of Chinese imports: 

At the same time, USTR has recommended that the vast majority of Section 301 tariffs remain at their current levels, and has not recommended that any duty rates—for example, on non-strategic consumer products—should be reduced.

2. Novel Exclusion Process for Machinery Used in U.S. Manufacturing 

Previously, USTR granted a range of Section 301 product exclusions, most of which expired in 2019 and 2020. In 2022, USTR reinstated 352 of the expired exclusions, a very small fraction of the original set; however, those reinstated Section 301 exclusions and another 77 COVID-related exclusions are currently set to expire on May 31, 2024. While the report does not express any clear intention on whether it will renew the exclusions currently in effect, the agency does propose establishing a new exclusion process for specific types of machinery used in domestic manufacturing. 

The report indicates that the new exclusion process will be limited to machinery in certain tariff lines in HTSUS Chapters 84 and 85. In particular, the report identifies a number of specific 8-digit tariff lines in Chapter 84 (“Nuclear Reactors, boilers, machinery and mechanical appliances; parts thereof”) and Chapter 85 (“Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles”) that it proposes to include in the new exclusion process. This list of over 300 specific tariff lines appears in Appendix K of the report, which defines the proposed boundary for the new exclusion process.

USTR also proposes a specific set of temporary product exclusions for certain solar manufacturing equipment. In Appendix L of the report, USTR provides detailed product descriptions for 19 new product exclusions that would be granted for a temporary period. These proposed exclusions are separate from the new process, which may result in additional exclusions being requested and granted.

Next week, USTR will issue a Federal Register notice announcing the procedures for submitting comments on the proposed exclusion process. At that time, commenters may be able to provide feedback on the breadth of tariff lines covered by the new exclusion process for manufacturing machinery. Whether USTR may be willing to modify its current proposals in response to comments remains unclear.

3. Potential for Increased Enforcement

In addition to proposing tariff increases in strategic sectors and a novel exclusion process to support U.S. manufacturing, USTR has recommended allocating additional funds to CBP to enhance the enforcement of Section 301 and other trade actions. 

Since Section 301 duties were first applied in 2018, CBP has been ramping up enforcement to ensure that applicable duties are properly declared and collected. Additional resources would allow CBP to further ramp up enforcement activities. In light of CBP’s broad power to impose significant civil penalties for any failure to pay Section 301 duties—and to refer cases for criminal investigation—it is crucial for businesses to ensure compliance with customs regulations, particularly regarding classification and country of origin. Any changes in the HTSUS codes or the country of origin that raise suspicions of evading Section 301 duties could trigger increased scrutiny from CBP. To help avoid accusations of duty evasion, Covington can assist by reviewing any proposed changes to classification or country of origin before implementation. Conversely, if your company has shifted or is contemplating shifting supply chains out of China, we can analyze the proposed changes to ensure that your products meet the criteria to be considered “not originating from China” and thus not covered by Section 301 duties. 

Additionally, for clients involved in U.S. manufacturing using production machinery that is or could be made in China, our team can help assess the availability of the new exclusion process for such imports. This includes various types of machinery classified in HTSUS Chapters 84 and 85, as well as the solar manufacturing equipment discussed above.

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In summary, USTR’s long-awaited conclusion of its four-year review of the Section 301 action will result in several significant changes, especially for products in sectors deemed strategic by the Biden Administration. An immediate, proactive step that businesses can take is to file formal comments on USTR’s proposals once the Federal Register notice is released next week. Comments may be solicited on the products covered by the increased tariffs, the specific duty levels, and the timing of their entry into force, as well as on details of the new exclusion process. 

Our team at Covington can assist in preparing and filing comments, ensuring compliance in an atmosphere of increased enforcement, and identifying opportunities for tariff relief moving forward.