USTR inconsistent in their application of new tariffs

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I recently made comments on the United States Trade Representative’s (USTR) latest Section 301 tariffs, specifically those imposed on facemasks and steel and aluminum products. These tariffs, authorized under the Section 301 of the 1974 Trade Act, were ostensibly intended to address Chinese practices related to technology transfer, intellectual property, and innovation. However, my comments shed light on the broader and perhaps unintended consequences of these tariffs on critical sectors of the American economy.

Section 301 tariffs provide USTR with various powers and duties to investigate trade agreements. Such investigations address foreign government actions that violate trade agreements, burden or restrict US commerce, or are unreasonable or discriminatory. The current application of these tariffs, however, has expanded to include products that are essential to public health and consumer goods, such as facemasks, steel, and aluminum. The imposition of a 25 percent tariff on these items raises important questions about the rationale behind such decisions, as these products do not qualify any of the four concerns highlighted in USTR’s investigation.

The investigation found that:

  1. China uses foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from US companies.
  2. China’s regime of technology regulations forces US companies seeking to license technologies to Chinese entities to do so on non-market-based terms that favor Chinese recipients.
  3. China directs and unfairly facilitates the systematic investment in and acquisition of US companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate the transfer of technology to Chinese companies.
  4. China conducts and supports unauthorized intrusions into and theft from the computer networks of US companies to access their sensitive commercial information and trade secrets.

One of the key concerns I highlighted is the significant effects these tariffs will have on health care costs. Facemasks are vital pieces of personal protective equipment, crucial for safeguarding health care workers as well as the general public, especially in the contexts of ongoing and future health crises. Increasing the cost of these essential items through tariffs can lead to higher expenses for hospitals and health care providers, ultimately burdening patients and consumers with increased medical costs.

Similarly, the tariffs on steel and aluminum will raise the prices of common household appliances and many other consumer goods that use these metals as inputs. These sectors are already struggling with supply chain disruptions, and adding a substantial tariff on top of these costs will exacerbate these challenges, making it more expensive for American businesses to procure necessary materials. Higher costs of doing business will be passed onto the consumer with higher prices for a wide range of goods that use steel and aluminum, from home appliances to even vehicles.

The inconsistency in tariff application suggests that the executive branch may be using its authority to impose broad and perhaps arbitrary tariffs in a way that extends beyond genuine national security concerns.

The lack of transparency and clear criteria for selecting goods subject to tariffs raises concerns about potential economic harm without achieving the intended policy objectives. This approach ultimately undermines the credibility of USTR as an executive branch agency, creating more uncertainty for businesses and consumers alike.

I ended my comment by calling for a more measured and transparent approach to trade policy; one that carefully considers economic implications and targets genuinely harmful trade practices without imposing unnecessary burdens on American consumers and businesses. The only way to achieve this goal is to exempt certain proposed tariffs from USTR, particularly on facemask and steel and aluminum products.

USTR is overreaching with their current application of Section 301 tariffs that can cause unintended economic harm given that consumer price inflation over the past four years has reached its highest levels since the early 1980s. By reconsidering the scope and effects of these proposed tariffs, USTR should exclude unnecessary tariffs to ensure that protective measures do not become a source of financial strain for American consumers and businesses.

CEI Senior Economist Ryan Young contributed to the comments and CEI Attorney David S. McFadden contributed to the suggestion of the comment.