The Office of the United States Trade Representative earlier this week published in the Federal Register their notice that effective 12:01 AM ET today, duty rates on the remaining third annex (or list) of HTS numbers moved from the initial 10% to 25%. This 25% figure was first feared late in 2018, prior to the arrival of a large number items that resonate with the end consumer as opposed to more of the components or industrial items that were being additionally taxed in the first two lists.
It was only after a dinner at the G-20 in Argentina between US and Chinese delegations that the proposed increase was staved off – but the damage to supply chains was done. A flood of ocean containers swamped US ports as importers moved up orders to attempt to beat the deadline. Warehouse capacity dwindled to near zero in Southern California and inland rail ramps inland felt the pain as well with trains arriving and containers unable to be unloaded for days.
Last Sunday, apparently unsatisfied with the progress that the US and China were making in the negotiations, including allegations that the Chinese moved backward from their initial positions, the President took to Twitter:
Traders and people in our industry worried that everything in their supply chains already in transit was now going to carry an additional 15% duty from what they forecast at the time of shipping. But while nobody is sure if it was deliberate wiggle room or an oversight, the language of the FR reads:
“Effective with respect to goods (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019.”
Certainly we hope that as negotiations continue between the high-level principals – Treasury Secretary Mnuchin, USTR Lighthizer and China’s Vice Premier Liu He – a solution is found for importers who are having to make difficult and perhaps business-changing decisions on pricing, sourcing and inventory levels to remain competitive in today’s trade climate.