Event: on the 23rd local time, the office of the U.S. trade representative issued a statement announcing the re exemption of tariffs on 352 goods imported from China. The new provisions will apply to goods imported from China between October 12, 2021 and December 31, 2022.
Tariff exemption originated from the "301 investigation" during Trump's administration. In 2018, former US President trump announced that he would impose punitive tariffs of 7.5% to 25% on Chinese goods based on the results of the "301 survey", restrict investment in the United States, and file a complaint against China with the WTO.
The commodities included in the exemption scope are further reduced compared with last year. The tariff exemption of the vast majority of commodities (initially more than 2200) has expired in 2020. In October 2021, US trade representative Dai Qi started the review of tariff exemption to consider whether to continue to exempt 549 products that were previously eligible for exemption. According to official documents, the main considerations of whether to restore the exemption include: (1) whether the product or similar products can be obtained from sources in the United States or third countries; (2) Changes in global supply chains since 2018; (3) The difficulty of importers or U.S. buyers in purchasing products from the United States or third countries; (4) The ability of the United States to produce such products in China and its impact on small businesses, employment, manufacturing output and supply chain.
The commodities for which the exemption is extended are mainly consumer goods such as furniture, textiles and leather products, epidemic related commodities such as medical instruments, as well as all kinds of medium and low-end mechanical equipment and raw materials. According to the latest list, the commodities for which tariff exemption is extended (under HS classification) mainly include: (1) consumer goods, such as leather products in Chapter 42, furniture in Chapter 94 and all kinds of knitwear in chapters 61 to 63; (2) Epidemic related commodities, such as chapter 90 optical medical equipment (CT scanner, X-ray machine, etc.); (3) Medium and low-end mechanical equipment and raw materials, such as chapter 84 mechanical appliances (such as hydraulic cylinders, water heaters, water filters, etc.), chapter 85 electrical equipment (motors, capacitors), chapter 39 plastics and their products (electrical tapes, printing films, bottle caps, etc.) and chapter 38 miscellaneous chemicals (various catalysts).
The proportion of exemption and retention of electrical equipment, plastics and their products is greater than that of the whole, and the mechanical appliances are relatively similar to the whole. Comparing this round with the previous exemption list, it can be found that the quantity retention ratio of the two exempted commodities of electrical equipment and plastics and their products is higher than that of the whole (64.1%), both of which are 75%; Machinery and appliances are similar to the whole, accounting for 62.5%.
Inflation in the United States and China is the direct reason for this extension of tariff exemption. The CPI of the United States continued to rise to 7.9% year-on-year in February. The last time it reached such a high level was back in 1982. The Federal Reserve has realized the grim outlook for inflation and started a cycle of interest rate hikes. According to public media reports, overseas (Moody's) research shows that China only bears 7.6% of the punitive tariffs imposed by the United States, and the rest are borne by the United States. Therefore, extending the tariff exemption will help alleviate the inflationary pressure in the United States.
In the short term, extending the tariff exemption will slightly increase the profits of export enterprises. Under the repeated epidemic, the recovery of the global supply chain is frequently blocked, and the United States is highly dependent on Chinese goods. This extension of tariff exemption is also a good proof of this. Considering the low proportion of tariffs actually borne by Chinese enterprises and the high share of China in the total imports of the United States (close to 2018, with limited room for further rise), we believe that the extension of tariff exemption will strengthen the resilience of China's export share and have a limited increase in enterprise revenue and actual profits.
The reduction of the list also implies the determination of "de Sinicization" of the U.S. industrial chain for a long time. Since the Obama administration, the United States has been trying to let enterprises return. In 2021, the United States has also passed legislation (the strategic competition act of 2021) to clearly indicate the need to promote the diversification of the supply chain of American companies and reduce their dependence on China, and continue to promote this strategic goal in combination with trade agreements (such as the global sustainable steel and aluminum agreement). Combined with the previous analysis, we believe that this exemption is more a "compromise" of the United States against China's inflation pressure. In the medium and long term, there is still downward pressure on the trade share with the United States.
Risk tips
(1) the epidemic situation has been alleviated more than expected, and the impact on the global supply chain has been significantly reduced; (2) Developed countries have exceeded expectations to advance climate goals.
