White House Announcement on China-Focused Tariffs Slightly Less Negative

President Trump announced that $60bn in goods would be targeted, though White House staff indicated at a briefing that the amount would be $50bn, as did a USTR release on the subject. The rate of tariff is lower than expected. We had expected tariffs high enough to block trade in the categories targeted. Often, countries set such tariffs at 100% for simplicity. However, the White House has announced that it will propose a 25% tariff for public comment. On a conference call for media prior to the President’s announcement, White House officials stated that they believed that, in the areas targeted, the tariffs will be sufficient to block trade in these categories. If so, this would make the actual level of the tariff irrelevant. However, without knowing what categories have been targeted, this is difficult to judge.

The President has instructed the USTR to publish, within 15 days, the list of imports that would be targeted by the tariffs. We expect that the USTR will publish the list by early next week (i.e., March 26-28). So far, the White House fact sheet on the tariffs cite “aerospace, information communication technology, and machinery” as among the sectors included, though we expect that the areas affected will go beyond this. USTR Lighthizer stated in congressional testimony earlier today that the list will be a combination of industries targeted in the “Made in China 2025” report as well as goods that are determined using the traditional USTR methodology for targeting goods for retaliatory tariffs. In the latter case, one of the primary considerations would be products that can be easily sourced from other countries. As Ambassador Lighthizer put it in explaining their approach in testimony earlier today: “for example, something that you get from China and a lot of other people, if you put a tariff on that, the effect on US consumers would be minimized. That’s kind of the idea of this.”

The tariffs will be subject to a 30-day comment period, according to USTR. During this time, we expect the product categories targeted to change and expect that the overall amount could be reduced. Discussions with Chinese policymakers are also likely, which could lead to an alternative approach. That said, we believe it is unlikely that China would seek to change its policies in all of the areas that the White House has identified, so some tariffs seem likely to be implemented after the comment period. It also appears likely that China will announce retaliatory measures against US exports.

The White House indicated that “the Department of Treasury, in consultation with other agencies, will propose restrictions on investment by China in sensitive U.S. technology.” Our expectation is that this will be in addition to the existing CFIUS process, focusing on sectors from an economic rather than national security perspective. Once again, we would expect that these sectors would include, at a minimum, the areas highlighted in the “Made in China 2025” report: 1) next-generation information technology; 2) automated machinery, tools and robotics; 3) aerospace equipment; 4) maritime equipment and high-tech shipping; 5) advanced rail equipment; 6) new-energy vehicles and energy-saving technology; 7) electrical/power equipment; 8) agricultural equipment; 9) new materials; and 10) biopharma and advanced medical devices.