Multinationals Lobby the House to Remove China Tariffs, Uses Inflation Excuse

They’ve been at this since the Trump-era trade tariffs began in 2018, with warnings of economic doom about the China tariffs that never panned out. But the MNCs succeeded in getting a provision in the Senate’s U.S. Innovation and Competition Act (USICA) that would repeal most of the China tariffs and even give refunds to Chinese importers. The House of Representatives is debating their own so-called China bill, and fortunately, seems to be holding strong for now. President Xi and China-dependent importers want the Senate bill’s pro-China Trade Act of 2021 provision in USICA to be in the House version, as well.

On June 30, a group of trade associations that offshore to China called the Americans for Free Trade sent a letter to House Speaker Nancy Pelosi and Republican Minority Leader Kevin McCarthy to advocate for faster exemptions of China tariffs. These companies have had over two years to find new sources in markets around the world, or partner with local companies to give them orders to make similar products. Instead, they remained wedded to China.

Their latest tactic: if the tariffs (which did not cause inflation) are not removed quickly, inflation will rise even more.  They don’t mention China’s IP theft, genocide, militarization and take over of Hong Kong, or plans for global control of key supply chains in new tech, from EV car batteries to solar panels. They also are not fighting to build industries and jobs here.

From the letter: “We continue to call upon the administration to resolve the ongoing trade war with China. To date, U.S. Customs and Border Protection has collected over $92 billion dollars in tariffs from U.S. companies that import products from China. These taxes increase the cost of doing business in the United States and risk exacerbating increasing concerns regarding inflation.”

We suspect Americans for Free Trade, and those who agree with their trade views in Congress, will use inflation as a way to chip at the China tariffs. The political argument will be an emotional plea to help Americans still suffering through the pandemic as stimulus checks and unemployment benefits wear off, and prices of beef and gasoline-run high.  (Never mind that beef and gasoline are not imported from China.)

The Trade Act of 2021, Division G, Section 73001 of the USICA calls for the exclusion of articles subject to duties on the Section 301 national security tariffs imposed on China. The next section calls for more Congressional oversight of the USTR, a move that CPA views as designed to weaken Katherine Tai and the Executive Branch’s rule making on trade. This would create numerous detours and stumbling blocks in Congress; a Congress that is constantly bombarded by multinational interests who got us into this supply chain mess in the first place.

Ironically, the removal of tariff restrictions and the reinstatement of the exemption policy, sits under a provision in the Senate bill that calls for “supply chain resiliency”. Here, we have a call for supply chain resiliency while actively calling for more of the same: continued reliance on China.

The letter writers said that the exclusion process was not “fair, consistent, and transparent”, adding that the “USTR has thus far failed to act unilaterally – as Section 301 authorizes it to do – to reinstate expired product exclusions or reinvigorate the product exclusion process, it is essential the Congress act.”

The letter was signed by powerful equipment importers like the American Petroleum Institute – we can assume they have some widgets used in oil and gas drilling that can only be found in China. How long before they blame $3 gasoline on some valve or pipe Chevron can only buy from a Guangzhou manufacturer?

Other signatories under the Americans for Free Trade banner included the American Chemistry Council. It may be worth remembering that at the beginning of the pandemic last spring, Americans couldn’t find Lysol and other disinfecting chemicals for retail because the chemicals were all produced in China.

American Home Furnishing Alliance also signed on. Why Mexico or Alabama cannot make lampshades and sofas remains a mystery, and one House members should consider if they want to Build Back Better under President Biden or are remotely serious about China dependence.

Inflation will be the talking point on this topic. Wall Street will get behind it.

Much of the inflation problem today is already due to our Asia-centric supply chain (see semiconductor shortages driving up used car prices); multinationals taking advantage of the inflation narrative to import cheaper products from abroad and charge higher prices due to perceived shortages here (beef); and the fact that the U.S. and China are lifting economic restrictions.

Moreover, the unprecedented Main Street bailout to make amends for the forced closure of businesses also led to inflation. The idea that the California Retailers Association (also a signatory) members are paying 25% more Ralph Lauren bedsheets is a major factor is cherry-picking to advocate for steamrolling the White House’s China trade policies.

While CPA would prefer these companies seeking exemptions had found supply locally, we understand that doesn’t always make business sense. But there is little reason to believe that hundreds of companies were unable to find sources in Vietnam, Malaysia, India, Mexico, and elsewhere.  Did they even try to pick a local partner, and invest in long-term production with them?

We hope that in constructing the House China bill, members of Congress recognize this and protect Section 301 tariffs, providing exemptions as the USTR sees fit, not as K-Street lobby groups see it.

For years, political leaders have taken the position that Washington is too tied to corporate interests. Weakening Section 301 tariffs on China is the opposite of that position.

“The dozens of signatories to this letter to Pelosi and McCarthy mostly represent stateless multinationals who have been offshoring to China for years and do not want to change that,” says CPA CEO Michael Stumo. “We cannot give up our leverage against China and its horrific practices. We should be doing more, not less, to reshore supply chains and employ U.S. workers. A return to China as the go-to global manufacturer is a way to create economic dead zones in the U.S. and surrender our global leadership.”