FTZs Brace For Long Term Tariffs On China Goods

In a stunning reversal for US importers, U.S. Customs began collecting higher, 25% tariffs on many Chinese goods this weekend in an intensification of the trade war between the world’s two largest economies. The trade and stock markets around the world had expected a deal between the two countries to de-escalate tensions between the two countries, and possibly reduce eisting tariffs, not raise them.

President Trump imposed the 15% tariff increase on a $200B list of Chinese goods on May 10, but allowed a grace period for on-sea cargo that departed China before that date, keeping them at the prior, 10% duty rate.

USTR issued a Federal Register Notice setting a June 1 deadline for those goods to arrive in the United States. That deadline expired over the weekend, and FTZs must not only continue procedures in place for paying the extra duty, but also increase payments on their ‘List 3’ items from 10% to 25%.

The tariff increase affects a broad range of consumer goods, and intermediate components from China including internet modems and routers, printed circuit boards, furniture, vacuum cleaners and lighting products.

In retaliation, China began collecting higher tariffs on a $60 billion target list of U.S. goods. The tariffs apply additional 20% or 25% tariffs on more than half of the 5,140 U.S. products targeted. Beijing had previously imposed additional rates of 5% or 10% on the targeted goods.

China also announced it would establish a blacklist of “unreliable” foreign companies and organizations, effectively forcing companies around the world to choose whether they would side with Beijing or Washington.

The “unreliable entities list” would punish organizations and individuals that harm the interests of Chinese companies, Chinese state media reported, without detailing which companies will be named in the list or what the punishment will entail.

At a time when Western corporations have cut back executive travel to China after authorities detained two Canadians on national security grounds in December, the blacklist sent another shock wave through the business community.

Aside from the blacklist, China in recently days also escalated threats to stop selling the United States so-called rare earths — 17 elements with exotic names such as cerium, yttrium and lanthanum that are found in magnets, alloys and fuel cells and are used to make advanced missiles, smartphones and jet engines. Alternatives for sourcing these materials will be difficult to find as the majority of the world’s reserves are located within China.

Analysts said it could take years for the United States to ramp up rare-earths production, after its domestic industry practically disappeared in the 1990s. Roughly 80 percent of U.S. imports of the material come from China, according to the U.S. Geological Survey.

The People’s Daily, the Communist Party’s official news outlet, carried a stark warning for the United States on Wednesday in an editorial about rare earths: “Don’t say we didn’t warn you.”

The commentary surprised China experts because the People’s Daily, which often signals official positions with subtly codified language, uses that phrase sparingly: It famously appeared before China launched border attacks against India in 1962 and Vietnam in 1979.

No further trade talks between top Chinese and U.S. negotiators have been scheduled since the last round ended in a stalemate on May 10, the same day the President announced the higher tariffs on the so-called ‘List 3’ items.