Companies Make Cases for Changes to Section 301 Tariff List in First Day of Testimony

A wide range of industries asked to be spared -- or protected -- in the first day of the International Trade Commission's public hearing that will hear from more than 120 companies, a major union, and trade groups, including those from China. The panel is tasked with refining the list of products subject to 25 percent tariffs, which accounted for $50 billion in imports last year. The size of the action was shaped by an estimate of the cost to U.S. companies of forced tech transfer, market access restrictions and intellectual property theft.

Witnesses ranged from small, family-owned companies with 40 employees and no domestic production to large companies such as Best Buy, Rheem Manufacturing, air conditioner division, and InSinkErator. Several smaller companies said if items they import from China face an additional 25 percent tariff, it will drive them out of business.

TV maker TCL, retailer Best Buy and streaming pioneer Roku testified that there is no TV manufacturing in the U.S. anymore, so TVs classified in subheading 8528.72.64 do not belong on a list of products designed to hurt Chinese producers without affecting end consumers. "Assembling is not manufacturing," said Jonathan King, vice president of legal affairs at TCL's American subsidiary, which employs about 180 people who design and market the brand. The idea that a domestic industry could quickly emerge here is not feasible, he said.

Element Electronics' general counsel David Baer disagreed. Element assembles TVs in the U.S. He said Element supports the inclusion of flat screen TVs on the tariff list, though they want LCD panels, a major component, left off. He said LCD panels account for 70 percent to 75 percent of the cost of a TV. If LCD panels remain on the list, Mexican assembly plants will benefit, because they will be able to avoid the duty and export TVs to the U.S. duty-free. Currently, Element pays a 4.5% duty on LCD panels. He also said the U.S. trade representative needs to look beyond China, as he said Chinese factories are already shipping subassemblies to Thailand and Vietnam, which have not previously made TVs, and to Mexico, which does. If the government does not stop that shift in production, "the 301 would be a toothless tiger," he said.

Mary Buchzeiger, owner of Lucerne International in Michigan, designs hinges forged in China and later installed on Jeeps in Toledo, Ohio. She has 40 employees, and said she expected to hire 10 more before the tariff announcement. She said she would like to open a plant in Flint, but said, "this takes time, much more time than allowed in this administration's trade plans. The trade deficit needs to be tamed, but please, not this way." Lucerne imports from both Taiwan and China; she had not realized Taiwanese exports would not be subject to tariffs. She said she has long-term contracts with Jeep, and so she can't pass on the tariff. "I can't swallow these costs," she said. "I'll essentially be forced out of business."

Many manufacturers complained that Section 232 tariffs have driven up their input costs by 25 percent, even when they only buy U.S. steel. But their finished products are not on the Section 301 list. So they asked that these finished products be added. Among those requesters were a U-post maker, a keg maker, makers of steel pipe fittings, strand anchors, steel sheet piling, steel hollow bars, large diameter pipes, two tin mill tariff lines, pipe fittings, pipe couplings, pipe nipples and flanges. Some of the tariff lines that companies asked to be added to the 301 list included those beginning with 8501, 8502, 8503, 8504, 7308.10 and 7308.90; 3101.10.00, 7305.31.40 and 7305.39.10. Most asked for these products to face the standard 25 percent additional tariff, but Paul Czachor, president of American Keg Company, asked for a 76 percent tariff, as that would make his product cost the same as a Chinese import.

Jeff Sterner, president of High Industries in Lancaster, Pennsylvania, told the Section 301 panel that fabricated steel imports have increased by 136 percent, and while the bridge projects that are his customers must buy American products, he said adding fabricated steel products to the list is "a logical extension of other tariffs already on the 301 schedule." He asked the panel "to close the 232 circumvention loophole."

Thomas Fish, CEO of Anvil International, which makes pipe fittings, couplings, nipples and flanges for new commercial construction projects, said Chinese steel producers are moving from pipes to his products in order to avoid Section 232 tariffs, at the same time that his material costs have increased 25 percent. Those raw materials make up approximately 55 percent of his end price. "We're in fact being squeezed on both ends," he said. His company employs about 1,500 people at eight U.S. factories, who make 80 percent of Anvil's products.

Rheem asked for finished air conditioners to face tariffs if air conditioner parts stay on the list; InSinkErator asked that garbage disposals, 8509.80.20, go on the list. InSinkErator's CEO Chad Severson said he appreciates the 301 action, since his company has suffered from patent infringement and trademark infringement, including language lifted from his website by Chinese manufacturers. "Our industry has a target on our back," he said.

Several medium-size companies that testified operate in foreign-trade zones, and they complained that the fact that FTZs will not be harbors from these tariffs will damage their businesses. George Tuttle, a lawyer representing auto air conditioner manufacturer Sanden International USA, said the company would pay $3.5 million more in duties each year if the air conditioner components it imports from China stay on the 301 list and there is no FTZ harbor. The company would immediately cut 39 of its 431 employees in Texas, across production, sales and general administration. Tuttle asked that if the items have to stay on the list, that purchases already made and warehoused in the FTZ be exempted.

One of the panelists asked if Sanden could buy the components domestically. He said it would take six months to research suppliers and negotiate contracts, another six months to develop tooling to make the parts, three months for design, validation and testing, another six months for customer and vehicle testing and approval -- and all that's before the first part is made.

Robert Beckwith, CEO of Crosman Corporation, said they employ 280 people in FTZs in upstate New York, and China is the only source of low- to mid-price scopes used on the air guns they manufacture. With 9013.110 telescopic sights on the list, the duty his company pays on scopes will increase from 3.9 percent to 40 percent -- and scopes account for 20 percent to 40 percent of the air gun's value. "Losing the protection of the foreign-trade zone, you're really negating the point it was set up for in the first place," he said. Crosman's competitors import the whole air gun at a lower tariff rate than he would face on the scope.

Cory Watkins, president of Schumacher Electric, wants battery chargers and jump starters added to the 301 list, not just the components he imports to make those products -- even though Schumacher manufactures in China, as well as the U.S., Belgium, Australia and Mexico. Watkins said his company's customers have asked Chinese firms to reverse engineer his products, violating his patents. But, he said, you can hardly sue your own customers. Watkins said if the finished product goes on the list, "What I will instantly do is bring it back here to the U.S., where it belongs."