The U.S. International Trade Commission Investigates the Impact of Section 232 and 301 Tariffs on American Businesses and Consumers

In 2018, former president Donald Trump enacted a sweeping plan to place tariffs on a wide variety of goods that were imported from other countries. Exclusions were put in place for certain items, but for the most part the Section 301 (for imports from China) and Section 232 tariffs (on steel and aluminum products from most countries) have remained intact.

According to the U.S. International Trade Commission (USITC), 2018 marked the first time in more than 30 years that a U.S. president took action under section 232. The reasoning for the tariffs was that “present quantities and circumstance of steel and aluminum imports are weakening our internal economy and threaten to impair the national security as defined in section 232.” Put simply, an investigation found that there was excess global capacity of both aluminum and steel at the time. In response, duties were imposed on U.S. imports of certain steel products (25 percent) and certain aluminum products (10 percent) from all countries except Canada and Mexico.

A similar process was used when enacting the Section 301 tariffs, which were rolled out after an investigation of China’s laws, policies, practices, or actions that were deemed unreasonable or discriminatory and harmful to American intellectual property rights, innovation or technology development, according to the USITC. Ranging from 7.5 percent to 25 percent, the Section 301 tariffs on imports from China were divided into tranches or “lists,” and had a combined estimated annual trade value of $250 billion.

The tariffs encompassed a wide range of products – over half of the approximately 11,100 HTS eight-digit subheadings in the U.S. tariff schedule – including, but not limited to, advanced technology and machinery products; plastics and plastic articles; and agricultural, mineral, chemical, textile, wood, glass, metal, and furniture products.

The USTIC Opens an Investigation
All told, the United States placed tariffs on nearly $400 billion of imported goods between 2018 and 2019. Aside from several exclusions or “waivers” that were put in place, both the Section 301 and Section 232 tariffs have remained intact for the last four years. In March, the Biden administration reinstated 352 product exclusions for the section 301 tariffs and reinstated those product exclusions retroactively.

In May, the USTIC launched a fact-finding mission to determine the economic impact of the tariffs on U.S. industries. Directed to conduct this investigation as part of the Omnibus Appropriations Act, the USITC plans to provide “detailed information on U.S. trade, production, and prices in the industries directly and most affected by these tariffs.”

The USITC probably didn’t have to look too far to see the negative impacts of these wide-sweeping duties on key imports. As far back as 2020, the Congressional Budget Office (CBO) was already reporting that tariffs reduced Americans’ average real household income by $1,277. At the time, the CBO expected the effect of trade barriers on output and prices to “diminish over time as businesses continue to adjust their supply chains in response to the changes in the international trading environment,” and that by 2030, the tariffs would lower the level of real gross domestic product (GDP) by 0.1 percent.

An advocate for eliminating the Section 301 and 232 tariffs, John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce, said they’re basically taxes that are paid by Americans and “equivalent to one of the largest tax increases in decades.” To date, the duties are all “pretty much still in place and taking a toll on Americans’ wallets,” he adds.

“There’s a lot of research to confirm this,” Murphy said, pointing to a Federal Reserve study that found that the tariffs are “almost entirely borne by U.S. firms and consumers.” The recurring $1,277 burden that consumers are shouldering every year alone – a number that may have increased since 2020 – translates into significant costs. “We’re talking about big dollars here,” Murphy said. “Even if the actual price of the tariffs is obscured when a company buys materials or a shopper pays for groceries, the duties are still there.”

Letting the Public Have its Say
As part of its investigation, the USITC held a public hearing about the Section 301 and 232 tariffs in July. The hearing took place virtually and was well attended by many different companies and trade associations, according to Murphy, many of which spoke up about how the tariffs are “punishing” U.S. businesses and consumers.

Charlie Souhrada, vice president of regulatory and technical affairs for the North American Association of Food Equipment Manufacturers (NAFEM), has also been actively advocating for the removal of the tariffs. A recent NAFEM survey revealed that 85 percent of its members feel that tariffs are “impacting their ability to control costs,” with 60 percent stating the Section 232 and 301 tariffs are “causing severe economic harm to their companies.”

Souhrada said the intentions behind the hearing were good, but he’s not sure whether it will result in any positive actions regarding the tariffs. “It was a virtual hearing that required a fair amount of choreography on the part of the ITC’s staff, which did a terrific job of ensuring that everyone was heard,” Souhrada recalled. “Still, it’s hard to believe that anything will happen when the final report is issued in March.”

Souhrada is referring to the USITC’s final report on the impact of the Section 232 and 301 tariffs, which is expected to be published on March 15, 2023. Ideally, he said NAFEM would like to see the duties removed, but failing that it would like a transparent process to be put in place that “all NAFEM members can actually participate in.” The process does allow businesses to file product exclusions with the importer or record information for review and approval. However, foodservice equipment manufacturers typically do not hold imports directly, rather they rely on service centers for imported products. As such, manufacturers do not have the necessary information to make an exclusion request.  

“The importer of record is typically a service center that functions like a steel dealer in many ways, so they don’t have the ability to participate in the exclusion process from steel tariffs,” Souhrada pointed out, noting that the rules aren’t as stringent with the section 301 tariffs on goods imported from China. “Even so, the process itself has been rife with errors ever since it started in 2018 and our members would like to see something that’s a little bit easier to use.”

Battling the Reverse Effect
Asked what other challenges that NAFEM members have been dealing with since the tariffs were put in place, Souhrada says the biggest issues related to section 232 have been 1) getting stainless steel, and 2) getting stainless steel at “prices they felt were competitive with the rest of the world.” For section 301, members have faced challenges getting component parts from other parts of the world.

“The section 301 tariffs really didn’t [get] to the root of the problem, which is China’s unfair labor practices,” Souhrada points out. “Instead, much like the steel tariffs, [Section 301] tariffs are attacks on manufacturing. Instead of taxing the bad actors, it’s a tax on manufacturing here in the U.S.”

Even with a new administration in the White House, the tariffs may stay in place in at least some form for the immediate future. “It’s unlikely that the Biden administration will remove these tariffs completely,” Souhrada predicted. “I say that because they’ve made a point in saying that they’re strongly for union labor and there is a belief that these tariffs support working individuals.”

Addressing that specific point, Souhrada said that while NAFEM recognizes the importance of labor unions, the tariffs themselves do not support working Americans. “Instead, in many ways and from a big-picture perspective, they impact more families downstream than meets the eye,” he explained. For example, when the Section 232 steel tariffs were initially put in place, it was to protect the steel industry, which effectively represents about 180,000 jobs in the United States.

Those employment numbers rise as you move downstream, where companies that use the metals represent roughly 6.5 million jobs. “It’s very difficult to understand or swallow the argument that this is a worker-centric policy,” Souhrada said, “when it seems to the contrary.”

Based on historical practice, Souhrada expects a continued “surgical removal of tariffs with certain trading partners,” and sees that as a positive sign. He pointed to the Biden administration’s tariff rate quotes on certain types of metals as one step in this direction. Tariff rate quotas (TRQs) permit a specified quantity of imported merchandise to enter the U.S. at a reduced rate of duty during the quota period. 

Often last in line for available metals, NAFEM members can’t generally take advantage of TRQs. “This is a frustration point for us, and we continue to work with our coalition partners and policy makers in Washington on these issues,” Souhrada said, “to try and impress upon them that these tariff policies – whether it’s the steel or the China import policies – have a negative impact on jobs within our industry.”

“We Need Some Reform Here”
At this point, Murphy is also unclear on whether the Biden administration will provide any relief from the tariffs in the near future. And while the previous administration did provide numerous exclusions from tariffs for a variety of products, this one has done so “for an even smaller sliver of the total array of affected goods,” Murphy pointed out.

“We are hopeful that at least there will be a new exclusion process introduced under which companies will be able to petition and make the case for tariff relief on specific products,” said Murphy, who has heard from several companies that are paying tariffs on parts, components and other inputs that they import, while their competitors are importing finished products duty-free.

This is happening because the components fall under the Section 301 or 232 tariff rules, but the finished products may not be subject to such duties. “It’s pretty crazy when you think about it, but that’s what happens with tariffs and protectionism,” Murphy said. “You create winners and losers, which is why we need some reform here.”