Tag: tariffs

In March 2023, the US International Trade Commission (USITC) released its official assessment of the economic impacts of Section 301 tariffs on imports from China.

USITC adopted two methods to estimate Section 301 tariffs’ economic impacts:

• Econometric model estimates using monthly trade data (10-digit HS code) from January 2017 to December 2021.
• A set of partial equilibrium models that linked section 301 tariffs to domestic prices and production at the four-digit NAICS code level. USITC used data from 2018 to 2021 as the base year.
• USITC only considered Section 301 tariffs’ direct impacts, i.e., “how tariffs impacted prices, production, and trade for products subject to section 301 tariffs and domestic sectors that compete directly with those imports.”

Regarding the overall impact of Section 301 actions, USITC found that the tariffs imposed on Chinese goods resulted in a price rise paid by US importers, but the exporter prices received by Chinese firms were mostly unchanged. As a result, “imports from China decreased in quantity, leading to a substantial decline in their import value. These changes, in turn, caused an increase in production and prices in US domestic industries that were competing with Chinese imports.”

USITC also evaluated the specific impacts of Section 301 tariffs on the Cut and Sew apparel (NAICS 3152) sector. According to USITC:

First, Section 301 tariffs hurt US apparel imports from China. USITC estimated that US woven apparel (NAICS 3152) imports from China decreased by 14.7% in 2019 but fell nearly 40% in 2020 and 2021 due to Section 301 tariffs. However, USITC didn’t explain why imports from China suddenly worsened, nor if other factors, such as the Uyghur Forced Labor Prevention Act (UFLPA), played a role.

Second, Section 301 tariffs mostly replaced US woven apparel (NAICS3152) imports from China with other sources. However, the direct benefits of Section 301 tariffs to US domestic cut and sew manufacturing seemed limited. Specifically, USITC estimated that US woven apparel imports from sources other than China increased by 7.1% in 2019, 24.8% in 2020, and 25.2% in 2021 due to Section 301 tariffs. In comparison, Section 301 tariffs resulted in modest growth of US domestic woven apparel (NAICS3152) production (up to 6.3%) over the same period.

Actual trade and production data further showed that US woven apparel (NAICS 3152) imports from sources other than China increased from $55.3 billion in 2018 to $61.2 billion in 2021 (or up 10.7%). Over the same period, US domestic woven apparel (NAICS 3152) sales & value of shipments declined from $7.49 billion to $7.38 billion (or down 1.4%) (Data source: Census). In other words, no clear evidence suggests that Section 301 tariffs boosted US domestic woven apparel production.

Third, Section 301 tariffs made US woven apparel (NAICS 3152) imports from EVERYWHERE more expensive. On the one hand, USITC found that the price of US woven apparel (NAICS 3152) imports from China increased by 4.4% in 2019, 14.7% in 2020, and 14.5% in 2021 due to the Section 301 tariffs. However, similar to the case of trade volume, USITC didn’t explain why Section 301 tariffs’ price impact suddenly became more significant in 2020 and 2021. (Note: In fact, the Tranche 4A tariffs were 15% since September 1, 2019, but were reduced to 7.5% effective February 14, 2020, because of the US-China Phase One deal.)

Meanwhile, due to limited production capacity outside of China, the Section 301 tariffs caused an increase in the cost of US woven apparel imports from all other countries. Specifically, USITC found that the price of US woven apparel (NACIS 3152) imports from sources other than China increased by 3.2% from 2018 to 2021. (Note: given the hiking sourcing costs in 2022, the price increase could be more significant should USITC include updated 2022 trade data in the estimation.)

Additionally, USITC acknowledged that its estimation may “likely captures the most significant impacts of these tariffs in the short run.” However, some effects of section 301 tariffs would likely be delayed. For example, USITC said, “if importers and domestic producers anticipated the tariffs remaining in place long enough,” they may consider more costly changes, such as adjusting their supply chains and investing in domestic production.

Discussion questions:

• Based on USITC’s assessment, should President Biden keep or remove the Section 301 tariffs on imports from China? Why or why not?
• Regarding the impact of Section 301, any questions remain unanswered or can be studied further?
• Any findings in the USITC report surprised you and why?

Additional readings:

• US-China Tariff War and Apparel Sourcing: A Four-Year Review (updated December 2022)
• Textile and Apparel Products Covered by the U.S.-China Tariff War Reference List (updated December 2020)