ACC urges Biden to loosen China tariff rules to ease inflation, supply woes

The American Chemistry Council is pushing the U.S. government to grant more waivers from China tariffs on chemicals, resins and plastic products, arguing that it would ease inflation and supply chain pressures in manufacturing.

The Washington-based trade group released a study Dec. 7 making the economic case for cutting back on tariffs on Chinese imports.

ACC is also part of a broader campaign with 175 other industry groups pushing the federal government to adopt more flexible rules when it reviews China tariff exclusions sought by companies.

"Due to their critical importance and the value added to other industries and manufacturing entities, U.S. chemicals and plastics products should be eligible for more exclusions than have been granted to date," said Ed Brzytwa, director of international trade at ACC.

ACC points to data showing that only about one in five of the 1,330 requests to waive China tariffs on plastics products were granted between mid-2018, when the tariffs started, and mid-2021.

For chemicals broadly, only about one in 10 of the 1,325 exclusion requests were granted, ACC said.

The chemicals group argues that at least for chemicals and plastics, the tariffs are raising costs and making U.S. manufacturing supply chains less globally competitive.

The question of whether the tariffs are working as intended is getting more attention in Washington.

A Dec. 2 hearing before the House Ways and Means Committee, for example, included calls by lawmakers and witnesses for more flexibility around exclusions.

But thus far, President Joe Biden's administration has largely kept in place the tariffs on $360 billion worth of Chinese imports first enacted by former President Donald Trump.

Rep. Stephanie Murphy, D-Fla., told the hearing that she thought fear of looking weak on China has kept Washington from having an open debate on whether tariffs are working as intended.

"Tariffs are pretty much the new normal in the U.S.-China relationship and, in my view, we cause significant harm to the U.S. economy without gaining any of the meaningful benefits in the form of improved Chinese conduct," Murphy said. "I have yet to really see a case made for why this ineffective policy is continuing.

"I think, unfortunately, it might just be that politicians are afraid to look weak or soft on China," she said.

ACC joined a Dec. 1 letter from 175 other business groups to a bipartisan group of lawmakers in Congress urging them to pass legislation directing U.S. Trade Representative Katherine Tai to be more flexible in how the USTR reviews tariff exclusion requests.

"Providing a retroactive renewal to all previously expired exclusions and reinstituting a fair and transparent exclusion process will provide the targeted relief that will help U.S. businesses recover from the economic recession and continue to invest in their businesses and workers here at home," according to the letter, which came from the Americans for Free Trade coalition. It was also signed by the Vinyl Institute.

At the hearing, a former Trump administration official who was involved in setting the early rounds of China tariffs said that some of the duties may be doing more harm than good for U.S. policy goals.

"I am concerned that many of the existing tariffs — especially those on the less carefully designed lists 3 and 4 — are harming the U.S. economy without providing the requisite leverage to induce a change in Chinese policy," said Clete Willems, a former special assistant to President Trump on trade policy and now a partner in the Washington law firm of Akin Gump Strauss Hauer & Feld LLP.

Willems said he worked on teams developing the first two China tariff lists in the Trump administration.

In his testimony, he pointed to bipartisan concerns that the later rounds of tariffs are hurting small businesses and adding to supply chain pressures.

"Members of both parties have consistently expressed concerns about the less deliberate construction of tariff lists 3 and 4 and the impact they are having on small businesses in light of today's inflationary environment and supply chain constraints," Willems said.

Even with tariffs, ACC's study said imports of plastic products from China rose.

The study said that importers of plastic products have paid $3.2 billion in China tariffs since 2018, or about half of the extra tariffs paid by the chemicals sector. But it said those higher tariff costs have not resulted in imports falling.

"Imports of plastics products from China have surged despite tariffs, largely due to COVID-19-related demand," the report said. "In fact, at no point have they ever fallen below the level of plastic products imports in the 12 months before tariffs were imposed."

For example, the study said that tariffs paid on imports of plastic floor coverings grew from $89 million in 2017 to $834 million in the 12 months ending June 2021, as both tariffs and imports rose.

Similarly, for a catchall category of miscellaneous household plastic items, tariffs paid have grown from $40 million in 2017 to $170 million in 2021, as imports and tariffs have both also gone up.

Brzytwa argues that with companies and consumers paying the added costs from the tariffs and importing increasing amounts of Chinese goods, the tariffs are an unneeded drag on the economy.

"If these products are indeed essential, must be imported despite tariffs, and are ultimately used to strengthen U.S. manufacturing competitiveness, then it begs the question, 'Why should the U.S. continue to tax them?'" he said.

The ACC study said that about $1.4 billion in potential tariffs on plastic products were waived when importers successfully petitioned for exclusions, amounting to about 30 percent of the potential total plastics tariffs.

It said that was a higher level than in any other subsector of the chemical sector, with some of the key exclusions going to some subsectors of the plastic flooring industry, as well as plastic bags and plastic labware.

Brzytwa argued that because imports from China have continued to rise in chemicals and plastics, the Biden administration could lower tariffs on them without weakening its overall leverage in negotiations with Beijing.

He said the Biden administration should eliminate China tariffs on products that are intermediate inputs to other U.S. manufacturing, calling that a potential "offramp" for U.S. policymakers.

"Although China may also benefit from tariff elimination, the net benefit for U.S. manufacturers and the broader U.S. economy is several orders of magnitude higher compared to what China might gain," he said.