Trump Hikes Fastener Tariffs

U.S. President Donald Trump hiked 10% tariffs on $200 billion of fasteners and other select goods manufactured in China to 25% beginning Friday, May 10 at 12:01 am.

The higher Section 301 tariffs only apply to products leaving China as of May 10, not those already in transit, according to the New York Times.

“President Trump’s threat to impose more tariffs on China before this week’s final round of trade talks stemmed from his concerns that the United States was about to be on the losing end of a historic trade deal,” the Times reports.

Trump reportedly was also frustrated by China’s insistence that the U.S. quickly lift all of the tariffs he had placed on $250 billion worth of imports.

The May 5 tariff hike threat was followed by official notification from the Office of the U.S. Trade Representative on May 8. In addition, Robert Lighthizer, Trump’s top trade negotiator, warned members of Congress to prepare for the tariff increase, the Times reports.

China has vowed to retaliate.

While many U.S. business groups agree that China has an unfair advantage on trade, they think “the economic pain of tariffs makes them a poor negotiating tool,” according to the Times.

“Clearly, we think a negotiating strategy based on tariffs is the wrong direction,” said David French, senior VP of government relations at the National Retail Federation.

Peter Robinson, chief executive of the United States Council for International Business, suggested that the U.S. should team up with other trading partners to pressure China to change its ways and work with the World Trade Organization to adjudicate its complaints.

“The opportunity window for avoiding a trade war is closing fast,” economists at Citigroup wrote in a note to clients.

Trump’s original 10% duty on fasteners from China was applied September 24, 2018.

The U.S. fastener industry responded immediately by raising prices.

“Section 301 tariffs act as a tax, and effective immediately, the replacement costs of all of BBI’s imports of affected items will have increased by 10%. As a result, we have increased our pricing respectively to absorb the cost increase,” Brighton-Best International stated in a letter to customers dated September 18.

At the time, BBI pledged to “diversify” its supply base to mitigate the tariffs, but noted an industry reluctance to build new fastener factories in countries currently unaffected by the duties.

“Factory owners have concerns about new investments into unaffected countries as this will be making a business decision based on a political one. As we know, politics can change much faster than business… Owners have a legitimate worry that once a new factory is operational, the tariffs may have been eliminated.”

Economists question Trump’s understanding of the tariff process.

On May 6, Trump declared on Twitter that “China has been paying Tariffs to the USA” and that those “payments are partially responsible for our great economic results.”

“The Tariffs paid to the USA have had little impact on product cost, mostly borne by China,” Trump added.

But that’s not how tariffs work. China doesn’t pay the U.S. when a tariff is in place. Importers of the products pay the tariffs in the form of customs duties and either absorb the extra cost or pass it on to consumers.

“A sudden tariff increase with less than a week’s notice would severely disrupt U.S. businesses, especially small companies that have limited resources to mitigate the impact,” stated David French, senior VP of government relations for the National Retail Federation. “American consumers will face higher prices and U.S. jobs will be lost.”

Trump has also overestimated the amount of revenue the U.S. collects in tariffs, according to FactCheck.org.

“I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers,” Trump tweeted on May 8.

Even with the tariffs imposed by the Trump administration, the nonpartisan Congressional Budget Office projects that the U.S. will collect $74 billion in fiscal year 2019, and won’t reach $100 billion a year until 2027, FactCheck.org reports.

Fasteners are listed among the 6,031 tariff codes to be taxed by the U.S. The tariff appears to apply to nearly all fasteners imported from China.

The Office of the U.S. Trade Representative (USTR) list includes:

7318.11.00 – Iron or steel, coach screws
7318.12.00 – Iron or steel, wood screws (o/than coach screws)
7318.13.00 – Iron or steel, screw hooks and screw rings
7318.14.10 – Iron or steel, self-tapping screws, w/shanks or threads less than 6 mm in diameter
7318.14.50 – Iron or steel, self-tapping screws, w/shanks or threads 6 mm or more in diameter
7318.15.20 – Iron or steel, bolts and bolts & their nuts or washers, imported in the same shipment
7318.15.40 – Iron or steel, machine screws (o/than cap screws), 9.5 mm or more in length and 3.2 mm in diameter
7318.15.50 – Iron or steel, threaded studs
7318.15.60 – Iron or steel, screws and bolts, nesoi, having shanks or threads less than 6 mm in diameter
7318.15.80 – Iron or steel, screws and bolts, nesoi, having shanks or threads 6 mm or more in diameter
7318.19.00 – Iron or steel, threaded articles similar to screws, bolts, nuts, coach screws & screw hooks, nesoi
7318.21.00 – Iron or steel, spring washers and other lock washers
7318.22.00 – Iron or steel, washers (o/than spring washers and other lock washers)
7318.23.00 – Iron or steel, rivets
7318.24.00 – Iron or steel, cotters and cotter pins
7318.29.00 – Iron or steel, nonthreaded articles similar to rivets, cotters, cotter pins, washers and spring washers