Yesterday, the USTR released more specifics regarding the proposed increase in tariffs on "key sectors." The most recent announcement clarifies the actual products impacted, the timing of such tariffs, and an exclusion process for a limited subset of the products affected.
The proposed increase in tariffs will cover products in 14 strategic sectors under 382 Harmonized Tariff Schedule (HTSUS) subheadings and five statistical report numbers with an annual trade value of allegedly $18 billion. Annex A of the USTR Notice sets forth the proposed products impacted, including HTSUS Subheadings, Product Description, Tariff Rate, and Timing of Increase.
Products subject to proposed increases beginning August 1, 2024, include electric vehicles, certain batteries and battery parts, certain medical products, certain critical minerals, solar cells, ship-to-shore cranes, and steel and aluminum products. Increases on semiconductors are proposed to begin in January 2025. Lithium-ion non-electrical vehicle batteries, medical gloves, natural graphite, and permanent magnets are subject to the last tranche of tariff increases on January 1, 2026.
Most notably, tariffs on China-made EVs are increasing from 25% to 100%. While not a surprise given the rhetoric from both President Biden and former President Trump prior to the announcement, the significant and immediate increases on certain EV-related products in the supply chain are undoubtedly concerning to OEMs and tier 1suppliers who have not been able to adjust their supply chains in the rapid manner wanted by the Administration. Looking more closely at the specific products that will be increased, we can see the immediate impact on the auto industry:
- Lithium-ion EV Batteries – up from 7.5% to 25% in
2024
- Battery parts (non-lithium-ion batteries) – up from 7.5%
to 25% in 2024
- Other critical minerals – up from 0% to 25% in 2024
- Natural graphite – up from 0% to 25% in 2026
While it is true that OEMs were already obliged to diversify their EV supply chains if they wanted to take advantage of the consumer tax credits offered by the Inflation Reduction Act (IRA) (i.e., decoupling from Chinese suppliers), it certainly cannot be lost on the North America Auto Industry that 2024 is a presidential election year and the U.S.'s EV's transition and the IRA are on the ballot. By introducing tariffs on EV batteries and parts, which have historically enjoyed bi-partisan support, the Administration's move to increase tariffs on these products will likely have a staying effect.
The Trade Representative is also establishing a temporary exclusion process for particular machinery used in domestic manufacturing under tariff lines in Chapter 84 and Chapter 85 of the HTSUS. The tariff lines eligible for temporary exclusion are outlined in Annex B of the USTR Notice. The Trade Representative is also proposing 19 temporary exclusions for solar manufacturing equipment, which are outlined in Annex C of the USTR Notice. Temporary exclusions in Annex B and Annex C will both be effective through May 31, 2025.
USTR now invites comments from interested persons regarding the proposed increases and temporary exclusions. The public comment period will end on June 28, 2024. It is expected that USTR will issue a final notice after reviewing the public comments.
Our team will continue to follow any announcement from the USTR and report any new developments in the following weeks.
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