A Guide to China’s Section 301 Tariffs (2024 Update)

Container ship on the water filled with red shipping containers and with a red flag in the front. One container is stamped with the flag imagery of the People's Republic of China.
It may be confusing to keep up with the various tariffs in place between the US and the list of trade partners around the globe. Here is our comprehensive guide to help guide the process with this delicate issue.
August 13, 2020
Last Modified: May 28, 2024
Share This Article
copy-link-to-clipboard Copy URL to Clipboard

Since 2018, the U.S.-China trade relationship has been on rocky ground due to the increased tariffs imposed under Section 301 policies. New changes are now being made based on the conclusion of the four-year review begun by the U.S. Trade Commission (USTR) in May 2022. 

Key Takeaways:

  • Per the results of a four-year review by the USTR, President Biden is continuing and increasing current Section 301 tariff rates imposed on Chinese imports. 
  • The newest rate increases will impact approximately $18 billion worth of current Chinese exports to the U.S. between 2024 and 2026.
  • Section 301 tariffs have been imposed on a wide range of commodities from China since August 2018.
  • Exclusions that were granted in 2022 and later extended are set to expire May 31, 2024. 

USA Customs Clearance has worked with hundreds of importers sourcing their products from China successfully. We’ll review the latest updates and let you know what goods it does and does not apply to.

2024 Changes to Section 301 Tariffs on Commodities From China

Based on the review findings of the USTR, the President is moving forward with increasing tariff rates on limited but crucial categories of commodities.   

For those importing commodities used in manufacturing, more specifically the electric vehicle manufacturing industry, these increased rates will hit harder.  

A double bar graph shows the current and new tariffs that will be applied to items within the Trade and Manufacturing industries. From the top: steel and aluminum will rise from a 7.5 to 25%. Semiconductors will rise from 25 to 100% in 2025. Electric vehicles will rise from 25 to 100%. Lithium-ion EV batteries will rise from 7.5 to 25%. Lithium-ion non EV batteries will rise from 7.5 to 25% in 2026. Battery parts will rise from 7.5 to 25%. Natural graphite will rise from 0 to 25% in 2026. permanent magnets will rise from 0 to 25% in 2026. Critical minerals will rise from 0 to 25%. Solar cells, both assembled and non, will rise from 25 to 50%. Ship to shore cranes will rise from 0 to 25%.

The medical and healthcare industry, still coming to a new normal in a post-pandemic world, will also be affected by tariff increases. Thankfully, the list of such commodities experiencing a tariff hike in this sector is much shorter. 

A horizontal bar graph shows the changes to tariff rates to items in the healthcare industry. The first in syringes and needles, increasing from 0 to 50%. Respirators and facemasks increasing from 7.5 to 25%. Last are rubber medical/surgical gloves increasing from 7.5 to 25% in 2026.

Most of the rate increases are taking effect immediately. Others, like those for rubber gloves or semiconductors, are being given a grace period of one to two years before tariff hikes are officially applied. A similar delay in rate hike was granted to commodities impacting certain EVs and related production materials. 

Changes to Current Tariff Exclusions

When the USTR first began their review in 2022, they granted a number of tariff exclusions for critical need products. Many of these were related to commodities in high demand due to COVID-19, which was still a major factor. 

Items covered in the 99 original exclusions based on critical demand items included respirators, plastic aprons, medical diagnostic machinery, and more.  

Exclusions for these products, which have been extended on multiple occasions, are set to expire after May 2024. Apart from the COVID-19 specific exclusions, 352 others that had been extended are also set to expire at the end of May 2024.

No determination has been made at this time on whether another extension will be granted.

What are the Section 301 Tariffs?

For the purposes of international trade, Section 301 Tariffs refer to any additional tax and duty being applied to imports coming from nations that the U.S. feels are violating fair trade practices

The Office of the United States Trade Representative (USTR) is the agency that conducts the investigations on countries that are suspected of trade agreement violations and take the necessary actions to correct them. Such investigations are possible due to the Trade Act of 1974, sections 301 to 310. 

Any country trading with the U.S. can be subject to a 301 investigation. In fact, the USTR actually releases an annual report of various countries and whether they are on a trade watch list.

Tariff Rates Applied Directly to Imports From China

For the purpose of this article, I’m going to review the specific actions and tariffs that resulted from the 2017 USTR investigation on the suspicious trade behaviors of the People’s Republic of China (PCR). 

After the investigation, China was found to be guilty of four different practices negatively affecting the domestic economy. 

  1. Forcibly acquiring intellectual property (IP) and vital technologies from U.S. companies by requiring them to disclose important details with prying approval processes or joint venture requirements. This was a direct violation of IP rights protections.
  2. Chinese policies that restricted the U.S.’s ability to set the market terms for price negotiations and licensing.
  3. Investments by the PCR government in domestic companies in targeted industries that would substantially hurt the assets of U.S. companies and their standing in China’s economy.
  4. Supporting unauthorized access to secure data networks, making it possible for  data miners to steal trade secrets and vital information from U.S. companies. 

As a result of these findings, the U.S. government imposed a series of tariffs on Chinese goods to make up for the money they were losing as a result of those policies and illegal technology transfers. These were initially implemented in 2018 and specified by a commodity’s Harmonized Tariff Schedule (HTS) classification code. 

Further reviews have resulted in a total of four different HTS code lists with varying tariff rates. By the end of it, thousands of imports from China had tariffs applied, from nuclear reactors to baby onesies. 

Even so, I’m going to break down the process of how it happened list by list, since that does affect certain rates and exclusions. 

List 1

The first list of products affected by new tariffs was directly related to the initial accusations against China in regard to the acquisition of U.S. technologies. The majority of items on this list are industrially significant technologies. 

Overall, the products covered represent about $34 billion worth of imports. There were a total of 1,333 commodities defined by their eight-digit HTS subheading code included and were being charged an additional 25% tariff on top of the normal trade relation (NTR) rates. Products on this list came from the following HTS chapters: 

  • Chapter 28: Inorganic chemicals; organic/inorganic compounds of precious metals, rare-earth metals, and radioactive elements/isotopes
  • Chapter 29: Organic chemicals
  • Chapter 30: Pharmaceutical products
  • Chapter 38: Misc. Chemical products
  • Chapter 40: Rubber and plastic articles
  • Chapter 72 and 73: Iron and steel; articles of iron and steel
  • Chapter 76: Aluminum and articles thereof
  • Chapter 83: Misc. Articles of base metal
  • Chapter 84: Machinery for nuclear applications
  • Chapter 85: Electrical machinery and equipment, including parts
  • Chapters 86 – 89: Relating to vehicles, aircraft, vessels, and their parts
  • Chapter 90: Precision instruments of various applications
  • Chapter 91: Clocks, watches, and their parts
  • Chapter 93: Arms and ammunition
  • Chapter 94: Furniture including bedding, mattresses, cushions and similar stuffed furnishings; lamps/lighting fittings; and prefabricated buildings

At the time, this didn’t include every HTS subheading under the chapter. That meant it was still possible to import certain types of items in these categories. As the trade war went on, those exceptions went away. 

List 2

In August 2018, only a month after the first list went into effect, a second list made up of another $16 billion worth of imports was introduced. It included 563 additional HTS subheadings. Like List 1, this one was also originally subject to a 25% tax.

List 2 continued the theme of taxing industrial materials, but applied to some of the raw materials that got left out of the first list. Additional items under the following chapters were affected:

  • Chapter 28
  • Chapter 40
  • Chapters 84 – 90

The tariff rate add-ons may have ended here, limited to the most critical industries focused on by the USTR investigation. Of course, that’s not what happened, and we got List 3 and 4 instead.

List 3

List 3 is where things began to get messy. As a result of the first two lists, China issued a retaliatory 25% tariff on U.S. goods, valued at $50 billion—equivalent to the U.S. tariffs on China. 

The third list was then drafted and put into effect just a month after List 2 in response to China’s retaliation. When the tariff was first put into place in September 2018, it added a 10% duty on top of NTR rates. By May 2019, it had been increased to a 25% tariff.  

These drastic increases were meant to deter China from issuing another retaliatory tariff in response. List 3 expanded on the 15 chapters worth of commodity codes already covered by the first two lists, and then added subheadings from 66 other HTS chapters

By this point, 81 chapters worth of HTS classification had some kind of additional tariff requirement; that’s just under 8,000 commodities. Their total value? Over $200 billion

Unlike the first two lists, the items in List 3 have little relevance to each other. It’s vast and encompassing, and really just aimed at gathering enough items together to reach the needed value to deter further retaliation from the PCR.

List 4

After a year’s worth of continued tension between the two nations in regard to trade, a final list was drafted to include the rest of the goods not already covered by one of the first three lists. 

It finished expanding the list of subheadings of previously specified chapters and included every classification from the 14 chapters that has yet to be affected. 

The import value of items making up list 4 amounts to approximately $300 billion. The good news for importers was that around the same time, the U.S. and China began drafting a new trade agreement. 

The adoption of the Phase One trade agreement in January 2020 resulted in this final list being divided into an ‘A’ and ‘B’ list. Thanks to the agreement, tariffs were only added to one of them.    

  • List 4A: A 10% tariff on 3,243 HTS subheadings went into effect September 2019. The rate was later lowered in February 2020 to 7.5% per the details of the Phase One agreement. 
  • List 4B: This list was made up of the final subheadings not covered. Ultimately, this list never went into effect because of the Phase One agreement. 

The subheadings free from the heightened tariff rates stretch across 51 different chapters of the HTS, but in varying quantities. 

For instance, chapters 60 to 63 are largely made up of clothing items, and multiple classifications are on the 4B list. The great variety of products covered provides importers with a wide range of possible imports.

However, chapter 28, which includes codes for various inorganic chemicals, has only one commodity free from tariff – sodium bromate – a compound whose most exciting tasks involve batch dyeing and is easy to produce. Not exactly a great profit generator.   

If you are importing items that may fall under any of those 51 chapters where list four wasn’t fully implemented, be sure to work with an experienced Customs Broker. Correct classification can be the difference in thousands of dollars worth of import duties.

What Products Don’t Carry Additional Tariff Duty? 

The products that made up the 4B list are the only ones that don’t carry an additional tariff duty when imported from China. As mentioned, these include products from 51 different chapters of the U.S. tariff schedule, but not necessarily every commodity within those chapters. 

There are items on other lists that now have lowered duties thanks to specifically granted exclusions, but those are not permanent and can be specific to the organization that requested the exclusion to begin with. 

Anyone who’s really been counting chapters at this point might realize we’ve covered 96 of the 99 chapters that make up the entirety of the U.S. HTS, so there’s hope that some chapters are free and clear, right? Not really, and here’s why.

  • Chapter 77 has no commodities listed because it’s an empty chapter the government has maintained and labeled as ‘reserved for possible future use’.  
  • Chapter 98 is largely used to bring back previously exported items or those that are coming in temporarily. The only new imports included here are those sent by charities and meant to be used by the government after a disaster. 
  • Chapter 99, the final one, is the list of temporary codes. This includes the special HTS designations given to products that are restricted or under a special tariff rate. In fact, it’s where section 301 goods, like those from China, are specified. 

There are two other options for importing products from China that don’t carry the additional tariff. Let me go over the fine print involved in importing from both Taiwan and Hong Kong.

Products From Taiwan

The government of the People’s Republic of China has claimed Taiwan and considers it one of its (renegade) provinces. Despite this claim, Taiwan is an independently governed island, recognized as such by the international community. 

You might get confused about its status because Taiwan is officially recognized by two other names. 

  • The Republic of China (ROC)
  • Chinese Taipei

You can see where the confusion on whether Taiwan is China comes into play. Even so, it remains self-governed, so the additional tariffs imposed by the U.S. on the PCR do not apply to Taiwan

Importers could technically benefit from a wide range of products made here, and there are clear signs of that happening. Import origin reports from the Observatory of Economic Complexity continue to track a steady increase in products entering the U.S. through Taiwan. 

Horizontal bar graph showing the Growth of U.S. / Taiwan Import Trade up to the year 2022. from the top, the first bar measures Year over year growth from 2021 to 2022 at 15.8%. The next bar shows three year growth from 2019 at 67.3%. The final bar shows five year growth from 2017 at 109%.

Trade is likely to continue growing now due to the U.S.-Taiwan Initiative that was signed June 2023. 

As good as the growth is, the reality is that the nation cannot fully replace the range of products affected by the current tariff hikes. Although business in Taiwan has grown, it simply does not have the same output capacity as mainland China.

Products From Hong Kong

Hong Kong has legally been overseen by the PCR as a special administrative region since 1997. The island, and nearby Macau island, enjoy a great deal of autonomy when it comes to business and trade. 

For many years, products made here were exported and sold as “Made in Hong Kong”, making it visually distinct from China. However, on July 14, 2020, Executive Order 13936 was signed which changed the country of origin requirement for labels.  Now, any goods manufactured in Hong Kong are marked as “Made in China”. 

Despite this, in terms of official trade, the U.S. continues to treat Hong Kong and the PCR as separate entities. Hong Kong retains a unique ISO country code that can be applied for international trade purposes.

Products with a Hong Kong ISO code are not subject to additional duties under Section 301

If you’ve imported products from Hong Kong and have been incorrectly charged section 301 duties, contact us. We’ll work with you to file a Post Summary Correction (PSC) in order to fix this mistake and receive all refunds that you’re eligible for.

How to Avoid Section 301 Tariffs

Tariff hikes like the ones imposed on Chinese products can place a significant monetary burden on importers because they are intended to make the products cost the same or more than similar domestic products. 

Some tariffs being levied against China have been set high enough to effectively act as a product ban. Between the tariff rate, NTR, and shipping costs, your chances of making any kind of profit are nonexistent. 

However, if the tariff hike is only intended to bring up the cost to somewhat match domestic competition, there’s hope. Either the importer takes a significant cut off their profit margin, or ends up increasing the sale cost of the product to cover the new overhead.

Of course, you have the option to avoid the tariff all together, but that can be easier said than done. I’m going to go over various legal ways to get around the tariffs or to limit their impact on your business. 

Foreign Trade Zones and Bonded Warehouses

Importers can reduce the immediate impact of the tariffs by utilizing a Foreign Trade Zone (FTZ) or bonded warehouse. These are places within U.S. borders that can be used to store imports without paying the tariff duty

Duty is only paid when the items are removed from the FTZ and enter the domestic market. This kind of strategy can be tremendously beneficial, especially to small businesses. 

  • Products can be slowly pulled from FTZ or warehouse storage, allowing duties to be paid over time. 
  • Raw materials can be manufactured into final products for domestic retail or for export to other countries. 
  • Products exported from an FTZ or bonded warehouse will not have to pay any of the tariff fees so long as they are sold outside the U.S. 

This solution does have some downsides. For instance, the costs of using such spaces. Also, you’re not actually avoiding the tariff so much as lessening the full impact of it by being able to pay it in increments as you move items into the domestic market. 

If you are importing for re-export, then yes, the entire 301 tariff is avoided. 

Exclusion Requests

Section 301 provisions leave room for tariff exclusions which can remove or reduce the duty rate you’ll need to pay for specific products. In order for the product exclusion request to be considered, the following information should be sent to the USTR:

  • Identify the exact product and include a description of its weight, dimensions, composition, and color. 
  • Clearly show how the product is different from other similar products on the list. 
  • Include the full 10-digit HTSUS code identifier.  
  • Detail how Customs and Border Protection (CBP) could manage the exclusion, if it is granted. 
  • Include the frequency of imports, the quantity of goods, the cost of sourcing/ manufacturing the goods, and shipment value
  • State if the product is exclusively available from China.
  • Explain whether the tariff would cause serious economic harm to you or the general U.S. population. 
  • Justify whether the product is significant to China’s industrial programs, like the “Made in China 2025” initiative

The tariff exemption can apply to just the one importer with a specific product, or the USTR can choose to add it to a list of products that any importer would be able to benefit from.

If an exclusion is granted, the product will be completely free from the 301 duties. On the downside, it’s only good for a year after the decision is published, and then the duties will once again be added. 

If an exclusion is granted after you have already imported and paid duties, you have the option to request a refund. 

Related: Tariff Refund: Eligibility and How to Apply

From the time the tariff increases started taking effect in 2018 and throughout the add-ons and modifications, the USTR has continued to accept applications for exclusion requests. Up until exclusion requests were made private, the Congressional Research Service (CRS) recorded over 53,000 applications. On average, just 13% of these were granted. 

The exclusions included a limited number of products from all four lists, most of which are now expired. 

In May 2024, 352 exclusions, including those that were originally granted due to the medical needs created by Covid-19, are set to expire. Anyone wishing to be granted an exception will have to apply specifically to the USTR should they allow another extension.   

For specific information on which products are included in those exclusions, it’s best to work with a professional customs broker familiar with the specific HTS codes involved. 

Related: Tariff Exclusion Extension

Duty Drawbacks

Another option for some importers is duty drawback. A duty drawback is possible when imported goods are later exported or properly disposed of within three years

There are four versions of duty drawback that imports are more likely to qualify for with Section 301 commodities. 

  • Manufacturing direct identification: Materials enter the U.S. for manufacturing purposes and are then re-exported. Companies can claim back 99% of paid duties. 
  • Manufacturing substitution: When imports match up exactly with a domestic equivalent and both are used interchangeably to produce a product for re-export. As long as it’s impossible to tell the difference between the final products, companies can again claim a 99% drawback. 
  • Unused merchandise direct identification: Products that haven’t been sold or altered can be returned to their foreign supplier. There is a three-year limit to do so, but a 99% drawback is possible. This can also apply if the goods were destroyed before making it into the domestic market.  
  • Unused merchandise substitution: This follows the same rules as the manufacturing substitution, but applies to entire products that have been imported. So long as they are completely interchangeable, the duty drawback can be applied for. 

Related: Section 301 Duty Drawback

The most important documents involved in the process of applying for a drawback are proof of exportation, U.S. manufacturing records, and the specific drawback being applied for. 

Tariff Classification Review

If you feel that your product falls under an exclusion or is one of the 4B list items that never received a tariff increase, and you’re still being charged, your product may have the wrong HTS code. 

In the case of potentially misclassified products, you can submit a request to the CBP or to a qualified customs broker for product reclassification. 

To submit a classification request, you will need to submit specific information to CBP about the product in question:

  • A thorough description
  • The materials it’s composed of
  • The primary use in the U.S. 
  • The common, commercial, or technical designation
  • Drafts, sketches, or photographs
  • Chemical analysis
  • Lab reports
  • An approximation of what you believe the HTSUS code should be and why
  • Any other information that could be potentially helpful in classifying the item

Going through reclassification can be a bit of a hassle, but if you’re right, that could be several thousand dollars in duty fees saved.  

Import Under Section 321 De Minimis

Section 321 De Minimis, also called Section 321 ACE, are provisions that allow certain products to be imported duty-free. 

It might sound too good to be true, but that’s because you need to meet very specific criteria to qualify. 

  • The value of the goods cannot exceed $800 
  • Multiple packages of different products cannot be consolidated if the total value exceeds $800
  • A shipment valued at over $800 cannot be broken down into smaller orders just to qualify for de minimis
  • The shipment must be filed in the Automated Commercial Environment (ACE) eManifest system prior to arrival
  • The goods must not be regulated by other government agencies, like the FDA or EPA
  • The goods must not be subject to any kind of mandatory inspection, regardless of value
  • Evidence of the value of the goods must be provided in some form

When filing an informal 321 De Minimis shipment, no customs bond is required and no duties need to be paid. However, customs will only release one such shipment to one entity per day, which is not a practical solution for most large-scale companies. 

Smaller companies that work with less inventory at once, can certainly use this provision for their benefit. Provided you meet the list of qualifications, it’s probably the best way to avoid extra tariffs outright. 

Related: Section 321 Shipments

Sourcing From Another Country

If none of the other solutions presented seems to work for you, and the additional tariffs are simply too much, then the only reasonable option left may be to find another supplier. 

In the case of products or raw materials, finding other suppliers is a little easier. There are a number of online B2B marketplaces where you can search for products. You may have started with Alibaba, but there are dozens of alternates available. 

Related: Top Alibaba Alternatives

Because of the ongoing trade tensions between the U.S. and China, several countries have been improving their own manufacturing industries to offer quality, competitive products. 

Countries in Asia worth taking a closer look at as potential suppliers include:

  • India
  • Vietnam
  • Taiwan (Chinese Taipei)
  • Thailand
  • Cambodia
  • Bangladesh

For businesses that are considering moving the actual manufacturing centers and offshoring facilities, there’s a bit more headache involved. Shifting manufacturing is a massive undertaking, especially for larger companies.

Some of the more popular destination options for these moves are the countries we’ve just mentioned. However, Mexico has also emerged as a contender in the race to relocate U.S.-owned manufacturing centers.

The chance to access a ready labor pool and reduce shipping costs has many businesses focused on nearshoring their operations to the USA’s southern neighbor or other countries in Central America working on growing their manufacturing capabilities.

Custom Consulting Services Through USA Customs Clearance

Section 301 tariffs have disrupted the normal business operations of thousands of companies, and many are scrambling to find ways to overcome the chaos. To make sure your company doesn’t fall by the wayside, you’ll need a strong strategy for overcoming the increased costs. 

There is no perfect solution, but the experts at USA Customs Clearance can help you find options that best suit your business.  

  • Expansive Customs Brokerage Services
  • Customs Bonds
  • 1-on-1 Import Consultation

Ready to solve your Section 301 issues? Give us a call at (855) 912-0406 or submit a specific request online.

Share This Article
copy-link-to-clipboard Copy URL to Clipboard

Leave a Reply

Latest comments (3)

Hi
Can you tell me what import rules I need to know to import resin and hardener kits for artists?

Is there a chemical registration body I need to apply to?

Also do you assist non US residents with importing?
Thanks

USA Customs Clearance
315 NE 14th St #4122
Ocala, FL 34470
(855) 912-0406
Copyright AFC International LLC. All Rights Reserved.
magnifiercross