The world of international trade is as complex as it is beneficial for businesses and people worldwide. It has facilitated technology transfer, the shipping of medical supplies to regions in need, and expanded business reach globally. However, it has also exposed countries like the U.S. to various challenges. These range from intellectual property theft to foreign government-sponsored companies creating an unfair playing field for the domestic production of goods they compete against. To curb these and protect the interests of the country and its businesses, several trade acts and laws were enacted. The most popular of these are the Sections 301 and 232 Tariffs.
Over the years, the federal government has wielded the authority from these Trade Acts to protect the U.S. when it deemed fit. They could do this by adjusting or increasing the harmonized tariff schedule for certain products or, in some rare cases, banning certain goods. Most notable were the Trump administration tariffs to protect domestic steel and aluminium industry from China and then Biden’s tariff on electric vehicles from China. Yes, Chinese companies or businesses have been the main focus of these tariffs recently, but ultimately, the leaders using them believe it is for the good of the country.
So why are these trade laws important? How do they impact your shipping operations? How can you navigate them? This guide will explore all of these.
Understanding Section 301 Tariffs
The United States is the world's largest importer of goods; in 2022 alone, it imported goods worth over $3 trillion.
This is not surprising when you are the world’s largest consumer market. However, it does come with some downsides. For example, there are businesses importing goods into the country of which the government from the country of origin has subsidized their product, creating unfair competition. Some other countries have also been guilty of discriminating against U.S. businesses operating on their soil. And then some just steal intellectual property. What all these have in common is that they disrupt, disorganize, and destabilize U.S. domestic businesses, ultimately impacting the economy.
To protect against that, Congress decided to use the economic might of the U.S. to fight back. For example, when the Chinese government subsidized electric vehicle companies, making it difficult for domestic businesses because they could not compete with the pricing, the U.S. retaliated and raised tariffs on electric vehicles from China. This way, despite their success in their home country, they would struggle in the U.S. market. Considering how big and appealing the U.S. market is, it does raise some questions for all parties involved.
Section 301 is a Trade Act that became law in 1974. It provides a way for the U.S. president, in collaboration with key officials like the United States Trade Representative, to respond to countries penalizing domestic manufacturing through unfair trade practices.
Why is Section 301 Tariff Important?
Section 301 is a trade weapon the U.S. government uses to ensure its economy is not negatively impacted by other countries' trade practices. With the Trade Act, they can do the following:
1. Protect Domestic Businesses
The government can protect businesses and industries from unfair advantages that importing companies may have. Although competition is great, sometimes some countries want to rig the rules to get ahead. It creates unfair competition, leading to problems. With Section 301, the President can protect its domestic industries and give them some boost.
2. Discourage Unfair Practices
One of the ideas behind the Section 301 rule is to leverage the economic might and attractiveness of the U.S: market to discourage unfair practices. When countries know there will be retaliation, they tend to hold back from rigging the competition.
What are the Challenges with Section 301 Tariffs?
Although the Trade Act has had many advantages and helped the U.S. government protect its businesses, experts believe it is not all it is hyped to be, especially when used prematurely. Here are some reasons why:
1. Increased Price For Consumer Goods
Although it helps combat the input of interfering nations, sometimes, when it is premature or stays on for too long, it can reduce competition, leading to increased prices, and customers are left having to pay the price. However, in some cases, the government uses a Tariff Rate Quota to ensure the market doesn't get out of hand.
2. Unnecessary Retaliation
When countries feel that the use of tariffs is uncalled for or unnecessary, it might lead to trade wars that could impact domestic businesses and their shipping operations in the long run. This creates a situation where other countries are wary of the situation, therefore taking unnecessary measures that could lead to problems and prolonged trade wars.
Understanding Section 232 Tariffs
Trade wars are one thing, but what about when a simple trade turns into a national security problem? When trade imports threaten national security interests, the President has the power to impose tariffs under the Trade Expansion Act of 1962. A great example of this was the use of Section 232 by the Trump administration in 2018 for steel imports.
After an investigation from the U.S. Department of Commerce (DOC), President Trump, on March 8, 2018, exercised his authority under Section 232 of the Trade Expansion Act of 1962 to impose a 10 percent tariff on imports of aluminium and steel products, with exemptions for Canada and Mexico, to protect our national security.
When is Section 232 Tariffs Important?
Section 301 of the Trade Act is more common than Section 232 because it is only used in an emergency, not to combat unfair practices, however gruelling they may seem. The current trade war with China is a great example. So, what situations necessitate the use of Section 232?
1. National Security and Border Protection Protection
The example of the Trump administration's use of Section 232 shows how the government can use the Trade Act to protect industries and sectors they believe are vital to national security or in this case, essential for national defence. It can also help companies enhance border protection by preventing certain harmful goods from entering the country.
2. Job Preservation
Sometimes, in a bid to protect certain jobs that the government believes are being threatened by outside competition, even when there is no evidence of foul play, the government might use it to protect these jobs, especially if they are critical to national security. The Reagan and Obama administrations had near instances where they almost used Section 232, but the investigation proved that it was not a concern for national security.
What are The Challenges With Section 232 Tariffs?
Just like Section 301, implementing Section 232 presents certain challenges, especially because of the nature and circumstances that demand it. That is why it is seldom used and always starts with an investigation. Here are a couple of the challenges.
1. Trade Disruptions
The wrong implementation of this tariff may lead to retaliation from other countries, thereby resulting in disruption of global trade flows.
2. Potential for Abuse
Experts are concerned that Section 232 could be used to protect industries that aren't genuinely vital to national security.
How Shipping Stakeholders Can Navigate Sections 301 and 232 Tariffs?
Although the government uses the tariffs to ultimately protect the economy, falling on the wrong side can be devastating for the business and supply chain management. This makes effective navigation of the system a must for every stakeholder in the shipping industry, especially the shippers bringing or importing goods into the country. Shippers exporting goods may also use it to know when market forces are changing.
But how can these tariffs be properly managed?
1. Staying Informed
Information is the foundation for success in every aspect of the shipping industry. Staying informed allows shippers to stay one step ahead of the government, especially when they are in certain industries or have significant partnerships with countries that are vulnerable to these tariffs. It can save the supply chain operation from significant disruption. It can also present opportunities. For instance, the Inflation Reduction Act of 2022 opens a range of opportunities for businesses in the solar manufacturing industry.
2. Assess Your Risks
Trade wars do not have a warning signal, and things change. A few years ago, China and the United States had much better relations with each other compared to today. That is why consistently assessing your industry, shipping operations, and supply chains for vulnerability is vital. As the tides change, you might be able to help your business escape the fallout from the implementation of these tariffs.
3. Diversify Your Supply Chain
Focusing on only one supplier may be detrimental. Diversifying the supply chain and engaging various suppliers across different regions allows for resilience and more flexibility in operations. It also protects the business against harsh tariffs.
4. Partner With a Reliable Logistics and Shipping Service Provider
Because of how critical shipping services are to the supply chain, you want a partner that will put the business first place. This means ensuring that your shipping process operates without disruptions, finding ways around the tariffs, and helping your supply chain enhance operations and throughput irrespective of the industry.
How Silq Helps Your Supply Chain Navigate Section 301 and 232 Tariffs
Managing a business and its supply chain is already complex enough. The shipping and consolidation aspect doesn't have to be, especially when it involves navigating trade tariffs your business does not clearly understand or have anything to do with. When the tariffs come down, it is non-discriminatory, which is why protecting your supply chain and shipping operations is quite crucial. One of the key ways of doing this is by partnering with a company that understands the problem. That is where Silq comes in. We stay informed, understand the rules, and leverage a host of expertise and resources to ensure your shipping process is as seamless as possible. Get started with us today.
