Tariffs and import restrictions: Importing goods from China has never been more complex

If you’re importing goods from China, the past few years have been uniquely challenging.  A series of new tariffs and trade restrictions — plus supply-chain snarls stemming from China’s zero-tolerance COVID-19 policy — have made routine commercial tasks significantly more complicated.

There are two issues in particular to consider: tariffs instituted by the Trump administration that may soon be lifted by the Biden administration, which cover about two-thirds of all goods imported from China; and the Uyghur Forced Labor Prevention Act, which took effect June 21, 2022, and requires companies importing goods from China’s Xinjiang province to ensure their merchandise wasn’t produced by forced labor.

Both have the potential to make compliance with U.S. import laws more complicated, particularly if the Biden administration lifts some of the tariffs but leaves the rest in place.

The current tariffs on Chinese imports are the work of former President Trump, who implemented a series of levies on goods imported from all over the globe as part of his overall “America First” economic agenda. By making imported goods more expensive, Trump aimed to punish foreign companies that dumped product into the U.S. market below the cost of production, and to reduce competitive pressure on American producers and manufacturers.

Tariffs don’t exist in a vacuum, however, and the nations hit by U.S. tariffs promptly retaliated. The resulting trade wars ​​— which Trump proclaimed were “good and easy to win” — ended up costing U.S. consumers nearly $80 billion, according to the Tax Foundation, as companies passed on their increased tariff costs.

According to the nonpartisan Tax Foundation, the tariffs amounted to “one of the largest tax increases in decades.”

In fact, several noted economists believe the tariffs hurt American companies and consumers more than the foreign competitors they targeted.

The Biden administration has undone some of the previous administration’s tariffs, but the Section 301 tariffs against China are still in place. This includes 25% tariffs on some $250 billion worth of imported goods, and 7.5% tariffs on another $112 billion worth of imports. Items affected range from industrial imports of depleted uranium to infrared lamps to fresh, canned, and frozen fish. The tariffs apply to roughly two-thirds of all the things the United States imports from China.

Complying with the tariffs means negotiating a lengthy list of 10-digit Harmonized Tariff Schedule codes (HTS or HS codes) for specific products, which were revised earlier this year.) This has added to the complexities importers face — particularly those who haven’t automated their cross-border tax compliance processes.

China retaliated by slapping tariffs of between 15% and 25% on $2.5 billion worth of U.S. goods. This resulted in lost export sales for American producers — particularly farmers. The U.S. Department of Agriculture made $14.5 billion in direct payments to farmers during the Trump presidency, to help them make up for those lost sales.

One of the consequences of the tariff wars has been an increase in consumer prices (one estimate pegged it at $51 billion annually) for many imported goods.

This is the main reason why the Biden administration is considering lifting the tariffs on China.

U.S. tariffs on Chinese goods aren’t the primary driver of inflation, which is a global phenomenon.

However, economic research suggests lifting the remaining tariffs on Chinese imports would reduce inflation for U.S. consumers by as much as one full percentage point. While the direct impact of making Chinese imports less costly would only lower inflation by about a quarter point, the move also would force U.S. companies to lower their prices to stay competitive, and the cumulative effect would be to lower consumer prices by about 1 percentage point, some economists project.

With inflation running at 8.6% right now, a move by Biden that could bring inflation down a little, while potentially reopening markets lost to U.S. exporters, could be both economically and politically attractive.

A few other nations (including Brazil) have reduced their tariffs in recent months, with the goal of lowering the cost of essentials like food.

Also complicating the U.S.-China relationship: China’s human rights record, particularly when it comes to its treatment of its Muslim minorities in Central Asia.

The Uyghurs (pronounced “we-gyer” in English) are an ethnic minority group primarily living in Xinjiang Province in the northwest corner of China. The province borders Mongolia, Kazakhstan, and several other Central and South Asian countries. Speakers of a Turkic language, the Uyghurs’ ancestors began adopting Islam starting in the 10th century.

Situated in an arid region along one of the ancient Silk Routes linking Europe and East Asia, the area has alternated between Chinese rule and independence for more than 1,500 years. The Chinese Qing dynasty conquered the region in the 17th century. During the 20th century, the rivalry between China and the Soviet Union contributed to tension at the border. In the 1950s and 1960s, the government in Beijing moved significant numbers of ethnic Han people into the region (the Han are the majority ethnic group in China, comprising more than 90% of the population). This created tensions with ethnic Uyghurs and Kazakhs.

Between 2009 and 2014, there were a series of escalating riots, street battles, and car bombings involving Uyghur and Han ethnic groups. This led to a major crackdown by the Beijing government: According to Western observers, more than a million Chinese Muslims — primarily Uyghurs — have been sent to reeducation camps in what activists say is an attempt to wipe out their culture, language, and religion.

Other Uyghurs — some 80,000 or more — reportedly have been taken out of Xinjiang Province and forced to work in other Chinese factories operated by leading global brands.

People interned in the camps have been subjected to forced labor. Originally, this involved making clothing and other goods from cotton, which is widely grown in Xinjiang. But according to the U.S. Department of Labor, Uyghur people are being forced to make products ranging from hair care goods to canned fish under conditions close to slavery.

At one internment camp, Uyghur workers “receive little pay, are not allowed to leave, and have limited or no communication with family members,” according to one Labor Department report. “When not working, the Uyghur workers must learn Mandarin and undergo ideological indoctrination.”

The United States has branded Chinese government actions against the Uyghurs as genocide. 

Congress passed the Uyghur Forced Labor Prevention Act (UFLPA), which President Biden signed in 2021.

The law requires U.S. companies importing goods from Xinjiang to prove the products were not produced in factories using forced labor. This is complex because many raw materials from Xinjiang — cotton, coal, chemicals, sugar, tomatoes, and polysilicon (used in solar panels) — end up in finished goods produced elsewhere in China and in other countries. Under the new rules, which took effect this month, U.S. Customs and Border Protection assumes that goods produced in that region are produced by forced labor, and thus will be seized at the port of entry — unless the importing company can provide proof otherwise.

This is expected to create a major burden for importers that could further complicate global supply-chain issues — not to mention cross-border tax issues.

The mounting complexity of importing products from China — the possibility that some, if not all tariffs will be lifted, and the new restrictions on what can and cannot be imported from Xinjiang –— makes it even more important for companies to have processes in place to manage tariffs, duties, and import restrictions in real time.

Click here to learn more about how Avalara has added capabilities to its cross-border product suite to help importers stay in compliance.