China: Future Section 301 Tariffs 'Must Not Exceed' 20%
Following "in-depth discussions" on tariffs last week between Chinese and U.S. officials, China appeared to indicate that some increase in its tariff rate would not trigger a trade war between the countries.
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"It is hoped that the U.S. side will honor its commitments: regardless of any future justification for imposing or replacing tariffs on China, the U.S. tariff level on China must not exceed the level jointly agreed upon in the Kuala Lumpur economic and trade consultations," said an "interpretation" of the outcomes of the talks by a Chinese Commerce Ministry official, issued May 20.
That level was 20%, not including Section 232 and Section 301 tariffs. However, the current tariff level is 10%, under Section 122, plus the sections 232 and 301 tariffs and baseline rates. China's Commerce Ministry made it clear that it considers the current Section 301 investigations limited by that past trade truce.
While President Donald Trump told reporters tariffs didn't come up in his meetings with Chinese President Xi Jinping at their recent summit, U.S. Trade Representative Jamieson Greer later explained that negotiators settled those issues ahead of the principals' meetings.
The Chinese Commerce Ministry also gave more details on the Board of Trade, which it's calling the Trade Council. It said China has agreed to discuss "a reciprocal tariff reduction arrangement covering products of equivalent scale -- each side’s covered products amounting to USD 30 billion or more -- with agreed-upon products of mutual interest potentially eligible for Most-Favored-Nation (MFN) rates or even lower." It said it's working to finalize this arrangement and to expedite its implementation.
Treasury Secretary Scott Bessent has said Halloween costumes and fireworks could be on the list; the USTR has said the government will seek input on what should be included, and that inputs not available in the U.S. could be within the scope, in addition to low-end consumer goods.
China said the trade truce should be extended, as it's critical to stabilize trade relations. "During this round of consultations, both sides reaffirmed their commitment to fully implementing previous consultation outcomes," China said. It noted that the truce included suspending Section 301 measures targeting China's maritime, logistics and shipbuilding industries.
The Office of the U.S. Trade Representative didn't respond to a request for comment on the Chinese statement. If the U.S. cannot hike new tariffs on China past 20% without retaliation, it will change the competitive landscape for manufacturers in the region, since countries like Indonesia, Cambodia, Malaysia and Bangladesh accepted a 19% tariff rate in reciprocal trade agreements, believing they would have a cost advantage compared with China. Before the Supreme Court struck down the reciprocal tariffs, Vietnamese exports faced a 20% reciprocal tariff rate.
About two-thirds of Chinese exports are also subject to Section 301 tariffs from the first Trump term, but the majority of those products only face a 7.5% tariff.