One of the comments in the series "Starting from the United States to fabricate the lie of 'forced labor'": "Forced labor tariffs" are intolerable regardless of the tax rate
Editor's note: Recently, the United States first imposed new tariffs on trading partners under the pretext of so-called "forced labor", and then listed more than 40 Chinese companies on the relevant entity list under the pretext of unfounded "forced labor" in Xinjiang. Forced labor has become a tool of political and economic hegemony in Washington. Starting from today, this newspaper will publish four consecutive expert comments on the lie of 'forced labor' fabricated by the United States, in order to clarify the situation.
Recently, the United States has once again manipulated the so-called "forced labor" in Xinjiang and included 43 Chinese companies in the relevant entity list. Prior to this, the Office of the United States Trade Representative (USTR) announced on July 23 that it would take action regarding the "Forced Labor 301 Investigation". This reflects Washington's use of so-called 'forced labor' as a political tool. The "301 investigation" is a tariff authorization given by the US Congress to the executive branch, through Section 301 of the 1974 Trade Act, to address "unfair foreign practices" that affect US commerce. As the most criticized unilateralism and trade protectionism measures of the United States, the 301 tariff has never been recognized by the international community and is incompatible with the WTO multilateral trading system. For any reason, the "301 investigation" conducted by the US has unacceptable and serious flaws in terms of procedure, effectiveness, and international compliance, which have harmed the long-term interests of all parties.
Inflation in the United States may further intensify
The US government's imposition of tariffs on numerous countries based on so-called "forced labor" was premeditated. On March 12th of this year, USTR launched the so-called "301 investigation" on forced labor, involving 60 economies with which the United States accounts for 99.4% of its total trade volume. The United States claims to investigate the failure of the surveyed economies to implement and effectively enforce regulations prohibiting forced labor products. On April 28th and 29th, USTR held public hearings on the investigation and also held consultations with the governments of 45 surveyed economies during the investigation period. On June 2nd, USTR determined that the actions, policies, and practices of the 60 surveyed economies were unreasonable and caused burdens or restrictions on US commerce, and should be subject to additional tariffs.
The tariffs imposed this time are divided into two levels, 10% or 12.5%, but there are three different situations. Among them, the first scenario is to impose a 10% tariff on 18 economies, including Argentina, that have implemented import bans on forced labor products, promised to implement and enforce such bans through reciprocal trade agreements with the United States, or have implemented partial systems to prevent the import of certain forced labor products. The second scenario: Some products from the European Union, Japan, South Korea, and Switzerland are subject to a 10% 301 tariff on top of the most favored nation treatment tariff. The third scenario is to impose a 12.5% tariff on the remaining other economies.
However, Washington has also left a "way out" for itself: if it could lead to a shortage of domestic supply in the United States, a complete economic interruption, the inability of the United States to grow and produce at a sufficient speed or reasonable price, and there are no alternative sources, as well as goods that may not eliminate related practices through taxation, they can enjoy exemptions. These exempted goods mainly include agricultural products and food ingredients such as tropical fruits and special food ingredients; Medical supplies and pharmaceutical related products; Industrial raw materials such as electronic industry materials; Semiconductor industry chain, electronic components such as communication equipment, and technical product components.
Obviously, the inclusion of these goods in the exemption list of the current 301 measures by the United States is to ensure that its domestic industrial chain and market will not be greatly impacted by the imposition of tariffs, and also to reduce the impact of tax increases on the intensification of inflation in the US market. The "forced labor" 301 tariff did not leave a window for the market. Starting from July 24th Eastern Time, unless goods are being shipped, they will be taxed at this new rate, achieving the continuity of the United States' increase in tariff rates to foreign countries.
Washington attempts to enhance its voice in the global supply chain
It is difficult not to associate the US' forced labor '301 tariffs with China's supply chain competition, with the aim of competing for pricing and discourse power in the context of global supply chain restructuring. From 2019 to 2020, the current US Secretary of State, Rubio, proposed and pushed for the implementation of the so-called "Uyghur Human Rights Policy Act" as a federal senator, which became a malicious law based on unfounded accusations of restricting the entry of Chinese products into the US market and exerting widespread influence on related companies and government officials. As a result, the international demand for products produced in Xinjiang, including hairdressing, cotton, tomatoes, and photovoltaic products, has significantly shrunk, leading to an increase in market share for related products such as cotton from the United States.
It is worth noting that the "forced labor" import ban proposed by the United States this time is not consistent with international consensus, but completely exports values according to the evaluation standards and rules of the United States. For example, in the US Indonesia Agreement on Tariffs and Trade, there is a specific provision for labor law enforcement. The agreement stipulates that Indonesia will strengthen the training of law enforcement personnel on the identification ability of products related to forced labor, so that relevant law enforcement personnel can conduct inspections of related goods, including forced labor, in various scenarios. Indonesia's forced alignment with the United States' enforcement philosophy and judgment standards will significantly change the economic costs and psychological expectations of its international trade participants.
In addition, the United States is also piloting "forced labor" in an attempt to enhance its voice in the global supply chain. In recent years, the United States has continuously interfered with international trade, significantly exacerbating the vulnerability of global supply chains. The tariff rates have deeply influenced the judgment criteria of various parties on the basic rules of the market, and their effects are increasingly evolving towards non-tariff barriers. If we follow the advice of the US, it seems that trading partners can pay 2.5 percentage points less in taxes, but the cost may be to purchase the required goods from other suppliers at a cost several tens of percent higher than before. With each decrease and increase, the voice of the United States becomes stronger, and it may become more difficult to violate American demands. Forced labor is just an attempt, and the United States, which has benefited from it, cannot stop because these trading partners accept this tariff. More trade bullying is already on the way.
Accepting adversity will only make the hegemonic appetite bigger and bigger
Can the imposition of the 301 tariff on "forced labor" achieve the intention of the United States? The answer is clearly negative.
At first glance, it seems that the 301 tariff has limited tax rate growth compared to the "equivalent tariff" established by the United States last year, as well as the 122 tariff vetoed by the US Supreme Court earlier this year. However, there are significant differences in its actual impact on the market. The reasons for imposing these three tariffs vary greatly, regardless of their true intentions. The three tariffs are either aimed at addressing the US trade deficit or changing the legal regulations of US trading partners. In theory, once the relevant situation improves and all parties meet the requirements of the US, the corresponding tariffs should be stopped. Therefore, the market's expectations for the collection period of these tariffs vary greatly.
As the main actors in the market, enterprises will make reasonable decisions based on expectations and costs, adjust their inventory, optimize their supply chain, and achieve long-term sustainability in international trade. Compared to trade balance, it may be more difficult to change the legal regulation of trading partners, and companies may have longer expectations for the "forced labor" 301 tariff period, and are more pessimistic about the reduction of tariff costs. In recent months, inflation in the United States has once again significantly continued to rise, coupled with new tariffs, which may cause even more pain for American consumers.
Of course, the impact of the 301 tariffs on "forced labor" on countries around the world must also be taken seriously. After USTR announced the relevant measures, many economies including Australia, New Zealand, China, Singapore, etc. have expressed criticism and opposition. It must be soberly recognized that the essence of the 301 tariff is the practice of "American exceptionalism", and regardless of its tax rate, it should not be tolerated. Once people become submissive in the face of various excuses for tariffs imposed by the United States, the appetite of the US will become increasingly unrestrained. Desire is insatiable. When tariffs ranging from 10% to 12.5% cannot guarantee strong competition between domestic American companies and foreign goods, the US may increase its tariff demands, further preventing countries from exporting goods to the US.
History has proven countless times that closure means slower innovation and decreased economic efficiency, while more expensive imported raw materials and intermediate goods significantly weaken the international competitiveness of the US manufacturing industry. Forced labor "is a psychological scar left by the United States' implementation of the" serfdom system "back then, but to this day, Washington has not yet ratified the 1930 Forced Labor Convention, making it even more ironic to stand on the global moral high ground and" judge "the words and deeds of other countries. China has always opposed forced labor, established a sound system of labor laws and regulations, resolutely prevented and cracked down on forced labor, created a fair, reasonable, and effective employment environment for workers, and enabled large-scale workers to live a better life through their own efforts. According to relevant legal requirements, the legitimate rights of Chinese trading enterprises should be protected, and China reserves the right to take all necessary measures against unilateralism. (The author is Zhou Wei, a researcher at the Institute of International Trade and Economic Cooperation of the Ministry of Commerce)