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Top Two Questions Asked by USTR in Tariff Hearings

Bronwyn Flores, Specialist, Policy Communications, Consumer Technology Association

The office of the United States Trade Representative (USTR)– the part of the White House in charge on the China tariff strategy – recently wrapped up a six-day marathon of hearings. Over 300 business leaders spoke about how increased trade taxes with China will hurt their companies—and government representatives from USTR, the Small Business Administration and the Departments of Homeland Security, Commerce and State asked the business leaders questions to help them in their decision making for the next round of tariffs. Here are the most frequently asked questions by USTR:  

Can Chinese manufacturing be moved to the United States?

The simple answer is often no. Supply chains are delicately balanced, and companies source from the closest place to the next step of their supply chain. Often, that's China. It is nearly impossible to reproduce China’s manufacturing advantages, as their suppliers are concentrated, components are easy to find, quality is high and production is affordable.
Consider the testimony from Colin Angle, CEO of iRobot, the maker of the popular Roomba vacuum: “We recently completed a strategic sourcing exercise to see where else on the planet we could manufacture. The results are very unencouraging. In fact, were we to try to bring manufacturing of the Roomba to the U.S., we would see an increase in the cost of over 57 percent.”
Instead, we increasingly see companies make business decisions based on their ability to employ domestic workers. When parts are available at reduced costs by a foreign supplier, American companies can retain important pieces of their business – intellectual property, research, design and engineering – wholly in the U.S. If there are alternative sources available, those foreign factories are not immediately ready to provide for the high demand and would increase the costs for the American company so much that it’s not even worth considering.
Chief Revenue Officer Bob Fields of smart home startup HiberSense – which manufacturers its two sensors in the U.S., but gets inexpensive plastic parts from China – explained the issue well during the May USTR hearings: “For a small business like ours who are working day to day to optimize my supply chain, I certainly would not be looking forward to rebuilding it. I'll work my tail off to support my company as best as I can to find those options. But I certainly wouldn't be looking forward to it. It would take too much time to move the supply chain. In the meantime, U.S. would lose out to foreign competitors.”

Does manufacturing in China raise IP theft concerns?

While there are legitimate concerns that Chinese industrial policy favors domestic manufacturing, copycats are in all countries – not just China. But many of the businesses hurt by Trump tariffs are being penalized for issues they already address in their supply chain. Some American companies have gone to great lengths to work with reputable Chinese manufacturers who don’t steal the blueprints of products. In the case of many device makers, software source code remains in the U.S., limiting exposure to IP theft.
Put simply, the Trump administration’s tariffs are hurting the companies they’re trying to help. In some cases, products are being taxed even though they have nothing to do with the Chinese policies the tariffs are supposedly addressing. Bluetooth technology and CB radios have been around for decades, yet are getting slapped with tariffs that don't get the Trump administration closer to stopping IP theft.