Authored by Randy Busch
In August 2017, the Trump Administration announced they were going to be targeting China and the trade imbalance between our countries as well as punish China for their policies and practices. The issues at hand were how the Chinese had achieved success with the theft of intellectual property and technology transfers as well as thwart their plans to achieve economic gain with their “Made in China 2025” strategy that focused on industries such as aerospace, maritime, railway, energy, medical devices, and technology.
This past April, the Office of the United States Trade Representative (USTR) published a list of 1333 harmony codes to target $50 billion of imports coming from China. After hearings and deliberation, they removed 513 products, or almost 40% of the products listed, totaling $16 billion of goods. On July 6th, new 25% tariffs were instituted on the remaining $34 billion worth of imports. Consequently, on June 15th, a second list of 284 products was created to make up that $16 billion worth of goods that were removed. Unfortunately, the harmony code for vinyl was included on this list.
We knew the impact this tariff could have on our business, our customers, and our customer’s customers. Along with another industry supplier, we immediately retained a law firm in Washington DC that had been active in the first round of hearings. They were successful in half of the 20 companies that retained them. We were encouraged by their success and knowledge of what was needed to appeal to the USTR. We filed a request to appear at the upcoming hearings to be able to speak to the panel about why we disagreed that vinyl was a part of IP theft or a part of the Made in China 2025 strategy. To my excitement and surprise, I was selected to come to Washington on July 24th and deliver a 5 minute speech to the panel.
Over the next few weeks, I spent significant time with this law firm to discuss our strategy, educate them on the history of our industry, and craft my speech as well as a lengthier supporting document to make our case. While we have great respect and admiration for the domestic manufacturers of coated and laminated products, the truth is there is just not enough capacity to fulfill the market should the supply from China be cut off. As well, there isn’t enough capacity worldwide to make up what China can produce. These were key points that had helped companies in the initial hearings.
Traveling to Washington to deliver my speech was something exciting as well as nerve-wracking. I researched and read transcripts of the previous hearings to get an idea of who was there and what to expect. In the end, I delivered my speech in front of representatives from USTR as well as Departments of Commerce, State, Labor, Treasury, and Homeland Security – Customs & Border Protection. Hearing 15 other speeches in person, I left confident that my arguments were as strong as anyone else and that we had a very solid case to have our harmony code removed from this list. (If you’re curious to read my testimony, you can read the transcript here https://ustr.gov/sites/default/files/enforcement/301Investigations/0724%20Section%20301%20Hearing%20Transcript%20on%20Proposed%20Tariffs%20%2816bn%29.pdf My transcript begins on page 231.)
Only two weeks later, on August 7th, we were informed that the USTR removed only 5 products from the list of 284. Unlike the first round when they removed almost 40% of the products listed, they removed less than 2% the second time. Additionally, this new tariff would begin in just over 2 weeks on August 23rd. There was no way to buy up additional stock or rush orders to beat this date. We were crushed. The hope that I had going into the hearing and then especially afterwards felt foolish as it now seems obvious they had their marching orders and their mind made up before I even spoke at the hearing.
Since this announcement, we have spent considerable time working with our suppliers, worldwide, to review ways to minimize this impact. As you can agree, it is not wise to get cute with the US government or Customs. We had previously taken the US government to court in an effort to fight for the appropriate harmony code and duty rate. This went all the way up to the Federal Circuit of Appeals where we won our case. We have learned the potential penalties for using the wrong code and do not want to do anything to try and circumvent our imports or duty owed.
As I survey the news and the next steps moving forward, I feel comfortable that this is only going to be a short-term policy. This week there are representatives from Washington and Beijing meeting to begin dialog on a long term resolution to our trade. As well, it has been announced that President Trump and Premier Xi are meeting in November. I am hopeful that a resolution will be made then to retract these tariffs and allowing business, and pricing, to return back to normal.
To put it obviously, this is a matter that is out of our control. However, I felt inspired and optimistic that I was given the platform and the chance to speak to the leaders in Washington about our concerns. I knew in my heart of hearts that I had to make a case to fight for our industry, my company, my staff, and all of our customers. In the end, I don’t regret doing this and will continue to fight for us all.
Your support during this unique time is greatly appreciated. Thanks for your business and the chance for us to be your supplier.
Randy L. Busch
Owner & President
Value Vinyls, Inc.