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USTR to end tariff exclusion towards certain China made PPE

Updated: Jan 2



Brief Background - US & China Trade War


In January 2018, Former President Donald Trump initiated tariff towards certain Personal Protective Equipment (PPE) import from China. In supporting his action as president, he explained that China was costing hundreds of billions of dollars a year to the United States’ economy lost because of the unfair trade practices. According to the statement, United States has a trade deficit of 500 billion dollars, while China was said to be costing them on an additional of 300 billion dollars. Since 1980s, President Trump had introduced tariffs to reduce the United States trade deficit and simultaneously promoting US domestic manufacturing.

The question is, is Trump’s administration really helps in relieving US economy? Most economists do not think so. In fact, the trade war imposed negative impact on not only the economic aspects of both United States and China. In United States, it has led to high end consumer cost as the cost of manufacturing has been increased. Furthermore, it also caused financial difficulties towards the farmers in the United States, as there is import tariff imposed on certain agricultural products by Chinese government. Soybeans, are one of the top United States agricultural products exports to China. At the same time, the trade war between United States and China contributed to an obvious slowdown in the economic and industrial output in China, despite it had already been declining.

In March 2020, USTR (United States Trade Representative) initiated tariff exemptions on certain medical products imported from China in response to COVID-19, in consultation with the Department of Health and Human Services. PPE such as disposable face masks, hand sanitizing wipes, medical or surgical gloves, surgical gowns are parts of the PPE that has been excluded from import tariff.

In September 2021, it has been widely reported that the President Biden was considering whether to initiate a new Section 301 investigation, which is primarily focusing on China’s use of industrial subsidies. This investigation could result in additional tariffs being imposed on Chinese imports. Depending on the scope and magnitude of the tariffs imposed, this could bring significant impact on the supply chain, which are already burdened by existing Section 301 tariffs.


US - main PPE export destination of China


The main export destinations of China nitrile gloves are United States, United Kingdom, Italy, Germany, European and North American countries, while United States encompassed 36.56% of the total export volume of China especially when COVID-19 outbreaks in the US became uncontrollably viral. According to the PPE export data from China to the United States in October 2021, there is an obvious trend of decrease in export volume as well as the ASP of nitrile gloves made in China. In October 2021, the export volume of China nitrile gloves to US is amounting to 11,130 tones, a slight decrease of 2,200 tones (15.04%) comparing to the export volume in September 2021 that amounting to 13,300 tones. The average selling price (export) for October is said to be USD 9976.47 / ton, which is also a significant decrease (17.50%) if compared to the ASP (export) in September, which is 12,092.71 / ton.

On 9th of November 2021, the Office of USTR published a notice in the Federal Register in extending the tax exemption for COVID-19 products imported from China covered by Section 301 to be effective until 14th of November 2021. The USTR then announced an additional 16 days exclusion of import tariff, thus making it effective until 30th of November 2021. Furthermore, the tariff exemption for 81 out of 99 products listed are going to be extended for an additional of 6 months, effective from 30th of November 2021 until 31st of May 2022. On the other hand, the 18 products that has not being granted for extended tariff exemption shall be charged on import tariff Section 301, effective on 30th of November 2021. Several products that have been exporting to US are on the list, these included single-use medical face masks, certain disposable gloves, certain hand sanitizers and so on.


The detailed chronology of tariff exemption towards China PPE under Section 301


On 22nd of December 2020: The Office of USTR published a notice to announce the extension of import tariff exemption towards four batches of Personal Protective Equipment made in China, in response with COVID-19 outbreaks. The exemption is involving 99 PPE, and the exemption is made effective from 1st of January 2021 until 31st of March 2021.

On 5th of March 2021, USTR made a public announcement stated that United States decided to continue the extension of import tariff exemption, made effective from 1st of April 2021 until 30th of September 2021.

On 27th of September 2021, after some exclusions expired, USTR reopened the public comment process on the potential extension for 99 products and later announced an interim 45-day extension to consider public comments. The interim extension is valid through November 14, 2021.


What’s next after the end of tariff exemption?


According to reliable information source, the import tariffs imposed on nitrile gloves from China to United States is expected to be increased at the rate of 4.5%-25%, depending on the type of products. As import tariffs started to administer, nitrile gloves manufacturers in China hereby lost their pricing advantage in offering products at way cheaper prices compared to local manufacturer, and hence the export volume to United States is expected to decline significantly.

Malaysia, as the world’s leading supplier of medical gloves and surgical gloves, is supplying more than 50% of the global demand. United States remained its biggest export destination, encompassed 32% of Malaysia total export volume in year 2020. Several glove factories in Malaysia were forced to shut down their operation as a result of COVID-19 outbreak in the factory or workplace during early 2021. Despite some factories were not forced to shut down their entire operation, they were just allowed to be operated at 40% of their entire capacity. This in fact brought some impacts towards the global medical gloves supply chain. However, back in August 2021, most of the Malaysia’s glove manufacturers resumed their regular operation after getting the approval to operate at 100% of their capacity.

As soon as Malaysia glove manufacturer resumed their production, the market started to overstuff with glove supply as a result of continual emergence of new glove factories worldwide. Furthermore, the United States healthcare lines did not want to get over PPE shortage crisis again, and buying PPE at extremely high price, what they do in response is that they started to STOCKPILE their PPE stock for half year to one year usage. That is why the demand in 2020 are surging crazily. While back in around August or September 2021, the glove markets are said to be oversupply, where supplies started to overtake demands in many folds.

New glove factories are placing themselves in an extremely disadvantageous scenario where they are having higher cost price for raw materials, high starting capital investments which require way more time to break even, ASP dropping and the sharp decline in global demand. This might resulting in the termination of operation waves of those small capacity factories and those new to the markets. Experts believed that the scenario is going to be worsen as more and more new emergences wished to enjoy the slice of glove industry cake.

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-brought to you by GIC Asia Pacific
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