IPC Provides Comments to USTR on Domestic Impact of Proposed Tariff Rate Increases on Chinese Imports

The Honorable Robert Lighthizer
U.S. Trade Representative Office of the United States Trade Representative 600 17th Street, NW Washington, DC 20508

RE: Proposed Determination of Action Pursuant to Section 301 (USTR-2018-0005)

Dear Ambassador Lighthizer:

IPC — Association Connecting Electronics Industries® appreciates the opportunity to provide comments on the domestic impact of proposed tariff rate increases on Chinese imports as proposed by the Office of the U.S. Trade Representative (USTR) in its Section 301 Determination of Action.

IPC is a U.S.-headquartered, global trade association representing all facets of the $2 trillion electronics industry. We are the definitive authority for industry standards, training, market research, and public policy advocacy. IPC has more than 4,300 members globally—2,300 of which are located in the United States. Our industry employs more than 2 million Americans, many of whom have coupled high school and post-secondary education with technical training to secure stable, well-salaried employment in advanced manufacturing.

On behalf of these 2 million Americans, I write to register the electronics industry’s concerns about the imposition of increased duties on Chinese imports. IPC understands that the proposed tariff increases are intended to punish China for their technology transfer policies, and we share that concern and support alternative measures to address it. However, the proposed action will inflict significant and long-term harm on many small- and medium-sized U.S. electronics manufacturers that rely on Chinese materials, components and equipment to produce their products and compete in the global marketplace.

Many of the proposed tariff increases will be felt deep within the electronics supply chain among industry segments known for their thin margins. The companies that survive in these segments—especially in the United States—do so by keeping costs down and responding nimbly to customer requirements. The proposed action will increase production costs, delay product deliveries, and disrupt supply chains, imperiling U.S. manufacturers and the jobs they provide.

Instead, IPC encourages the USTR to pursue bilateral negotiation and multilateral trade remedies to address U.S. concerns with China’s technology transfer policies. Should the USTR decide to impose higher duties on Chinese imports, we implore you to exempt imports— including raw materials, components, and equipment—that cannot be easily sourced outside China but that are critical to U.S. manufacturing.

The Interconnected, Global Electronics Supply Chain
The U.S. manufacturing industry has changed dramatically over the last 40 years. In 1980, the U.S. boasted close to 20 million manufacturing jobs. Today, that number is closer to 12 million even as the nation’s total workforce has grown. The U.S. electronics industry has been especially hard hit. Thin margins led companies to seek low-cost production facilities outside the U.S., primarily in China. As electronics manufacturing grew in China, so did the supply chain ecosystem to sustain it. Conversely, in the U.S., the supply chain eroded, leaving major gaps in the industrial base.

These gaps are ever-present for U.S. electronics manufacturers. Their survival depends upon meeting customer requirements by outperforming their foreign competitors and by accessing an interconnected, global electronics supply chain. The domestic supply chain cannot fully satisfy the many and diverse needs of U.S. manufacturers, most of whom are now geared towards specialized, low-volume production. A large enough market does not exist to support a robust domestic supply chain. IPC is optimistic that advanced manufacturing and a rising desire for smart sourcing will continue to grow U.S. manufacturing, but that long-term growth will be undermined by the short-term harm done by the proposed tariffs.

Increased Tariffs Will Harm U.S. Electronics Manufacturers
In response to the USTR’s proposed Determination of Action, IPC conducted a survey of its U.S. membership, and the results suggest that many U.S. firms will be negatively impacted by increased tariffs on Chinese imports. Of the respondents, 87% import raw materials, components and/or equipment from China. These importers are diverse in size and market segment, representing a cross-section of IPC’s membership. The respondents collectively have production facilities in 36 U.S. states, with the highest concentration of facilities in California followed by Minnesota, Texas, Illinois, and Wisconsin.

The respondents were asked to rate the effect of these tariffs on their businesses on a scale of 0 (no impact) to 100 (threat to survival). More than one-third of respondents (35 percent) said the impact would be severe and could endanger their companies, further shrinking the U.S. electronics industry. About one-quarter (23 percent) predicted a moderate impact, and 42 percent indicated the negative impacts would be minimal. Of those companies that rated the impact low, many expressed confidence that they could restructure their supply chain and pass costs along to their customers. A few believed the tariffs would help their businesses.

Those companies rating the impact higher were not so optimistic. Consider the case of one respondent: a small- and medium-sized manufacturer of printed circuit board assemblies and critical electronic systems for customers in the industrial, aerospace, defense, automotive and medical industries. The company has three manufacturing facilities located in Texas, Wisconsin and Mexico. This firm exemplifies the “reshoring” movement in the U.S. In this low-margin business, the company operates leanly and with a laser focus on its competitive advantage: low volume, high complexity manufacturing to allow customers to source electronics in the region where they are sold. This company has been a success story by revolutionizing, not only how we manufacture, but how we think about the total landed cost of ownership through the entire manufacturing production lifecycle and supply chain.

On the 0-to-100 scale mentioned above, this company estimates the negative impact of the proposed tariff increases at 70. In 2017, the company spent more than $2 million on manufacturing equipment, including equipment listed in the proposed Determination of Action. The most costly items were an automatic electronic component placement machine (84798992) and industrial furnace (85143010). Increasing tariffs on these products only increases the company’s cost of production before it has even procured base materials.

This company’s concerns were echoed by others in the industry. Attached to this submission is a list of the tariff codes our members use, but I would like to highlight the five tariff codes that 50 percent or more of respondents indicated they use to import goods from China.

None of these imports are finished goods. They are all critical in the manufacture of components and end items, and they are all difficult to source domestically. Other tariff codes also relate to electronics manufacturing equipment and parts, including 84561170, 84561270, 84669396, 84798992, 84804100, and 85143010.

Respondents also expressed concern that the tariff increases would increase the cost of base materials to produce high-reliability electronics. Higher prices will depress demand among customers and will make U.S. manufacturers less competitive in the global marketplace. Another respondent also suggested the tariffs will create cost confusion in the marketplace and impose new administrative burdens as inventoried goods are mixed with newly imported goods. These concerns led one respondent to offer the admonition: “Don’t do this.”

Conclusion
IPC appreciates the U.S. Government’s heightened attention to intellectual property theft. As an industry association, IPC has sought to introduce tools, including industry-developed standards and best-practices, to help companies safeguard their intellectual property and that of their customers. Nevertheless, intellectual property theft remains a rampant problem globally. We support efforts among governments to secure binding and cooperative agreements to reduce intellectual property theft.
As we work to address intellectual property issues, we must not further undermine U.S. companies by imposing increased costs on them. Doing so will only weaken their competitiveness in the global economy and jeopardize their long-term sustainability at a time when the U.S. Government should be taking active measure to shore up the industrial base. Instead, IPC encourages the USTR to postpone new tariffs and prioritize bilateral negotiations with your Chinese counterparts and the pursuance of remedies under existing trade agreements.

Thank you again for the opportunity to comment on this proposed Determination of Action. If IPC can offer additional information or assistance, please contact Chris Mitchell, IPC vice president of global government relations, at ChrisMitchell@ipc.org or 202-661-8097.

Sincerely,
John Mitchell
President and CEO