In response to the additional 25 percent tariff the U.S. began imposing July 6 on imports of hundreds of Chinese goods, the China State Council has instructed the China Tariff Commission to finalize and publish retaliatory tariffs on goods of U.S. origin entering the Chinese market. The initial tranche is composed of 545 items valued at $340 million that were hit with an additional tariff of 25 percent as of July 6. This tranche mainly includes agricultural and aqua cultural goods as well as motor vehicles. The second tranche covers 114 items, including chemical products, medical equipment, and energy goods, that will also be subject to an additional 25 percent tariff should the U.S. move ahead with plans to expand the list of Chinese goods subject to the Section 301 tariffs.

It is worth noting that the 25 percent duty will be levied on the declared value of the imported goods in addition to the normal duty charged on goods imported into China. As China Customs collects a 17 percent value-added tax on both the value of the imported goods and all the duty assessed, the VAT cost of goods affected by the additional tariffs will increase significantly.

China has stated that there will be no exemptions from the additional tariff for the bonded import and duty relief programs. As a result, for bonded goods destined for processing trade (e.g., raw materials and manufacturing inputs) for which duties are typically suspended, if the finished products are not exported the corresponding bonded import will be subject to the additional tariff. While such goods are not included in the initial tranche of China’s retaliatory tariffs, some are or could be included in the second tranche. Importers should thus consider a back-up plan or alternate sourcing to mitigate the potential duty cost.