A credible PNTR bill offers insight into pathways to China tariffs

November 21, 2024

4 min read

image

Key Insights:

What is happening: The Restoring Trade Fairness Act was introduced last week by the chair of the House Select Committee on the Chinese Communist Party (CCP), John Moolenaar (R-MI). The bill would repeal Permanent Normal Trade Relations (PNTR) and subject Chinese imports to a range of tariffs, quotas, and other trade remedies.
Why it matters: This bill, along with its companion in the Senate, represents our most credible insight into how a PNTR repeal may be carried out, giving companies crucial insight into the scale, impacted tariff lines, and phase-in periods for tariffs and quotas on Chinese goods. Current proposals call for tariffs well beyond those imposed by Section 301.
What happens next: In the wake of the election, key figures in Congress are attempting to push forward the PNTR pathway to implementing tariffs on China. This proposal highlights some of the key provisions Congress is likely to prefer – including long term phase-ins to limit the economic impact – while providing presidential authority that Trump may find appealing. The extent of Republican support for the bill remains unclear, but we anticipate continued efforts from leading voices on China in Congress to advance the legislation.

ANALYSIS

A credible proposal from Congress

Since our last update on the possibility of a PNTR repeal, Republicans have gained a majority in both chambers of Congress and have secured the presidency, giving traction to repeal. This most recent effort is substantively the same as a Senate bill co-sponsored by Trump’s pick for Secretary of State, Senator Marco Rubio, which was put forward pre-election.

The bill calls for the repeal of PNTR and the creation of a new tariff column for China with a minimum of 35% tariffs on non-strategic goods and 100% tariffs on strategic goods. Otherwise, Column 2 duties would apply, putting Chinese goods in an overall higher tariff category than North Korea, Russia, and Cuba. The bill also removes de minimis duty free entry for the country and funnels tariff revenue to certain industries impacted by retaliation.

A compromise approach?

Given Moolenaar is the Chairman of the influential Select Committee on the CCP, his support of this bill provides insight into how Congress may seek compromise with the Trump administration that is seeking Congressional support to implement sweeping policy proposals.

There are multiple potential pathways for increasing tariff pressure on China and the PNTR pathway is notable as a means to codifying tariffs at a high baseline. Making tariffs more difficult to remove than executive orders and trade remedy investigations is a high-pressure approach to seek concessions from China. The pathway also imposes greater public scrutiny, lobbying, and input which may ultimately water-down the proposal.

This pathway also grants greater Congressional oversight of tariffs on China, however, as other tools (e.g., Section 301 tariffs) largely sidestep Congressional authority without two-thirds majority intervention. Interestingly, despite the high-pressure nature of the bill, it calls for an extended phase-in period during which the tariffs would not be in full effect, only reaching their full potential five years after enactment. This phase-in period gives companies considerably more time for action than some of the actions undertaken through executive order under the first Trump administration.

IMPLEMENTATION TIMEFRAME


Post-enactment timeframe:	180 days	2 years	3 years	4 years	5 years
Percent of tariff implemented:	10%	25%	25%	50%	100%

Source: Restoring Trade Fairness Act, Onyx

The bill grants additional presidential authority to adjust tariffs, quotas, and even stop imports from China through proclamation. Crucially, these would also occur on extended timetable of the PNTR repeal itself. The inclusion of presidential authorities on tariffs may be an effort to combine the flexibility of executive orders with the oversight and maximum pressure approach of the PNTR pathway.

IDENTIFIED STRATEGIC GOODS

Section	Affected chapters	Example items
Chemicals or allied industries	28-30, 38	Enriched lithium, helium-3, certain silver compounds, a variety of pharmaceutical products, miscellaneous chemical products
Machinery and electrical equipment	84-85	Steam turbines, turbojets, agricultural equipment, industrial robots, printer and fax machine parts, machining and metal working equipment, computers, additive manufacturing equipment, motors, generators, a variety of batteries, smartphones, microphones, radar, projectors, integrated circuits and semiconductor production machinery, fiber optical cables
Transport equipment	87-89	A variety of motor vehicles including tractors, helicopters, airplanes, spacecraft, unmanned aircraft
Instruments and apparatus	90	Optical and navigational equipment, drafting tables, instrumentation
Arms and munitions	93	Rifles, artillery, torpedoes

Source: Restoring Trade Fairness Act, Onyx

Topics: North America, China, Trade, Politics

Written by Onyx Strategic Insights