301 China Tariffs: What Are They and How Do They Impact U.S. Business?

The imposition of Section 301 “China” tariffs, initiated under the Trump administration, marked one of the most significant tax hikes on American consumers and businesses in recent history. Collectively, these tariffs have affected thousands of products valued at more than $380 billion, spanning industries from technology to automotive to consumer goods.

Despite the tariffs remaining in place for more than six years and incurring ongoing updates by the U.S. Trade Representative (USTR), many companies that import from China are still unsure how the tariffs can affect their bottom line and what options are available for reducing the impact of potentially costly sanctions.

How tariffs affect domestic businesses

While the intention behind these “China” tariffs was to address unfair trade practices and protect domestic interests, their economic consequences have been widespread and often adverse. Companies that depend on imports from China—whether raw materials, components or finished products—have had to make tough choices, frequently absorbing increased costs or passing them onto consumers, further fueling inflation.

The Biden administration’s recent decision to maintain and even expand some of these tariffs—adding $18 billion more in duties in 2024 on critical imports like semiconductors and electric vehicles—has continued to strain U.S. businesses and consumers. For example, a tariff on semiconductors is set to increase from 25% to 50% on Jan. 1, 2025, and tariff changes taking effect in 2026 apply to lithium-ion non-EV batteries (7.5% to 25%); natural graphite and permanent magnets (0% to 25%); and rubber medical and surgical gloves (7.5% to 25%).

For lists of affected goods and their applicable tariff codes, see several related documents at USTR.gov.

The continuation and expansion of these policies underline the risk of escalating trade tensions and a potential global trade war. Academic and governmental research consistently demonstrates how these policies result in negative impacts such as higher consumer prices, reduced economic output, and significant job losses. These findings raise fundamental questions about the long-term efficacy and economic repercussions of sustained trade restrictions.

How to mitigate the tariff impact

Despite the regulatory uncertainty surrounding Section 301 tariffs, businesses can implement proactive measures to mitigate the financial impact:

1. Review your tariff codes
   Section 301 tariffs are applied based on specific tariff codes, and misclassification can lead to unnecessary duties. Many companies rely on suppliers or customs brokers for classification, but these parties often lack nuanced understanding of the most up-to-date customs rules and possible exceptions available to individual businesses. Conduct a comprehensive review of tariff codes to ensure accuracy.
2. Assess your customs values
   Customs values reported to U.S. Customs and Border Protection (CBP) may be adjusted to reduce duty liability. Related-party transactions should also be reviewed to ensure transfer pricing aligns with CBP valuation rules. Reassessing these factors may uncover significant savings.
3. Determine the true origin of your products
   Not all goods in a given China tariff category are created equal: if “major processing” occurred outside of China before the products were imported, the goods may not be considered “Chinese-origin,” and such goods may not be affected by the 301 tariffs. “Major processing” refers to complex manufacturing steps in which a product undergoes a substantial transformation. For example, assembling parts into a finished product (such as electronics) in a non-Chinese location may change a product’s country of origin.
4. 301 Exclusions
   The USTR has introduced a new exclusion process for certain machinery and electronic devices under Chapters 84 and 85 of the Harmonized Tariff Schedule of the U.S. (HTSUS). Businesses importing eligible products may submit exclusion requests through the USTR’s portal by March 31, 2025. Certain products are automatically excluded. For details, as well as tariff codes and descriptions related to exclusions, refer to the Federal Register from Sept. 18, 2024.

What’s next?

Businesses that solely rely on a customs broker or supplier to correctly classify imported products should consider a more robust strategy. Working with an experienced Customs and Tariffs team to reassess your import strategy can help companies identify and pursue cost-saving opportunities.

Companies should also consider engaging a Customs and Tariffs advisor to conduct an evaluation of their customs value and transfer pricing approach to better understand their tax liabilities and identify areas of improvement. If a U.S. business imports products from a related entity in China, for example, transfer pricing rules require that the transactions between the related entities occur at “arm’s length,” meaning that the prices must reflect market conditions as if the entities were unrelated. This helps ensure that profits are fairly reported in the right tax jurisdictions.

A reliable Customs and Tariffs team removes the guesswork from bureaucratic minutiae, which means domestic business leaders have more bandwidth to run their businesses.

---

Leverage Aprio’s Customs and Tariffs Services knowledge to minimize customs duties and comply with requirements enforced by US Customs and Border Protection (CBP). From achieving compliance with trade laws and regulations to navigating tariff classification, our holistic approach helps businesses grow. Let us help you properly appraise your products and save money where possible. Schedule a consultation today and achieve what’s next at Aprio.com. 

Aprio is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC, deliver professional services. Since 1952, clients throughout the U.S. and across more than 50 countries have trusted Aprio for guidance on how to achieve what’s next. As a premier business advisory and accounting firm, Aprio Advisory Group, LLC, delivers advisory, tax, managed and private client services to build value, drive growth, manage risk and protect wealth, and Aprio, LLP, provides audit and attest services. With proven experience and genuine care, Aprio serves individuals, entrepreneurs, and businesses, from promising startups to market leaders alike. Aprio has grown to 2,000+ team members providing solutions to clients in industries including manufacturing and distribution, non-profit and education, professional services, real estate, construction, restaurant, franchise and hospitality, government contracting and technology and blockchain. 

Jay Cho is an international trade advisor and a lawyer by training who helps multinational companies better navigate US import and export complexities; Cho specializes in providing compliance risk management and strategies to help clients save on duty fees, as well as providing counsel on customs enforcement matters, such as customs inquiries, verification requests, audits, investigations, and penalty cases.