Comments to USTR on Proposed Modification to Section 301 Action on China

By at 17 June, 2019, 10:54 am

Mr. Joseph Barloon

General Counsel

Office of United States Trade Representative

600 17th Street NW

Washington, D.C.  20508


Comments submitted via  

Proposed Modification of Action Pursuant to Section 301: China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property and Innovation

Docket Number: USTR-2019-0004


Dear Mr. Barloon:

On behalf of the Small Business and Entrepreneurship Council (SBE Council), I submit the following comments on the Proposed Modification of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.

The SBE Council is a nonpartisan, nonprofit advocacy, research and educational organization dedicated to protecting small business and promoting entrepreneurship. With more than 100,000 members and supporters nationwide, SBE Council is engaged at the local, state, federal, and international levels on supporting policies that enhance competitiveness, and improve the environment for business start-up and expansion, and economic growth. For 25 years, SBE Council has focused its work on private-sector initiatives and policies that strengthen the ecosystem for startup activity and small business growth.

The Trump Administration’s focus on pushing China to abandon unfair and illegal trade practices are warranted. Many small businesses have struggled and are harmed because of these practices. At the same time, expanded trade with China has also opened many new opportunities for small businesses and helped the overall domestic economy to grow. Accordingly, SBE Council is concerned the new round of tariffs on approximate $300 billion worth of goods from China will impose new costs on a wide range of small businesses across the country and make it harder for entrepreneurs to succeed.

Should a trade war accelerate, American consumers as well as manufacturers, farmers, and firms whose success is tied to exports will have less success selling their products in China’s vast and growing market. The close interrelationships of companies in today’s global supply chain make it inevitable that even companies that do not export or import could experience losses and difficulties as the volume of trade and investment sinks, investor confidence declines, and uncertainty grows.[i] That is currently happening with the tariffs that have recently been put in place.

International Trade and the U.S. Economy

The United States has been at the forefront of expanding trade since the end of World War II. Most economists have long agreed on the net benefits of trade.

The U.S. economy in the 21st century is inseparable from trade. Real total trade (exports plus imports) in 1955 equaled 6.1 percent of real U.S. gross domestic product (GDP). That grew to 29.3 percent in 2017. U.S. exports as a share of the economy jumped from 2.7 percent of GDP to 12.8 percent over this period, and imports from 3.4 percent of GDP to 16.5 percent.[ii]

Because most U.S. businesses are small and mid-sized enterprises, the overwhelming majority of businesses involved in international trade are small firms. More than three quarters of U.S firms that export to foreign markets have fewer than 20 employees, and 86.7 percent fewer than 50 workers. To some extent, the smallest businesses have the biggest stake in deepened and strengthening U.S. international trade ties.

Small Business and Trade with China

Since China acceded to the World Trade Organization in 2001, exports of U.S. goods to China have grown by nearly 600 percent while imports of Chinese-made goods grew by almost 400 percent. Both figures represent advances for American small and mid-sized businesses and consumers. More than half of U.S. exporters to China (53.8 percent) in 2017 had fewer than 20 workers, 68.7 percent fewer than 50 workers, and 78.4 percent had fewer than 100 workers. Small businesses have also benefitted from being able to access competitively-priced products and inputs for manufactured goods as well as the growing ranks of Chinese consumers who now have purchasing power that would have been unimaginable a generation ago.[iii]

These benefits notwithstanding, and as anticipated when China joined the WTO, the process of integrating China into the rules-based global trading system has been difficult at times. China’s political and economic systems are synonymous in many ways, with lavish state support for what are identified as strategic industries. China has shown a penchant for skirting trade rules, and has not honored obligations to its trading partners.

The United States should persist in addressing these and other trade issues – such as rampant IP theft – using the range of tools at its disposal. However, the Trump Administration’s recent proposal to tackle persistent trade frictions concerning technology transfer, intellectual property, and innovation with additional tariffs on a growing number of goods from China could soon mean higher prices for trade-reliant businesses of all types and sizes. Extending 25 percent tariffs to consumer goods, including toys, sneakers, shirts, appliances, and other items with a cumulative value of $550 billion will ripple through the economy.[iv]

Examples of Direct Impacts on Small Business

While large companies have some flexibility to modify their supplier networks to minimize the impact of the tariffs, smaller companies have fewer options. They either have to raise prices or absorb mounting costs, both of which are tough choices in a competitive marketplace. Likewise, as China retaliates with import restrictions, small business could see overseas opportunities dry up. Together, this is creating an untenable position for companies and entrepreneurs in every corner of the country.

● Richmond, Virginia-based Pello has been selling 400-500 light-weight bikes for children since 2014. The bikes are made in China because U.S. factories are not equipped to produce large numbers of these very small bikes. Founder and owner Shane Cusick paid 10 percent in extra tariffs on the most recent shipment. Hiking the tariff by an additional 25 percent would force Cusick to raise prices, which could lead to fewer sales. Or he could find another suitably equipped production facility outside China, which would involve unknown costs and delays.[v]

● E-Blox, an educational toy company in Buffalo Grove, Illinois, imports toys from China and assembles and packages them in the U.S. “We are keeping a close eye on this next round [of tariffs],” said E-Blox Chief Operating Officer Joe Seymour. “That would be devastating.” CNBC reported that “if [Seymour] tries to pass along the higher costs from the new tariff on toys to customers, Seymour said, he will lose sales. And the company’s profit margins aren’t big enough for it to simply absorb the tariffs, he said.”[vi]

● Companies in Connecticut sold China nearly $1 billion in goods and commodities in 2018. When China doubled its tariffs last year in response to the first round of tariffs the U.S. imposed, Groton-based Garbo Lobster lost a significant portion of its business and closed a facility in the state in January. In another example, China’s retaliatory tariffs led to the Connecticut dairy farmers seeing sales to China drop by third in the second half of 2018. Rising tariffs will also affect the state’s aerospace industry, which includes helicopter maker Sikorsky, jet engine manufacturer Pratt & Whitney. This, in turn, will affect dozens of smaller companies that make components and parts for these companies.[vii]

● In Minnesota, manufacturers are scrambling to weather the tariffs, even if means shipping production out of the state. Polaris Industries CEO Scott Wine said the new round of tariffs on Chinese-made components could be “catastrophic,” increasing the company’s costs by $200 million a year. This could result in the company moving some of manufacturing of its outdoor vehicles from the U.S. to Mexico. Meanwhile, Plymouth-based sensor manufacturer Banner Engineering estimates the tariffs costs in the millions.[viii]

The direct impact on these small businesses is indeed burdensome, and the indirect effects of a trade war with China could be even more significant as it persists over time. As sector after sector reels from disruptions and harm caused by rising import costs and fewer opportunities to export to China, thousands of downstream small businesses bear a disproportionate burden. As consumers refrain from or shift their purchasing in response to rising prices, small businesses of all kinds – manufacturers, service provides, retailers, and restauranteurs – could face troubling choices. If small businesses suffer, the broader U.S. economy suffers and vice versa.  The following are illustrations of how the macro effects in select sectors reverberate through small business in the United States.


China is the world’s biggest purchaser of buyer of soybeans and the U.S. has been China’s second biggest supplier, with $21.4 billion worth of global soybean exports in 2017. Only Brazil exported more to China, with $25.7 billion in exports of the crop. Tariffs already in place have prompted China to stop purchasing U.S. soybeans. The negative consequences are already apparent and loom as larger concern each day.[ix]

In the first quarter of the year, farm income fell by $11.8 billion. Agricultural producers represent only about 2 percent of employed Americans but their income decline was so steep that it held back the overall national personal income growth in March, according to the Commerce Department.[x]

Of course, many other agricultural products are being affected by the escalating tariffs. California’s walnut, citrus and sweet cherry farmers are losing out. California producers accounted for $2 billion of the $3 billion in citrus that China was importing annually before the tariffs took effect.[xi]

In the Upper Midwest, 84 farms filed for bankruptcy between July 2017 and June 2018, according to the Federal Reserve of Minneapolis.[xii] That’s more than double the number of Chapter 12 filings during the same period in 2013 and 2014 in Wisconsin, Minnesota, North Dakota, South Dakota, and Montana.[xiii] Farms that produce corn, soybeans, milk, and beef producers in the region had already been enduring lower incomes and financial pressures stemming from overall lower global demand and lower prices.[xiv] Fewer exports to China will exacerbate this trend.

When farmers sell less and farm incomes decline, the small businesses that sell equipment to farmers, the contractors who made capital improvements in agricultural operations, the retailers, eateries, and recreational businesses that serve residents in farming communities also suffer.

Energy producers

The energy sector provides an especially compelling example of the indirect negative impact of an escalating trade war. Domestic oil production in 2019 is expected to surpass the 1970’s record of 9.6 million barrels per day. In fact, there was a period late last year when the United States exported more crude oil and petroleum products than it imported. This was the first time this happened since 1991.[xv]

But an escalating trade war with China will curtail continued export growth. In 2017, China accounted for 19 percent of total U.S. oil exports. But in 2018, U.S. oil exports to China began plummeting, as Chinese importers moved away from U.S. producers as trade tensions mounted.[xvi] Following a slump in late May 2019, oil is on track for its biggest monthly drop in six months. China accounts for some this decline but trade tensions with Mexico, one of the largest U.S. trade partners and major supplier of crude oil, also remain high.[xvii]

Sino-U.S. trade hostilities have already resulted in more uncertainty and volatility in the overall energy sector. In the last year, oil markets saw substantial swings in export volumes as a result of anxiety about the length and nature of the trade battle between the U.S. and China.[xviii]

In addition, China is currently the world’s second largest importer of liquefied natural gas (LNG) and it is projected to overtake Japan as the number one importer in the early 2020s.[xix] China’s appetite for LNG has been an important reason for robust exports and has propelled the growth in this sector. However, in September 2018, in retaliation to U.S. tariffs, China imposed a 10 percent tariff on U.S. LNG. The impact was immediate and dramatic. Only six LNG cargo ships went from the United States to China during the last six months of 2018, down from 25 during the same period in 2017, according to Reuters.[xx]Thus, one of the U.S. most promising production and export sectors has been weakened.

If the tariffs remain in place at the current level, the negative impact on U.S. producers and exporters will be profound. U.S. energy exports are projected to rise to 243 million tons of oil equivalent by 2040 but without a resolution to current trade disputes and the persistence of retaliatory tariffs, exports would drop by two-thirds, to just 80 million tons.[xxi] On the other hand, other energy exporters, notably Russia, could benefit from declines in the U.S. energy sector’s fortunes.[xxii]

In addition to less access to export markets, the energy sector is being harmed by tariffs the U.S. has imposed on steel from China and other countries. With the cost of steel from China up 25 percent since the imposition of tariffs in 2018, material costs for U.S. oil companies have risen by more than eight percent.[xxiii] This means that the cost of a pipeline project could rise by $76 million, according to the Association of Oil Pipelines.[xxiv] For a major project, such as TransCanada’s proposed Keystone XL expansion, the cost could be an additional $300 million.

The added costs to pipelines would mean higher prices for consumers. If projects are put on hold, the small businesses that provide equipment such as earth moving vehicles, or engineering services and construction services, and even retailers where pipeline workers would shop will also be affected.

Because oil and gas are major global commodities, what happens in the energy sector influences all other elements of the global economy. With the world’s two largest economies at odds over trade, the consequences of uncertainty, volatility, higher capital costs, fewer resources for other capital investments inevitably affect the world’s smaller economies as well. And this could mean additional disruptions and setbacks for U.S. small businesses and entrepreneurs.

Auto Industry

The unintended consequences of tariffs are especially evident in the automobile sector, where global supply chains are intricately balanced and deeply entwined with global auto manufacturing.

The idea of an American-made car has been anomaly for many years, with raw inputs, parts, and services constantly moving across borders and oceans. In all, the automotive industry accounts for eight percent of global trade, according to WTO figures.[xxv] Indeed, every car, truck and SUV sold in the United States would be affected by the tariffs. Even vehicles assembled in the United States use many imported parts, and U.S.-made parts are exported to plants in Canada and Mexico.

China is the second-biggest supplier of car parts to the United States, after Mexico, accounting for 12 percent of all imports in 2017.[xxvi] Earlier this year, in a comprehensive survey of the economic and consumer impact of U.S. automotive trade, the Center for Automotive Research concluded, “…due to the automotive industry’s reliance on complex cross-border supply chains, any new barriers to trade will have a significant impact on the U.S. automotive industry, consumer prices, and U.S. sales, employment, and economic output.”[xxvii] All told, the Center calculates that U.S. import tariffs and trade restrictions could cost 366,000 jobs — nearly 100 times the number of jobs affected by GM’s plant closings, at Lordstown, OH and other locations. The tariffs and trade restrictions also could increase average vehicle cost by $2,750 and reduce U.S. sales by 1.3 million vehicles a year.[xxviii]

Increased costs and prices will hurt automobile, auto parts, and related sales, with negatives again felt by small businesses in various sectors. For example, among employer firms in the automobile and other motor vehicle merchant wholesalers sector, 78.3 percent have fewer than 20 employees. For automotive parts, accessories, and tire stores, 92.7 percent have fewer than 20 employees. Another sector facing higher costs would be auto repair and maintenance businesses, with 95.7 percent having fewer than 20 workers.[xxix]


The list of Chinese items to be hit with tariff hikes includes a wide range of consumer items. This means average Americans will see and feel the impact in direct and tangible ways, according to a report in May by Citi.[xxx] In this study produced after the new tariffs were announced, Citi estimated that a 25 percent tariff would increase inflation by more than three times what the estimated effect of the current tariffs are as price hikes ripple through the economy and show up at the checkout counter. Research published in May 2019 by the New York Federal Reserve Bank estimated the cost for the typical American household will reach $831 per year.[xxxi] 

For example, large retailers, such as Walmart, Target, Home Depot, Kohl’s, and Macy’s, which source a significant amount of their merchandise from China, have already announced the tariffs will force them to modify supply chains in a bid to keep costs down. Investors may also need to brace for revised financial outlooks, and consumers should prepare for higher prices.[xxxii] Wholesale giant Costco has said price increases are now inevitable.[xxxiii] In addition, more than 170 shoe companies and retailers — including Nike, Teva, Foot Locker, Johnston & Murphy, Rockport and Under Armour — warned in a letter to President Donald Trump of “catastrophic” consequences.”[xxxiv]


Historically, trade has expanded economic activity and opportunity. American small businesses and entrepreneurs have contributed directly to global trade growth and benefitted greatly. Today, more than ever, these businesses are intricately tied to the global economy – either directly because of their role as exporters or importers or indirectly because their fortunes are so closely tied to manufacturers, energy producers, farmers who buy and sell on the international market.

The pervasive view among market watchers and economists is that tariffs will have more negative than positive effects. In the view of Elena Duggar, an assistant director at Moody’s Investors Service, heightened trade tensions between the U.S. and China, including higher tariffs, “will weaken consumer and business confidence in the context of an already slowing global economy.” Construction, transportation, telecommunications, machinery manufacturing, and computers and electronics companies will feel the greatest impact from the tariff hike, according to Moody’s.[xxxv]

The position of SBE Council is summed up well in a recent statement I made regarding the impact of tariffs on small businesses and the overall economy: “Where the strong economy up until this point has served as a buffer for many small businesses, we have now reached a point where newly imposed tariff costs and deep uncertainty about how far this trade war escalates will drag down many more small businesses and the U.S. economy.”[xxxvi]

Thank you for your attention to this critical issue for America’s entrepreneurs and small businesses. Please do not hesitate to contact me or SBE Council if you have questions.


Karen Kerrigan

President & CEO

[i] Rachel Layne, “How steeper U.S. tariffs on China could affect consumers and businesses,” CBS News, May 10, 2019,

[ii] Raymond J. Keating, “The State of Trade and Small Business,” SBE Council, April 11, 2018,

[iii] Raymond J. Keating, “The State of Trade and Small Business,” SBE Council, April 11, 2018,

[iv] Jeanna Smialek, “This Boutique Bike Shop Shows How Trump’s Tariffs Can Hit the Little Guy,” The New York Times, May 29, 2019,

[v] Jeanna Smialek, “This Boutique Bike Shop Shows How Trump’s Tariffs Can Hit the Little Guy,” The New York Times, May 29, 2019,

[vi] “China tariffs a big problem for small businesses in U.S.,” CBS News, May 14, 2019,

[vii] Ana Radelat, “Conn. companies brace for new fallout from U.S.-China trade war,” The CT Mirror, May 13, 2019,

[viii] Dee DePass, “Minnesota manufacturers scramble as trade war with China escalates,” Star Tribune, May 17, 2019,

[ix] “China Puts U.S. Soy Buying on Hold as Tariff War Escalates,” Bloomberg, May 30, 2019,

[x] Mike Dorning and Katia Dmitrieva, “U.S. Farmer Income Drops Most Since 2016 as Trade War Losses Mount,” Bloomberg, April 29, 2019,

[xi] Eli Stokols and Noah Bierman, “Amid trade war that’s hurting their bottom line, many farmers are conflicted about Trump,” Los Angeles Times, January 14, 2019,

[xii] Ronald Wirtz, “Chapter 12 bankruptcies on the rise in the Ninth District,” Fed Gazette, November 14, 2018,

[xiii] Ronald Wirtz, “Chapter 12 bankruptcies on the rise in the Ninth District,” Fed Gazette, November 14, 2018,

[xiv] Alexia Fernandez Campbell, “Farmers are losing patience with Trump’s trade war,” Vox, May 17, 2019,

[xv] Mason Hamilton, “For one week in November, the U.S. was a net exporter of crude oil and petroleum products,” U.S. Energy Information Administration, December 12, 2018,

[xvi] “U.S. Exports to China of Crude Oil and Petroleum Products,” U.S. Energy Information Administration, May 31, 2019,

[xvii] “US oil falls 5.5% to $53.50 per barrel on fresh trade worries,” CNBC, May 31, 2019,

[xviii] Jeff Kupfer, “Trade war with China keeps U.S. energy in crosshairs [Opinion],” Houston Chronicle, March 7, 2019,

[xix] Jessica Jaganathan, “China overtakes Japan as world’s top natural gas importer,” Reuters, November 12, 2018,

[xx] Scott DiSavino, “Trade war cuts U.S. LNG exports to China in 2018,” Reuters, January 9, 2019,

[xxi] Jeff Kupfer, “Trade war with China keeps U.S. energy in crosshairs [Opinion],” Houston Chronicle, March 7, 2019,

[xxii] Jeff Kupfer, “Trade war with China keeps U.S. energy in crosshairs [Opinion],” Houston Chronicle, March 7, 2019,

[xxiii] Dan Eberhart, “China And United States Need Each Other,” Forbes, November 9, 2018,

[xxiv] Erwin Seba, Timothy Gardner, “U.S. energy industry slams Trump’s ‘job-killing’ steel tariffs,” Reuters, March 1, 2018,

[xxv] Finbarr Bermingham, “U.S. and Chinese companies fear Trump’s coming trade war on car industry,” Politico, April 17, 2019,

[xxvi] Finbarr Bermingham, “U.S. and Chinese companies fear Trump’s coming trade war on car industry,” Politico, April 17, 2019,

[xxvii] Michael Schultz, Kristin Dziczek, Yen Chen, Bernard Swiecki, “U.S. Consumer & Economic

Impacts of U.S. Automotive Trade Policies,” Center For Automotive Research, February, 2019,

[xxviii] Mark Phelan, “Tariff uncertainty could hurt auto industry more than plant closures in 2019,” Detroit Free Press, February 18, 2019,

[xxix] Raymond J. Keating, “Comments Regarding “Section 232 Automobile Parts Imports Investigation,” SBE Council, July 2, 2018,

[xxx] Sam Meredith, “Trump car tariffs would be a ‘first-order slap in the economic face,’ Citi’s Buiter says,” CNBC, May 23, 2019,

[xxxi] Trevor Hunnicutt, Jason Lange, “U.S. tariffs on China to cost American households: NY Fed research,” Reuters, May 23, 2019,

[xxxii] Nathaniel Meyersohn, “The trade war comes to Walmart, Target and Macy’s,” CNN, May 23, 2019,

[xxxiii] Charisse Jones, “Costco says ‘prices will go up’ in the wake of U.S. trade war with China as tariffs rise,” USA Today, May 30, 2019,

[xxxiv] Rachel Layne, “Here’s how much more your shoes and sneakers could cost under new Trump tariffs,” CBS News, May 21, 2019,

[xxxv] Rachel Layne, “How steeper U.S. tariffs on China could affect consumers and businesses,” CBS News, May 10, 2019,

[xxxvi] Karen Kerrigan, “Trade Row with China: Statement of SBE Council’s Kerrigan on the Ratcheting Up of Tariffs and Rhetoric,” SBE Council, May 13, 2019,


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