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October 8, 2018 | How Import Chinese Steel Tariff-Free: Change the Label to Turbine Parts

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
18,927 product codes provide countless ways to avoid tariffs by relabeling. Evidence suggests that’s happening.

Switching around the 18,927 codes that identify imported goods is an increasingly popular way some Chinese exporters are ducking American tariffs according to the Wall Street Journal report: New Era of Tariff Dodges.

Every product imported into the U.S. carries a 10-digit designation called an HTS code, of which there are 18,927 in all. Like a taxonomic version of Noah’s Ark, the code provides a common language to bridge disparate markets and identify products in all their variety.

In a world of increasing tariffs, the code has another function: evading those levies. The business of code-fudging is expanding in step with tariff increases, undermining U.S. efforts to shield American business from foreign competition, according to importers, customs officials, trade attorneys and shipping brokers.

After President Trump in March ordered 25% levies on steel, Chinese steel plates were being imported coded as turbine parts, said Timothy Brightbill, a trade partner at law firm Wiley Rein LLP, which often works on misclassification and trade-remedy cases. In the first six months of 2018, imports of steel plates fell 11%, year-over-year, while imports of “electric-generating sets,” a turbine classification, soared 121%.

Diamond saw blades imported from China are subject to 82% tariffs because of a past dumping ruling by the Commerce Department. In July, according to U.S. Customs, two California importers controlled by a Chinese manufacturer tried to dodge the tariff by coding diamond saw blades as grindstones.

In China, exporters swap information about tariff codes on websites such as Yishanghuiyou—“Friends Through Commerce”—an offshoot of the wholesale platform 1688.com owned by Alibaba Group Holding Ltd.

“We want to export a batch of plywood trays,” wrote someone using the name Zhang Liang on a Yishanghuiyou forum in January. “What’s the tariff code for plywood that can make it avoid inspections?”

“Our company can help,” replied another user, suggesting they get in touch. Neither user responded to requests for comment.

I suspect very little gets into China via this mechanism. Relabeling soybeans as turbine parts is not likely to work.

This is yet anther example of the stupidity of it all.

Mike “Mish” Shedlock

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October 8th, 2018

Posted In: Mish Talk

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