Tariffs on Chinese Materials Under Fire
Among Semco’s graphite sources and graphite suppliers, China is one of the most, if not the most, important. Several countries, like India, the United States, Germany, France, and Japan produce graphite, but China is the world’s largest synthetic graphite supplier. For the past few years, graphite materials have fluctuated in cost because of the uncertainty in the market for synthetic graphite. This uncertainty was partly the result of the trade war with China begun by the previous administration. Near the end of 2018, we wrote the following about the trade war with China, the tariffs that were part of that policy, and other events unrelated to the trade war that resulted in uncertainty in the graphite market:
The uncertainty created in commodities markets by the US government’s trade war with China have affected everyone in the graphite industry. Hit hardest are shops that manufacture components from synthetic graphite. Synthetic graphite, a petroleum product made from coke and pitch, is generally of very high purity and quality and thus is the best graphite material for many specialty applications. Much of the raw material used to make synthetic graphite originates in China, and thus has had a 10% tariff slapped on it over the last year. Higher prices of the material result mainly from the tariff on Chinese coke and pitch, but the shortage of synthetic graphite (and resultant higher prices) goes back even further than the current trade war with China. In the aughts, graphite demand was low and producers idled capacity due to relatively low demand. When demand slowly rose as the economy began pulling out of the Great Recession, graphite producers experienced the lag time typical of getting idle production facilities back online. In addition, China enacted green initiatives that shut down many of the producers of coke and pitch. This confluence of events (idling factories, suddenly rising demand, diminished supply) put pressure on the graphite industry, which struggled to keep up with rising demand.
Just as the effects of the Great Recession on the economy and international trade have mostly been put behind us, an economic crisis resulting from the global pandemic has affected the world economy. While the effects on the synthetic graphite market of the past year’s economic crisis are not clear, what is clear is that the tariffs imposed on Chinese materials and products are not contributing to the rebounding of the economy in the COVID era. Not only are these tariffs unhelpful to the economic recovery, but they are believed by some to be improper. A lawsuit was recently filed with the Court of International Trade (CIT) arguing how the China tariffs were not implemented according to the authority of law. If the litigation is successful, tariffs on all List 3 and List 4A items of the Chinese tariffs could be eliminated. We consider this good news. Easier access to our graphite sources will allow Semco to offer more predictable pricing to our clients. And because our graphite suppliers will not face a stiff tariff when it ships graphite to the US, the graphite material itself will be less costly. That savings on the cost of raw graphite will be felt by the consumer, our clients.
We will be keeping our eye on this and other lawsuits being brought to the CIT. These cases are arguing that the Section 301 tariffs on List 3 and List 4A products were imposed in violation of the authority provided under the Trade Act of 1974 and statutory provisions were not followed, making those actions invalid. Were this litigation to succeed in court, it would not only affect future shipment of goods and materials, but also could mean refunds of all Section 301 tariffs paid on List 3 and List 4A goods. Whatever the specific outcomes of these lawsuits, it does seem that the trade winds are shifting in 2021.