Three months ago, Element Electronics of South Carolina was a big supporter of President Trump’s plan to impose tariffs on goods from China.
Then, the plan changed, and this week, that same company said it was closing up shop because the Trump administration was suddenly threatening tariffs on a critical component it imports from China.
The real story of how Element Electronics started as a supporter of Trump’s trade war but quickly became a victim is still a mystery, as even the company doesn’t seem to know why the tariff plan was changed.
[Also read: China: Trade war with US means we’ll shop for groceries elsewhere]
But the development alarmed some Washington trade policy professionals, who noted that Element’s early support for Trump didn’t seem to win it any political favors from the administration.
“That company had … supported the administration and its use of tariffs on TVs,” one trade policy source said. “What do they get in return? The prospect of tariffs on everything they need to stay in business.”
At the start, Element thought the tariffs under Section 301 of U.S. trade law were a good idea. The company bills itself as the last U.S.-based TV assembler, and the U.S. Trade Representative’s office initially planned to hit finished TVs from China with tariffs.
That would have been a victory for Element, as the price of finished TVs would rise in the U.S., and make their U.S.-assembled TVs more competitive. Additionally, USTR’s list of proposed Chinese goods that would be hit with tariffs didn’t include key components that Element used to assemble TVs.
The company’s general counsel, David Baer, told USTR in May that the plan was especially helpful, because at the time, the tariff on finished TVs was 3.9 percent, and the tariff on a key component they imported, LCD panels, was 4.5 percent.
“The 301 has the potential to level the playing field for Element’s U.S. work force and workers across America,” he testified. “Therefore, Element supports the inclusion of finished TVs in the scope of the 301. And also supports the exclusion of LCD panels used in the assembly of TVs from the list.”
Then, everything changed.
USTR hit Chinese imports with tariffs in two rounds. Round one was on July 6, when $34 billion worth of Chinese imports were hit. Round two was this week, when USTR said another $16 billion in goods would be hit starting Aug. 23.
But neither of these lists included finished TVs.
And just a few weeks ago, USTR dropped more bad news on Element: It was considering hitting two key components from China with a 10 percent tariff: LCD panels and motherboards.
Element quickly warned USTR in a July 20 submission that the flip-flop could crush the company, and openly wondered why everything was suddenly reversed.
“The original 301 list would have taken an important step in leveling the playing field by imposing duties on finished TVs from China,” Element wrote. “Element also testified that the exclusion of LCD panels was critical to its continued survival.”
“Finished TVs have subsequently been excluded from the list of products subject or proposed to be subject to duties under the 301 while LCD panels and motherboards have been added,” it added. “This switch represents the final straw for Element’s US TV production.”
The company warned that it would be permanently shut down if a 10 percent tariff took effect. But it also explained that even the threat of that tariff hike was enough for a temporary closure.
Element explained that when it orders parts from China, it can take 90 to 120 days to receive those parts. Tariffs are paid by the importer upon importation, and Element said it had no guarantee that it would be able to place orders today and receive them three or four months later without having to pay more.
“[T]he analysis shows a high degree of likelihood that products ordered on or after July 10th would arrive in the US and face a new 10 percent duty,” it said.
The tariff would price Element’s TV’s out of the market, and Element warned that it was getting ready to close up shop. And this week, it temporarily closed up everything and laid off 126 people.
The company’s letter to the state’s Department of Employment and Workforce said the tariff threat was the reason, and said it hoped to “re-open in three to six months, but we cannot predict this with any certainty at this time.”
“We expect to return to this venue in the weeks ahead to report that we were able to successfully remove our parts from the tariff list and save our U.S. factor and the impacted jobs,” the company added in a tweet.
— Element Electronics (@ElementTVs) August 7, 2018
Baer and other representatives of the company declined to take questions from the Washington Examiner on why they think the tariff plan changed. USTR itself has offered no specific explanation for the flip-flop that turned Element from an early supporter to an early victim of Trump’s tariffs.
One observer said it’s reasonable to suppose that the Trump administration didn’t want to impose tariffs on finished TVs, which would result in a price hike that might get noticed by consumers around the country.
As to why TV components are threatened with new tariffs, USTR said only that these are proposed tariffs that have not taken effect, and that officials carefully weigh which products to hit, and which products to exclude.
“USTR and the Section 301 Committee carefully review all public comments and testimony during public notice and comment periods,” USTR said in a statement to the Washington Examiner.
“Based on this review process, a proposed list may be modified to remove products on which tariffs could cause severe economic harm (and the list may also be modified to add products that do not),” the statement said. “Each proposed tariff list is subject to a robust and comprehensive public and notice comment period, where full evaluation can be provided by all members of the public regarding the inclusion or exclusion of a tariff line.”
