U.S.-China trade conflicts under the administration of U.S. President Donald Trump appear to be ramping up, not tamping down as many businesses had hoped earlier this year.

Stocks tumbled Aug. 5 on China’s announcement that it would stop buying many U.S. farm products, and would devalue its currency in retaliation for the Trump administration’s pledge to impose an additional 10% tariff on the final $300 billion group of products imported from China on Sept. 1. The group includes everything from imported cod fillets to TVs and electric razors. 

In response to China’s move, the U.S. Treasury Department labeled China a “currency manipulator,” and said it would seek a remedy at the International Monetary Fund. Financial markets remained volatile for the rest of the week.

Given that the trade troubles don’t seem likely to end anytime soon, clients are burning up the phone lines of lawyers like Brady Mills, a partner in Morris, Manning & Martin’s international trade group.

Based in Washington, D.C., Mills advises mainly companies in South Korea, Taiwan, China, Canada and Turkey in unfair trade investigations brought by U.S. producers seeking tariffs on imports of products including steel, lumber, paper and chemicals. He represents his clients in litigation before U.S. courts and international forums. But he also advises U.S. companies that are seeking exclusions from tariffs imposed by the U.S. Department of Commerce and the U.S. Trade Representative on products imported from abroad. 

Mills spoke Wednesday about three actions that lawyers can help companies take to navigate choppy waters as the conflict between the world’s largest economies drags on. His remarks were edited for brevity and clarity. 

1. Take advantage of the exclusion process in relation to the two sets of tariffs that have been imposed against China.

“Section 301 tariffs have been imposed in four different tranches: List 1 is $34 billion, List 2 is $16 billion, List 3 is $200 billion and List 4 is an additional $300 billion,” Mills said. “By then, 97% of all exports from China will be covered. 

“The most beneficial thing companies can do is to apply for an exclusion, and the most beneficial remedy would be to apply for an exclusion from the Office of the U.S. Trade Representative from Section 301 [of the U.S. Trade Act of 1974] tariffs, which were imposed to address technology transfer and intellectual property issues with China. We advise clients regularly about seeking exclusions, and U.S. companies who import from China [and other countries] can also apply for exclusions with the Commerce Department from tariffs on imports of steel and aluminum that were imposed on national security grounds under Section 232” of the Trade Expansion Act of 1962. Exclusion requests are usually made on grounds that the products can’t be supplied in the United States, he said. 

But applying for exclusions is no slam-dunk, Mills warns. If another U.S. company objects to an exclusion, that usually results in the agency denying the request, he said. “About 35% to 40% of Section 301 exclusions are being granted and the rest are being denied. Around 70% of the Section 232 steel and aluminum requests have been granted, but there are still many pending a decision, and virtually none are granted when there is an objection from the domestic industry. It is the first line of defense, but it is not like you automatically get it.”

And there’s another catch, he said: Government agencies have been flooded with exclusion requests and there is a backlog. “It is a huge, huge problem,” Mills said. During the time the exclusion request is being considered, a business will likely have to absorb the costs of the tariffs, or pass them along.

As for U.S. exporters to China, some tariff exclusions also are available from the Chinese government for U.S. products under a new program there. 

2. Seek out alternative sources of supply from different countries.

“If you have an established supply chain with China it isn’t easy to switch to Vietnam or India as two of the more likely candidates, but testing out and trying to certify suppliers is one option,” Mills said. “Also, we advise companies to be very wary of transshipment of products from China via Vietnam, for example. If they change the country of origin to be not subject to the tariffs, if Customs investigates and finds there is a circumvention of duties, you as the importer can be on the hook for fraud or negligence penalties and duties. You’ve got to be very careful because there is a massive incentive to try to transship. 

“You have to do your due diligence to make sure they are truly the producers of the goods in Vietnam, for example.” It is actually difficult to switch a supply chain quickly, but because there is no telling how long this could go on it is worth starting the process of investigating alternatives, he said.

3. Find a third party to act as an importer of record. 

“Somebody has to act as the importer of record with customs. That is the one responsible for payment of duties or tariffs,” Mills said. “We have been advising U.S. importers to ask for the Chinese supplier to become the nonresident importer of record. This requires the Chinese company to post a bond and be on the hook for the duties so the U.S. company is not responsible for the tariffs and can pick the goods up without the tariffs.

“Many companies we talk to had no idea this was even a possibility, but it can shift the liability for the tariffs onto the nonresident importer of record. The Chinese company does not have to have operations in the U.S., but they have to have a surety bond to guarantee the payment of the tariffs. Finding a surety to act as a guarantor for the Chinese supplier is not easy and can be expensive given the level of tariffs in place on imports from China, but if this is possible, it is a way to free the U.S. company from being responsible for the tariffs.”

With respect to China’s slight currency devaluation, Mills and other international trade practitioners said there’s not much of an immediate effect for clients to worry about at this time. 

Read more: