Proposal for the Implementation of Tariffs on Biomanufactured Products

Introduction

AFCC is a collaborative government affairs effort organized by the Kilpatrick Townsend & Stockton law firm and American Diversified Energy. AFCC was created to address policy and advocacy gaps at the federal and state levels with respect to renewable chemicals, bioplastics/biomaterials, cell-cultured food ingredients, alternative proteins, single cell protein for food and feed, enzymes, alternative fuels, biobased products, and sustainable aviation fuels sectors. AFCC member companies work on food and fiber supply chain security and sustainability, renewable chemicals, industrial biotechnology, bioplastics and biomaterials, and biofuels.

Biomanufacturing, the process of using living systems—microorganisms, enzymes, and cell culture—to produce biological molecules at commercial scale—is a rapidly expanding industry with significant implications for economic growth, public health, and national security. China has made US$3.28 Trillion in investments in this sector, becoming a leading global player. ¹ The influx of Chinese Biomanufactured products into the U.S. market presents both economic challenges and potential security risks.

The U.S. biomanufacturing industry, while innovative and robust, faces growing competition from Chinese manufacturers who receive help from state subsidies, local province subsidies, lower labor costs, lower energy cost due to cheap controlled coal prices, and less stringent regulatory environments. This competitive imbalance threatens the sustainability of U.S. biomanufacturers, puts at risk the continuity of supply in the food, beverage, biofuels, biomaterials, and pharmaceutical markets, endangers domestic jobs, violates protection of intellectual property, and risks U.S. leadership in critical biotechnological innovations.

Strategies to Mitigate the Impact of the Chinese Government

Common approaches used by the US Government include changes in: fiscal policy (government spending, tax cuts), structural reforms (investment, labor and regulatory reforms), international agreements (multilateral agreements, currency coordination), monetary policy (exchange rate and interest rate coordination), and trade policies (tariffs, subsidies, free trade agreements). For the purposes of this paper, we concentrate on trade policies specific to tariffs: the rationale behind tariffs, current impact application of tariffs, and proposed tariff structure going forward.

Generally, and at surface level, tariffs are a tool implemented to protect the domestic market by making imported goods more expensive thereby encouraging consumers to buy locally produced products and support domestic industries. Rationales for supporting tariffs:

Economic Protection and Job Preservation: The U.S. biomanufacturing industry supports thousands of high-skilled jobs. The influx of cheaper Chinese products undermines the competitiveness of U.S. companies, leading to potential job losses and the erosion of domestic manufacturing ability. For example, the 25% ad valorem on Chinese goods protected companies and created several thousand domestic jobs. ² However, AFCC and its member companies are finding China has figured out to circumvent this tariff and are producing lower cost products and producing products which are cheaper. On a larger more systemic level, it is worth investigating how a burgeoning and healthy U.S. vitamins sector was decimated over the course of a decade by the Chinese in the early 2000s. ³

In terms of impact and application, tariffs have had a mixed impact on US industries. On one hand, they have provided some U.S. industries with a breathing space before having to compete with Chinese firms. ⁴ For instance, the Biden administration announced new tariffs on Chinese products, including electric vehicles (EVs), batteries, and solar panels, to give U.S. industry some respite. ⁵ The cost to the American economy of existing tariffs has been acknowledged by the U.S. Trade Representative (USTR). It is, however, notable that the US Industrial sector has been provided some breathing space to compete with Chinese Firms. For instance, the Biden administration announced new tariffs—extending the work of the Trump Administration—on Chinese products, including (EVs, batteries, and solar panels, to give U.S. industry some respite.

The U.S. Government has targeted Chinese tariffs on industrial sectors. ⁶

EVs: The current tariff rate is 25% and it will be increased to 100% in 2024.

These tariffs are part of the U.S. Government’s efforts to counter China’s unfair trade practices. The tariffs are carefully targeted at strategic sectors where the U.S. is making historic investments to create and sustain good-paying jobs.

Proposed Tariff Structure

The proposed tariff structure should focus on specific categories of Biomanufactured products that pose the greatest risk to U.S. industry and security. These categories might include, but are not limited to:

Food and Beverage Ingredients.

The tariffs should be set at a level that within a range of 60% to 100%, which is sufficient to offset the cost advantages enjoyed by Chinese producers without imposing undue burden on U.S. consumers or businesses that rely on these imports. Given the bipartisan work conducted by the Biden and Trump Administration on tariffs and tariffs ranging from 7.5% to 100%; this begs the question of why the biomanufacturing sector is not doing more to foster innovation in our sector and protecting existing businesses from the unfair practices of the Chinese Government.

Implementation Considerations

In implementing added tariffs to protect the U.S. domestic economy while preserving our ability to innovate, the following aspects need to be considered:

Economic Impact: With proposing novel tariffs, a thorough and robust analysis of the impacts—positive and negative—will be imperative. Positive impacts to be considered include protection of the domestic industries in addition to government revenues. Contrasting sharply will be the negative impacts that will require analysis and quantification: higher prices for consumers, reduced economic output, risk of trade wars, and lower employment in targeted and not targeted supporting sectors.

Conclusion

The U.S. biomanufacturing sector is at a critical juncture. The unchecked influx of biomanufactured products from China threatens the economic viability of domestic companies, undermines national security, and stifles innovation. By implementing targeted tariffs on these products, the U.S. can protect its biomanufacturing industry, secure its supply chains, and support its leadership in this vital sector.

The time to act is now. We urge the Administration and Congress to consider this proposal and take the necessary steps to safeguard America’s biomanufacturing future.

Editor’s Note

This proposal was reprinted with permission from AFCC.