U.S. Retaliates Against China's Forced Labor Manufactures
To counter China's mistreatment of the Uyghur minority, President signed a law that effectively bans imports from the Chinese province of Xinjiang.
An expansive new rule signed into law by President Joe Biden on specific goods aimed at cracking down on the use of forced labor in China might have significant and unanticipated ramifications for businesses and customers in the United States.
The new law, which went into effect on Tuesday, places restrictions on the importation of goods into the United States if those goods have any connection to Xinjiang, the region in China's far west where the Chinese government has carried out an extensive crackdown on Uyghur Muslims and other ethnic minorities.
The law, which is known as the Uyghur Forced Labor Prevention Act, assumes that all of these products were manufactured using forced labor and prevents them from entering the United States until the importers can provide evidence that their supply chains do not involve slavery or coercive practices and do not touch on Xinjiang.
According to Evan Smith, the chief executive officer of the supply chain technology company Altana A.I., his company calculated that approximately one million companies worldwide would be subject to enforcement action if the full letter of the law were followed. This is out of the approximately 10 million businesses worldwide engaged in buying, selling, or manufacturing material things.
This affects a sizeable portion of the total quantity of everyday items produced around the globe.
The Biden administration has stated that it plans to thoroughly execute the legislation, which may cause the authorities in the United States to either detain a considerable quantity of imported goods or refuse to accept them.
A situation like this is almost certain to result in hassles for businesses and sow the seeds of subsequent interruptions to supply chains.
It could also increase inflation, which is already running at a four-decade high, if corporations are compelled to seek out more expensive alternatives or if customers begin to compete for scarce products.
In the event that the law is not effectively enforced, it is likely that Congress, which is responsible for exercising oversight, will express its displeasure.
Alan Bersin, who served as the previous commissioner of the United States Customs and Border Protection and is currently the executive chairman at Altana A.I., has stated that "the public is not prepared for what is about to happen."
It is not in the millions of dollars but rather in the many billions of dollars that this will affect economies all over the world, including the economy of the United States.
The close ties between Xinjiang and certain industries, including the solar and clothing industries, are already well known.
The garment industry has been frantic in its search for new suppliers, and solar companies have been forced to halt a significant number of their projects in the United States to check their supply chains.
However, trade experts warn that the ties between the area and global supply networks extend beyond those specific industries.
According to the findings of Kharon, a data and analytics company, Xinjiang is responsible for producing more than forty percent of the world's polysilicon, twenty-five percent of the tomato paste produced worldwide, and twenty-five percent of the world's cotton.
In addition, it produces around a tenth of the world's walnuts, peppers, and rayon, as well as fifteen percent of the world's hops.
In addition to having 9 percent of the world's beryllium deposits, it is also home to the largest wind turbine factory in China, which is responsible for 13 percent of the output worldwide.
Over the past few years, direct exports to the United States from the region of Xinjiang in China, where the Chinese authorities have imprisoned more than a million members of ethnic minorities and sent many more into government-organized labor transfer programs, have significantly decreased.
Trade analysts argue that a wide variety of raw materials and components are currently making their way into factories in China and other countries and then ultimately making their way to the United States.
The Secretary of Homeland Security, Alejandro N. Mayorkas, stated on Friday that his agency was "dedicated to abolishing the repugnant practice of forced labor around the globe."
"We must tackle these inhumane and exploitative tactics while also ensuring that legal goods may enter our ports and reach American businesses and consumers as swiftly as possible," he said.
China's government denies forced labor in Xinjiang, claiming that all regional employees are voluntarily entered into it.
And it has tried to blunt the impact of foreign pressure to stop abuses in Xinjiang by passing its own anti-sanctions law, which prohibits any company or individual from helping to enforce foreign measures that are seen as discriminating against China. This law was passed to stop abuses in Xinjiang. Xinjiang is located in northwest China.
It is not yet clear what effects the new law in the United States will have, but it may impact supply chains worldwide.
There has been a rapid breakup of relationships between Xinjiang and certain businesses, such as those in the garment industry.
To replace those stocks, the apparel industry has been frantically working to establish new sources of organic cotton, including some in South America. However, other businesses, particularly substantial multinational corporations, have concluded that the China market is too lucrative to abandon, according to corporate executives and trade associations.
Some businesses have started isolating their Chinese and American activities. In contrast, others continue to get their supplies for the China market from Xinjiang and keep partnerships with companies located there.
Since the jurisdiction of U.S. customs only extends to imports, this tactic, according to a lawyer at Miller & Chevalier Chartered named Richard Mojica, "should suffice," even though Canada, the United Kingdom, Europe, and Australia are contemplating taking their own measures.
Some multinational corporations are investing in other sources of supply and making new investments in mapping their supply chains as an alternative to relocating their operations out of China.
The opaqueness and complexity of the supply chains that run through China, the world's greatest industrial hub, are at the heart of the problem.
During their journey from farms, mines, and factories to a distribution center or a retail shelf, several companies handle the goods as they make their way.
Most businesses have a good working relationship with the companies supplying direct parts or supplies. However, they might not be as knowledgeable about the other suppliers with which their primary provider does business. Some supply chains consist of multiple layers of specialized suppliers. Some of them may even subcontract their work to other factories. Take, for example, the automakers that need to source thousands of different components, such as semiconductors, aluminum, glass, engines, and seat fabric.
According to research conducted by McKinsey & Company, a consulting firm, the typical automobile manufacturer has a supply chain that includes approximately 250 tier-one suppliers but also has exposure to 18,000 other companies across its whole supply chain.
A number of businesses and the Chinese government have shown a reluctance to collaborate with international probes into their supply chains, which has added another layer of complication to the situation.
Since the beginning of the coronavirus outbreak, China has implemented extremely stringent entry controls in Xinjiang, making it impossible for researchers from other countries to assess circumstances on the ground there. Because of this, U.S. importers won't be able to verify that enterprises in Xinjiang are not violating any labor laws, which might make it impossible for them to continue any relationship with the region.
Companies whose products are being held at the border of the United States will have a period of thirty days in which to provide "clear and compelling evidence" to the government that their wares do not breach any laws.
Despite this, the government has already begun to increase its capability for monitoring and detaining incoming international shipments of commodities.
According to John M. Foote, a partner in the international trade and practice department at Kelley Drye and Warren, the United States Customs and Border Protection agency, which is responsible for inspecting and detaining products at the ports, is currently undertaking a significant expansion in staffing.
It has set aside an additional $10 million for overtime pay to handle detentions at its ports, for which it has utilized $5.6 million. It has hired 65 new personnel this year as part of its efforts to combat forced labor.
The White House has asked for an additional $70 million to be allocated for the year 2023 to fund the creation of an additional 300 full-time employees, including customs officers, import specialists, and trade analysts.
According to a note that Mr. Foote sent out to clients, these amounts are comparable to or even surpass those of other government enforcement bureaus, such as the Office of Foreign Assets Control, which is in charge of the administration of U.S. sanctions, and the Bureau of Industry and Security, which is in charge of monitoring export controls. According to what he wrote, businesses with supply chains that run through China have a responsibility to consider the possibility that their products will be subject to inspection or detention. He also stated that "almost no company in the United States is currently prepared for this type of enforcement."
Joe Biden signs the 'Uyghur Forced Labour Prevention Act' to ban all imports from China's Xinjiang