How the Polyester Yarn Supply Chain is Impacted by the U.S. trade war with China

On September 17th the United States Trade Representative (USTR) Office announced additional tariffs of 10 percent on 5,745 items with an approximate value of $200 billion USD. As most of the world is aware, the Trump Administration and China are in a heated economic battle.

Of particular interest to the industrial polyester supply chain is the inclusion of the high volume HTS Code, 5402.20.30: Single high tenacity yarn of polyesters, not put up for retail sale. We'll look at why this is important, how this will factor into the cost of imported Chinese polyester yarn, when it will happen, and what related HTS code is excluded from this round of additional tariffs.

Why HTS 5402.20.30 is so Important

According to data from PCI Wood MacKenzie, U.S. demand for polyester industrial yarn is estimated to be greater than 165,000 metric tons. With the closure of DuraFibers last year, there is no production of polyester yarns greater than 840 Denier - the most commonly used yarns by U.S. manufacturing including thermoplastic hose, wire and cable, industrial fabrics, geotextiles, and more - in the U.S. So this critical raw material commodity must be imported from other countries.

With 70 percent of worldwide polyester capacity found in China, the majority of U.S. industrial polyester was imported from China in 2017. While there is some capacity in Mexico, Korea, India and other alternatives to China, these producers are close to capacity compared to Chinese PIY manufacturers.

So like it or not, the U.S. is dependent on Chinese polyester yarn for the immediate and mid-term (12-24 months) future. There is no "ready" supply or U.S. manufacturing of any significant volume waiting in the wings to rescue the market.

How the Additional Tariff will impact Polyester Yarn Costs for HTS Code, 5402.20.30

Here is what most consumers (and some buyers) do not realize about tariffs and the recent actions of the US Government:

• This will be an additional tariff on top of an already existing duty.
• The cumulative effective will take the total percentage to an extremely high level.
• There are other miscellaneous fees associated with every good that is imported into the United States as detailed above. Even “duty free” products or “duty free” manufacturing regions are subject to those fees/taxes/whatever you want to call them.

Here's an example showing the impact from this additional cost on a shipment of high tenacity yarn comparing now, September 24, 2018 and what could happen if this trade conflict continues to escalate :

When Will the Additional 10 percent Import Tariff on Chinese Polyester Yarn begin?

While the Notice of Modification of Section 301 was published in the Federal Register on September 21, 2018, it should be noted that there is a tremendous amount of uncertainty with these tariffs. The original statement was 25 percent with nebulous timing. That morphed, literally overnight, into 10 percent on Sept 24 and 25 percent by January 1, 2019. As of this writing it looks like we'll see this 10 percent tariff Monday September 24th.

One key point about this sudden announcement - the 10 percent tariff on polyester yarn and all the other Chinese goods on list three will be implemented at 12:01 am on September 24, 2018 - the actual language from the notice is:

"In order to implement this determination, effective September 24, 2018, subchapter III of chapter 99 of the HTSUS is modified by Annex A and Annex B of this notice. Products of China that are provided for in new HTSUS headings as established by Annex A to this notice that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on September 24, 2018, shall be subject to an additional duty of 10 percent ad valorem. As provided in Annex B, the rate of additional duty shall increase to 25 percent for goods that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on January 1, 2019."

In other words, every shipment in transit that is not docked by 12:01 a.m. on September 24th will be impacted. The ship date doesn't matter. The only consideration by U.S. Customs is the docking date.

Are There any Exemptions for Polyester Yarn in the 5402.20 HTS Code Sub Chapters?

The good news for some customers is that plied yarns classified as HTS Code 5402.20.60 -Multiple (folded) or cabled high tenacity yarn (except sewing thread) of polyester, not put up for retail sale - are exempt from this new tariff. While these are currently exempted under the latest notice I say this with caution because this could change. The situation is unpredictable and this could be added back just as easily as it was put on the exemption list.

As we know more after the implementation next week, we'll publish a Part Two to this blog.

Torry Losch is Sales Director at Hailide America and guest blog post writer for Service Thread. Torry has 21 years of experience in the textile industry and is viewed as a mechanical rubber goods and technical fiber / yarn expert.