Summary of Key Points
The tariffs imposed by the Trump administration under the International Emergency Economic Powers Act (IEEPA) were ruled illegal by the U.S. Supreme Court, and the full amount, including interest, must be refunded. At least nine A-share companies have received a total refund of over 640 million yuan. However, the United States immediately resorted to Section 301 of the Trade Act of 1974 to impose new tariffs (an additional 12.5% on Chinese goods). This indicates that the Sino-U.S. tariff dispute is far from over. The fate of companies facing these changes in tariffs varies significantly depending on their overseas expansion strategies:
- Companies with direct U.S. subsidiaries that pay the taxes can receive the refunds; those that solely engage in contract manufacturing are at a disadvantage.
- To cope with tariff uncertainties, companies can diversify their markets or globalize their supply chains. However, refunds represent a one-time benefit, and long-term success relies on the growth of their core businesses.
Detailed Analysis
1. Refunds Are Not Available to Everyone; It Depends on Whether a Company Has a Direct U.S. Subsidiary
The key to receiving a refund is having the status of an "Importer of Record" (IOR). The money is refunded to the entity that directly pays the taxes to U.S. customs.
- Companies That Can Receive Refunds: These have wholly-owned or controlling subsidiaries in the United States, which use these subsidiaries as IORs for customs declarations and tax payments. For example, Chunfeng Power (a leading manufacturer of all-terrain vehicles in Zhejiang) had its U.S. subsidiary pay 978 million yuan in tariffs; it received a refund of 262 million yuan, which increased its net profit for 2026 by 10.95%. Huahai Pharmaceutical received a refund of $14.22 million through its U.S. subsidiary, accounting for 36.36% of its recent net profit.
- Companies That Cannot Receive Refunds: Those that only engage in contract manufacturing (producing goods in China and selling them to U.S. buyers, with the buyers handling customs declarations and tax payments) are not eligible for refunds, even if the tariff costs are ultimately borne by Chinese companies. In legal terms, refunds are only granted to the U.S. buyers.
In simple terms, only companies that pay taxes directly in the United States can receive the refunds; those that merely sell their products to others cannot benefit from them.
2. New Tariffs Are Imposed Soon After Old Ones Are Refunded
Although the U.S. Supreme Court ruled the IEEPA tariffs illegal, the White House quickly switched to another legal basis:
- New Tariff Measures: On July 23, Section 301 was used to impose an additional 12.5% tariff on Chinese goods, citing the absence of a ban on products made using forced labor. With the previous tariffs in place, the effective tax rate on Chinese goods has risen to 22.2%, an increase of 1.4 percentage points.
- Chinese Response: The Ministry of Commerce stated that the U.S. is violating its previous commitment that alternative tariffs would not exceed 20% and reserved the right to retaliate. Twenty-five Democratic states in the United States have also sued to challenge the new tariffs, but the litigation process is lengthy, and the new tariffs are still being collected.
Conclusion: The tariff dispute continues, with the U.S. simply switching from one legal mechanism to another. Companies must adapt to the normalization of tariff fluctuations.
3. Two Different Approaches to Overseas Expansion
The refund situation highlights the differences between two common strategies:
- Proactive Expansion Strategy (with Own IORs): Establishing subsidiaries, building brands, and creating sales channels in the United States allows companies to directly face the market. Advantages include receiving tariff refunds and having the flexibility to absorb costs through price premiums or supply chain optimizations in times of higher tariffs. Disadvantages include significant initial investment and higher compliance risks.
- Passive Contract Manufacturing Strategy: Producing goods in China and delivering them FOB (Free On Board), with the buyer handling customs procedures, offers lower entry barriers and faster results. However, companies are completely at the mercy of tariff changes; they face price pressure during increases and cannot benefit from refunds.
The nine companies that received refunds all adopted a proactive expansion strategy. This is not coincidental—a deep level of localization gives them more leverage in response to regulatory changes.
4. Coping with Tariff Fluctuations
Companies are taking two main approaches:
- Market Diversification: Reducing reliance on the U.S. market. For example, a machinery company from Jinan shifted its focus to Southeast Asia after a decline in U.S. orders in 2023. By collaborating with local agents, it shortened delivery times and increased its market share in Southeast Asia by 300% within two years, reducing its U.S. order volume to less than 10%.
- Supply Chain Globalization: Building factories overseas to avoid tariffs. Companies like BYD and Geely have established facilities in Europe, taking advantage of EU rules of origin to avoid anti-subsidy tariffs and gain access to local supply chain benefits.
These strategies are not universally effective (for smaller companies, for example), but they can help mitigate tariff risks.
5. Refunds Are a One-Time Benefit
It's important to understand that refunds are a temporary gain unrelated to the long-term performance of a company's core business. Company announcements typically state that refunds are recorded as part of current earnings, which can improve cash flow and performance in the second half of the year. However, they do not indicate an increase in orders or enhanced competitiveness. For instance, Chunfeng Power’s refund increased its net profit by 10%, but this was a one-time benefit; the company’s true value depends on the success of its products and market share.
In summary, the tariff dispute continues. Companies should shift from passive contract manufacturing to proactive expansion strategies, diversifying their markets and globalizing their supply chains. While refunds provide short-term benefits, long-term success relies on the strength of their core businesses.
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