The law aimed at cracking down on Chinese forced labor could have significant ramifications for American companies and consumers.
The law, which went into effect on Tuesday, bars products from entering the United States if they have any ties to the far western region of China.
That could affect a wide range of products, including those with a connection to the type of Chinese labor and poverty relief programs the U.S. government deems coercive.
The law presumes that all of these goods are made with forced labor, and stops them at the U.S. border if they don't have proof that their supply chains don't involve slavery or coercive practices.
Roughly a million companies around the world would be subject to enforcement action under the full letter of the law, out of 10 million businesses that are buying, selling or manufacturing physical things, according to Evan Smith, the chief executive of Altana.
He said that this isn't a "picking needles out of a haystack" problem. It is touching a significant percentage of the world's everyday goods.
The law could be fully enforced by the Biden administration, which could result in the U.S. authorities turning away a lot of imported products. It's likely to cause headaches for companies and cause more supply chain disruptions. If companies are forced to seek out more expensive alternatives or consumers start to compete for scarce products, it could cause inflation to run at a four-decade high.
Congress is in charge of oversight and failure to enforce the law is likely to cause an uproar.
According to Alan Bersin, a former commissioner of U.S. Customs and Border Protection, the public doesn't know what's going to happen. The impact of this on the global economy is measured in billions of dollars.
A few industries, like apparel and solar, have good ties with the region. Solar firms have paused many U.S. projects while they investigate their supply chains, as the apparel industry scrambles to find new suppliers. The connections between the region and global supply chains are much more extensive than just those industries.
More than 40 percent of the world's polysilicon, 25 percent of the world's tomato paste, and a fifth of the world's cotton are produced in Xinjiang. It is responsible for 15 percent of the world's hops and 10 percent of global walnuts. It is home to China's largest wind turbine manufacturer which is responsible for 13 percent of global output.
In the past few years, direct exports from the Uyghur region to the US have fallen off. A wide range of raw materials and components can be found in factories in China or other countries and then in the United States.
The Chinese government does not agree with the idea of forced labor. It passed an anti-sanctions law that forbids companies and individuals from helping to enforce foreign measures that are seen as discriminating against China.
The implications of the U.S. law are still being studied. Some companies have stopped doing business with Xinjiang. Apparel makers are trying to develop other sources of organic cotton in South America.
Multinationals have decided that the China market is too valuable to leave. Some have begun walling off their Chinese and U.S. operations, while others continue to use Xinjiang materials for the China market.
Richard Mojica said that it should suffice since the jurisdiction of U.S. customs extends to imports. Multinationals are investing in alternative sources of supply instead of moving their operations out of China.
There was a problem caused by the Pandemic. The supply chain is in turmoil. The outbreak of Covid-19 caused an economic downturn, mass layoffs and a halt to production. What happened next is shown here.
There is a decrease in shipping. With fewer goods being made and fewer people with paychecks to spend, manufacturers and shipping companies assumed demand would go down. Demand for some items would increase as a result of that mistake.
There was a spike in demand for protective gear. The planet needed surgical masks and gowns in the early 2020s. Goods were made in China. Cargo vessels began delivering gear as Chinese factories increased production.
There was a shortage of shipping containers. The containers were emptied in many places. The shortage of containers in China was caused by the result of a shortage in other countries.
There was an increase in demand fordurable goods. Spending shifted from eating out to online purchases as a result of the swine flu.
Supply chains have been strained. Goods quickly overwhelmed U.S. ports. The cost of shipping a container from Shanghai to Los Angeles went up ten times.
China is the world's largest manufacturing hub and has a complex supply chain. Goods move through many layers of companies as they make their way from field to warehouse or store shelf.
Most companies have a good relationship with their suppliers. Vendors that their primary supplier does business with may be unfamiliar to them. Some supply chains have more than one specialized supplier who may contract out their work to other factories.
Take carmakers, who may need to procure thousands of components. According to research by McKinsey & Company, the average car company has about 250 tier-one suppliers but exposure to 18,000 other companies.
The Chinese authorities are reluctant to cooperate with outside investigations into their supply chains. Since the start of the coronaviruses epidemic, it's not possible for outside researchers to monitor the ground. Since they won't be able to verify that businesses there are free of labor violations, it's hard for U.S. importers to maintain ties to Xinjiang.
The government will give companies 30 days to prove that their products don't violate the law. Mr. Bersin said it would probably take several years for customs officials to build a system.
The government has begun to increase its capacity to check and detain foreign goods.
John Foote is a partner in the international trade and practice group at Kelley Drye and Warren.
Sixty-five people have been hired this year for forced labor enforcement and an additional $10 million has been set aside for overtime pay. The White House wants to create another 300 full-time jobs in the next five years.
The Office of Foreign Assets Control and the Bureau of Industry and Security both administer U.S. sanctions.
He wrote that there is almost no company in the United States that is prepared for this type of enforcement.
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