BREAKING NEWS: US to Start China Trade Investigation
The Trump administration is reportedly preparing a Section 301 investigation against China. News outlets are reporting that an announcement by the United States Trade Representative is imminent. The result could aim to curb China’s use of US intellectual property, punish Chinese companies for intellectual property theft, and place tariffs on Chinese imports.
The focus of the investigation could by complaints by US companies that they are forced to share technology with Chinese counterparts as a condition of doing business. Section 301 of the Trade Act of 1974 allows the US to impose duties against countries that impede US exports, but also includes some potential procedural traps.
The move comes as President Donald Trump has become increasingly frustrated over his inability to convince Chinese President Xi Jinping to pressure North Korea over its nuclear weapons ambitions, claiming on Twitter that the Chinese are all talk and no action. North Korea has recently tested missiles that could reach the US mainland. Also of concern is China’s Made in China 2025 policy, which sets goals for China to become a global leader in driverless cars, medical devices, and artificial intelligence.
Although Trump railed against China and the trade surplus it enjoys with the United States on the campaign trail, he took a different tack once taking office hoping he could get Beijing to do his bidding in Pyongyang. But the president has been disappointed by China’s inaction on this front, tweeting that he is “very disappointed in China.”
I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet…
— Donald J. Trump (@realDonaldTrump) July 29, 2017
…they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!
— Donald J. Trump (@realDonaldTrump) July 29, 2017
The Trump administration’s turnabout on China led the White House to consider economic measures against Beijing, presumably to pressure the Chinese to tow the line with respect to North Korea. According to reporting in Politico, White House advisers were divided over what if any action to take against China but found a “sweet spot” of broad support in the form of a Section 301 investigation.
Section 301 enables the US to investigate and impose trade sanctions on countries that violate trade agreements or that burden US commerce even if they don’t violate an international agreement. It has rarely been used since the establishment of WTO dispute settlement mechanisms in 1994 and has not produced any US sanctions or WTO cases since then.
Section 301 requires the USTR to first seek consultations with the foreign government to negotiate a settlement in the form of compensation or elimination of a trade barrier. If consultations do not result in a settlement, the US can invoke remedies, such as imposing additional duties, fees, and restrictions on imports.
Section 301 can involve procedural entanglements because, when the investigation involves a trade agreement violation, the USTR must follow the dispute-settlement procedures set out in that agreement. US law does not require that government to receive authorization from the WTO to take enforcement action, but the WTO has ruled that taking action against another WTO member without WTO approval violates the WTO agreement. WTO approval involves having a WTO panel review the complaint and rule on whether the practices involved violate the WTO agreement.
Since China is a WTO Member, a Section 301 investigation must be followed by WTO procedures. On the other hand, Section 301 also facilitates the possibility of a quick settlement.
That actually happened the USTR opened a Section 301 investigation concerning Chinese government subsidies to its green energy sector in 2010. The USTR sought consultations with China under WTO auspices and in June 2011 China agreed to end the program.
But any Trump administration action is not likely to end so simply and easily. US and WTO trade remedies are normally applied to specific products from specific locations. A broad investigation into China’s trade practices is likely to be lengthy and complicated and unlikely to result in a settlement. It’s unclear what the US would or could ask of China in any initial consultations. China could use WTO procedures to delay an ultimate decision, and any attempt by the Trump administration to circumvent WTO procedures would result in more legal entanglements.
The situation is all the more fraught because the US appears to be launching the Section 301 investigation in an effort to pressure China over North Korea and/or to punish Beijing for its failure to act against Pyongyang over the latter’s nuclear missile program. China is unlikely to capitulate in a trade matter that would compromise its foreign policy.
But if, by some miracle, the US and China should reach an agreement on North Korea and the US were to withdraw the investigation, the US could be seen as misusing trade processes and the Trump administration could be accused of ignoring legitimate grievances that US businesses may have against China.