Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Understanding Trump’s Section 301 Trade Action Against China

Posted April 02, 2018

Last August, the Trump administration launched an investigation into alleged Chinese violations of intellectual property rights (IPR) and other unfair trade practices pursuant to Section 301 of the Trade Act of 1974; a rarely used provision that gives the administration legal authority to deny U.S. trade benefits or impose import duties in response to foreign trade barriers, including “unreasonable or discriminatory” actions that harm U.S. exporters, service providers, or IPR holders.

Following a seven-month probe into the matter, the Office of the United States Trade Representative (USTR) recently made its findings public in a more than 200 page report. Based on its investigation, the USTR concluded that certain investment requirements, investment approval processes, and processes for obtaining business licenses in China are facilitating the transfer of U.S. technologies to Chinese companies. The report also determined that “China forces U.S. companies seeking to license technologies to Chinese entities to do so on non-market based terms” and charged that Beijing supports outbound investments aimed at acquiring U.S. technology as well as hacking efforts to steal U.S. intellectual property.

Referencing Beijing’s ambitious “Made in China 2025” strategy which aims to massively overhaul Chinese industry, with a focus both on pursuing more innovative approaches to manufacturing as well as on meeting specific targets for increasing the share of domestic content in Chinese goods, the Section 301 report found that “a key part of China’s technology drive involves the acquisition of foreign technologies through acts, policies, and practices by the Chinese government that are unreasonable or discriminatory and burden or restrict US commerce.”

A statement by USTR Robert Lighthizer said “China’s unprecedented and unfair trade practices are a serious challenge not just to the United States, but to our allies and partners around the world.” Lamenting that “years of talking about these problems with China has not worked,” Lighthizer called for “taking effective action to confront China over its state-led efforts to force, strong-arm, and even steal U.S. technology and intellectual property.”

Accordingly, President Trump signed a memorandum on March 22 “targeting China’s economic aggression,” which set out the possibility of imposing hefty tariffs on imports aimed at Chinese technology and industrial sectors, as well as potential restrictions on investment and the launch of a legal case at the World Trade Organization, while leaving the full scope and application of these measures to be finalized at a later date.

At a ceremony where he was flanked by government officials and business executives, Trump described the move as a sign that “the era of economic surrender is over.” Along with citing concerns over Chinese intellectual property practices, Trump also reiterated past complaints about China’s bilateral trade surplus with the U.S., while tying the initiative into the wider narrative of trying to negotiate better deals with America’s trading partners.

“I’ve been speaking with the highest Chinese representatives, including the President, and I’ve asked them to reduce the trade deficit immediately by US$100 billion. It’s a lot. So that would be anywhere from 25 percent, depending on the way you figure, to maybe something even more than that. But we have to do that,” said Trump before signing the memorandum.

For its part, China expressed its strong opposition to the U.S. actions, calling them “self-defeating” and warning they “will directly harm the interests of U.S. consumers, companies, and financial markets,” adding that “they also jeopardize international trade order and world economic stability.” Saying that while China did not want a trade war with anyone, Beijing’s envoy to the U.S. made it clear that it was also “not afraid of and will not recoil” from engaging in one if need be to defend its interests. “We urge the U.S. to cease and desist, make cautious decisions, and avoid placing China-U.S. trade relations in danger with the purpose of hurting others that eventually end up hurting itself,” the statement said.

Going forward, the administration says it plans to impose punitive tariffs on up to $60 billion worth of “certain products that are supported by China’s unfair industrial policy,” targeting sectors such as “aerospace, information and communication technology, and machinery,” according to a USTR fact sheet released with along with its announcement. 

A proposed list of targeted goods – which officials say could potentially cover as many as 1,300 tariff lines – along with additional details on the levels of import duties each would face (reportedly anywhere from 25% all the way up to 100%) is expected to be released by the Trump administration later this week. The tariffs will not go into effect immediately, however. Instead, the administration will issue a Federal Register notice that will allow for a 60-day comment period and consultations with stakeholders prior to being implemented.