White House Considering Trade Probe Into China’s Subsidies

Trade Update • SEPTEMBER 15, 2021

According to reports in three leading business publications last Friday (here, here, and here), the Biden administration is considering launching an investigation into China’s widespread use of industrial subsidies under Section 301 of the Trade Act of 1974 – the same tool used previously to impose tariffs on roughly $370 billion worth of Chinese goods.

U.S. Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo apparently met in private late last week to discuss the potential probe into subsidies in addition to enforcement options regarding China’s lagging commitments under the Phase One trade deal reached with the Trump administration in 2020 and a path forward for the Sec. 301 tariffs already placed on Chinese imports.

Citing “people familiar with its planning,” the Wall Street Journal says that as part of its China review, “USTR doesn’t plan a wholesale reduction in tariffs on more than half of Chinese imports which were imposed during the Trump years” and instead has been engaged in the process of ascertaining which tariffs are harming the U.S. economy or could otherwise negatively impact the administration’s domestic priorities (e.g., by driving up the cost of infrastructure projects).

For those tariff lines that will continue in place, “U.S. officials are looking at granting exclusions from tariffs for some products,” the WSJ reports.

A Political ‘Trial Balloon’

The appearance of concurrent stories based on anonymous sources led some to suggest this was basically a trial balloon from the administration. “They want to see how an anxious business community will react to a long-awaited Biden trade agenda that leaves in place most of Trump’s tariffs, and potentially adds even more,” said Politico.

According to its report, the White House is “trying to have it both ways” in wanting to appear tough on Beijing with threats of new tariffs on subsidized Chinese imports and maintaining “politically sensitive tariffs” such as those on steel and aluminum, while at the same time — in response to growing demands for duty relief from various business groups — offering to reopen the Sec. 301 exemption process.

Bloomberg reports that the White House “is taking into account any collateral damage that may result from taking action on China, and how potential Chinese retaliation could impact American workers and farmers.” Its sources say the administration “wants to ensure that neither its allies nor members of Congress are blindsided by its actions and is prioritizing consultations ahead of any announcement.”

Analysts Skeptical

“There is no way this crowd will impose new 301 tariffs,” an unnamed former Trump official told Politico. “They’ll take a year to do a study and then announce a working group with Japan and the EU that will put out joint statements, which won’t mention China by name,” he predicted.

Given the length and complexity associated with any investigation into China’s subsidies, it “could be a built-in way to do nothing and look tough on China before the midterm elections,” an economist at the American Enterprise Institute, a conservative think tank, speculated.

Additionally, “China experts say it is highly unlikely Beijing would negotiate seriously on subsidies, which it sees as essential to its economic success,” according to the WSJ. As such, it suggests the Biden administration is essentially “looking for ways to pressure China into starting talks on a Phase Two deal.”