WCIT 101 on China Trade Policy Under the Trump Administration

Keep up with China trade policy changes! Check back to this living document to get the scoop on latest updates…

Over the past six months the Trump Administration has announced numerous initiatives to increase understanding of what has caused the U.S. trade deficit with China and to increase the competitiveness of U.S. firms in trade with China. This includes a Section 232 investigation, a 100 Day Action Plan, a memorandum to investigate intellectual property rights infringements, and the launch of a U.S.-China Comprehensive Economic Dialogue.

Why it matters to Washington state

China is Washington state’s largest trade partner, and almost a quarter of our state’s goods exports and a large percentage of our services exports are bound for China each year. With 40% of our state’s jobs tied to trade, this means that tens of thousands of jobs are supported by trade with China. Any action the administration takes on China that increases market access for our exports, decreases access for imports, or causes China to retaliate against US products would impact workers and businesses in Washington state more than most states. A trade action in one industry can quickly flare and entangle other unrelated industries, resulting in retaliatory tariffs or nontariff barriers on a number of Washington products. In addition, many Washington businesses source key components of their supply chain from China. For these reasons, WCIT is closely watching U.S.-China trade policy developments and how they might impact Washington state.

Trump Administration China Trade Policy FAQs

What is Section 301?

Part of the 1974 Trade Act, this law authorizes the President to take measures like trade sanctions to stop foreign government actions that violate a trade agreement or harm U.S. commerce. It has rarely been used since the formation of the WTO in 1994. Under U.S. law the President does not have to seek WTO approval to use Section 301, but the WTO has ruled taking action against a member without approval violates WTO rules. Thus, any Section 301 investigation on China must follow WTO procedures.[1]

Why does it matter?

Under President Trump’s instruction, on August 18, 2017, U.S. Trade Representative Lighthizer launched a Section 301 investigation into China’s intellectual property practices and forced technology transfers that affect U.S. companies’ ability to do business in China. The investigation could take up to a year.

In response to the investigation, the China state media released an editorial criticizing President Trump’s use of trade as a “bargaining chip” and said rash action would poison the U.S.-China relationship.

Some of the Administration’s concerns with China include the country’s requirements that U.S. companies share their intellectual property and research, transfer their technology, set up joint ventures with Chinese businesses, and locate data centers in China in order to do business there. At the same time, China has launched its “Made in China 2025” initiative to become a global leader in 10 technology and industry fields (including artificial intelligence, driverless cars, semiconductors, robotics and medical devices) with the help of investments by the Chinese government and by shielding their industries from U.S. and other global competitors.[2]

Any unilateral action by the U.S. against China’s trade practices will increase trade tensions between the two nations and likely cause China to retaliate. This could have negative consequences for Washington state’s businesses that do business with China.

What is Section 232?

Part of the Trade Expansion Act of 1962, this law permits the Secretary of Commerce to determine if imports of certain foreign products threaten U.S. national security, such as eroding domestic industrial capacity to meet national defense requirements. The Secretary must submit a report to the President, who will then decide on appropriate action.[3]

Why Does It Matter?

President Trump asked Commerce Secretary Wilbur Ross to conduct a 232 investigation into steel and aluminum imports and their impact on national security. The study aims to investigate overcapacity, dumping, and illegal subsidies to determine whether steel and aluminum imports threaten American economic security and military preparedness. Although the Commerce Department planned to release the study in late June 2017, as of August 2017 it still has not been finalized. President Trump has said that his administration has decided to hold off on making any decisions related to the Section 232 investigation.

U.S. steel and aluminum producers have argued that imports – especially from China – are produced at below market price, and are harming the U.S. industrial base.[4]  Other U.S. manufacturers have argued that they depend on affordable access to imported steel and aluminum to remain competitive.[5]

Though the Trump administration aims to target China with its Section 232 investigation, the move risks entangling other trading partners. For example, while the US action might be aimed at subsidized Chinese imports, it could also impact non-subsidized imports from Canada.[6]

Utilizing Section 232 would allow the United States to take unilateral action against imports it determines are threatening U.S. security, but it risks causing other trade partners to retaliate against U.S. exports. Another avenue could be filing a complaint through the WTO, which the Obama Administration did against Chinese aluminum imports in January of 2017. The U.S. has since put the WTO case on hold while it considers the Section 232 investigation.

In a move unrelated to Section 232, the Commerce Department announced on August 8, 2017, it would significantly raise tariffs on imports of aluminum foil from China, which includes 70 percent of foil imported into the U.S.

What is Section 201?

Part of the 1974 Trade Act, this law allows the President to temporarily implement tariffs or nontariff barriers on foreign imports that threaten domestic industries. Two solar panel companies petitioned the Trump Administration to use this law to protect their industry from what they view as Chinese dumping of solar panels.

Why does it matter?

Section 201 is another tool that the President can use to restrict Chinese imports from certain sectors that could harm U.S. industry. However, China would likely retaliate (as they have in the case of the U.S.-China trade dispute over solar panels that nearly caused REC Silicon in Moses Lake, Washington, to close).

What is the U.S.-China Comprehensive Economic Dialogue?

President Trump and Chinese President Xi Jinping announced the U.S.-China Comprehensive Economic Dialogue in April 2017 as a framework for the two countries to strengthen trade relations and resolve economic disagreements.

The first meeting of the Comprehensive Economic Dialogue (CED) took place in mid-July 2017, but the talks stumbled over a disagreement on Chinese steel over-production. Since China refused to agree to cut production capacity, and the U.S. was not interested in moving on to other issues, the talks folded and the two countries cancelled their press conference.

Why does it matter?

Although China is Washington’s top trading partner, Washington businesses have numerous trade policy challenges in China that harm their competitiveness. It is critical the U.S. and China keep open lines of communication to discuss these concerns and resolve them in a mutually beneficial way.

What is the 100 Day Action Plan?

As part of the U.S.-China Comprehensive Economic Dialogue, the United States and China agreed to a “100 Day Action Plan” to kick off efforts to address trade policy concerns on agricultural trade, financial services, investment and energy. The 100 day period began in April and finished on July 16, 2017.

Why Does It Matter?

The goal of the action plan was to drive concrete outcomes on outstanding trade issues while averting a trade war between the U.S. and China. A few of the outcomes of the 100 Day Plan were: China agreed to imports of U.S. beef; the U.S. welcomed China to receive U.S. LNG imports; China agreed to allow U.S. financial services and electronic payment services (EPS) firms to begin the licensing process; China’s National Biosafety Committee (NBC) agreed to hold a meeting to conduct science-based assessments of eight pending U.S. biotechnology product applications.[7]

 

[1] http://www.globaltrademag.com/in-the-news/breaking-news-us-start-china-trade-investigation?gtd=3850&scn=breaking-news-us-start-china-trade-investigation&utm_source=eBlast+8%2F2%2F2017&utm_campaign=eBlast+8%2F2%2F2017&utm_medium=email

[2] https://www.nytimes.com/2017/08/01/business/trump-china-trade-intellectual-property-section-301.html?nytmobile=0

[3] https://www.commerce.gov/news/fact-sheets/2017/04/fact-sheet-section-232-investigations-effect-imports-national-security

[4] http://www.washingtonexaminer.com/the-steel-industry-is-in-crisis-and-its-a-national-security-problem/article/2627906

[5] http://www.marketwatch.com/story/trump-would-further-damage-us-manufacturing-if-he-restricts-steel-imports-2017-06-22

[6] https://www.washingtonpost.com/opinions/the-us-challenges-china-on-aluminum–and-catches-canada-in-its-dragnet/2017/05/31/47c2e708-3fd3-11e7-8c25-44d09ff5a4a8_story.html?utm_term=.7f33233a1418

[7] https://www.commerce.gov/news/press-releases/2017/05/joint-release-initial-results-100-day-action-plan-us-china-comprehensive

Ashley Dutta
ashleyd@wcit.org
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