On August 14, 2017, the Trump Administration moved toward self-initiating a case against China under section 301 of the Trade Act of 1974. That legal provision is broad, and authorizes the President to “take all appropriate action, including retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.” Past administrations have been hesitant to use the broad powers of the act to impose additional tariffs and quotas due largely to the possibility of retaliation and the uncertain effect on US companies. The Trump Administration announced that it was using the broad statute to zero in on issues involving U.S. intellectual property rights, theft of such trade secrets, and pressures by China forcing U.S. companies to transfer technological knowledge before setting up operations in China.
We expect that these actions will have widespread support in the U.S. business community. Businesses in many sectors of the U.S. economy have complained for years about alleged Chinese abuses of IP rights and pressure to transfer valuable technology. Now those U.S. companies will have the opportunity to provide more evidence of those actions by China and suggest a remedy.
Over the next few months we would expect that the US will seek to negotiate with China over the alleged violations. If the negotiations are not satisfactory to the US, the Administration then is likely to initiate a formal full-fledged investigation and will have the option of imposes restraints in numerous ways, including the use of broad additional tariffs or quotas. The negotiations and remedies are made more complex by the fact that President Trump has explicitly tied trade relations with China to the perceived failure of China to act aggressively to restrain the North Korean nuclear program.
As we reported recently, the Trump Administration has announced that it will indefinitely postpone a decision under section 232 of the 1962 Trade Act that would restrain steel, based on national security concerns. It did so despite having announced earlier that it would have a decision announced by the end of June of this year. The postponement seems to be tied to strong push-back by consumers of steel in the US, and others, about the effect of steel restraints, including concerns about retaliation. While U.S. companies are likely to be supportive initially of the idea of pushing back against China on these important issues, the effectiveness of the case ultimately may be shown by type of relief that is proposed or threatened, and how that affects the other U.S. companies.
Monitoring the case closely over the next several months will be critical for U.S. companies who will want to know if their interests are affected, positively or negatively.