Reports from numerous sources, including the New York Times and Politico, indicate that the Trump Administration is on the verge of 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. It appears that the Trump Administration may have a very different attitude toward such risks.

Over the next few months we would expect that the US will seek to negotiate with China over the alleged burdens and restrictions on US commerce, which are likely to include allegations of overcapacity in the Chinese steel and aluminum industries, allegations of overcapacities in other industries, intellectual property issues, and the operation and effects of state-owned companies. If the negotiations are not satisfactory to the US the Administration then has 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. It remains to be seen whether any section 301 actions, which could be even broader in scope, will meet the same fate.

For both users of imported goods from China and for those companies that compete with such goods, an initiation of a section 301 case will likely create great uncertainly in the marketplace as companies find it more difficult to plan for supplies that include Chinese goods. Thus, monitoring the case closely will be critical.