Updated May 6, 2019
Enforcing U.S. Trade Laws: Section 301 and China
Overview
threatened to impose increased tariffs against China over its
Concerns over China’s policies on intellectual property
IPR policies. In 1992, the United States threatened
(IP), technology, and innovation led the Trump
increased tariffs on $3.9 billion worth of Chinese goods
Administration in August 2017 to launch a Section 301
over market access issues. These cases resulted in bilateral
investigation of those policies. Since then, the United States
agreements before tariff hikes were implemented. In
has implemented three rounds of tariff increases under
October 2010, the USTR launched a Section 301
Section 301 on a total of $250 billion worth of Chinese
investigation into Chinese policies affecting trade and
products, while China has increased tariffs on $110 billion
investment in green technologies, and in December 2010,
worth of U.S. products. Several rounds of talks have been
the USTR brought a WTO dispute settlement case against
held to resolve the trade dispute.
China, but only in regard to its wind power subsidies. In
March 2012, the USTR initiated a WTO dispute case
What Is Section 301 and How Does It Work?
against China’s export restrictions on rare earth elements
Sections 301 through 310 of the Trade Act of 1974, as
(used in a number of green technology products). The
amended, are commonly referred to as “Section 301.” It is
United States largely prevailed in both cases.
one of the principal statutory means by which the United
New U.S. Section 301 Measures Against China
States enforces U.S. rights under trade agreements and
On March 22, 2018, President Trump signed a
addresses “unfair” foreign barriers to U.S. exports.
Memorandum on Actions by the United States Related to
Since 1974, the USTR has initiated 125 Section 301
the Section 301 Investigation. Described by the White
cases, retaliating in 17 instances.
House as a targeting of China’s “economic aggression,” the
memorandum identified four broad policies that justified
Section 301 procedures apply to foreign acts, policies, and
U.S. action against China under Section 301. It said China
practices that the USTR determines either (1) violate, or are
uses joint venture requirements, foreign investment
inconsistent with, a trade agreement; or (2) are unjustifiable
restrictions, and administrative review and licensing
and burden or restrict U.S. commerce. The measure sets
procedures and timetables for actions based on the type of
processes to force or pressure technology transfers from
U.S. companies to a Chinese entity;
trade barrier(s) addressed. Section 301 cases can be
initiated as a result of a petition filed by an interested party
maintains unfair licensing practices that prevent U.S.
with the USTR or initiated by the USTR. Once the USTR
firms from getting market-based returns for their IP;
begins a Section 301 investigation, it must seek a negotiated
directs and facilitates investments and acquisitions
settlement with the foreign country concerned, either
which generate large-scale technology and IP transfer to
through compensation or an elimination of the particular
support China’s industrial policy goals, such as the
barrier or practice. For cases involving trade agreements,
Made in China 2025 (MIC 2025) initiative; and
such as those under the Uruguay Round agreements in the
conducts and supports cyberintrusions into U.S.
World Trade Organization (WTO), the USTR is required to
computer networks to gain access to valuable business
use the formal dispute proceedings specified by the
information.
agreement. For Section 301 cases (except those involving a
In response to these policies, the Administration proposed
trade agreement or an IPR issue) the USTR has 12 to 18
to (1) direct the USTR to consider implementing tariff
months to seek a negotiated resolution. If one is not
increases on imports from China; (2) initiate a WTO
obtained, the USTR determines whether or not to retaliate
dispute settlement case against China’s “discriminatory”
(which usually takes the form of increased tariffs on
technology licensing (which it did on March 23); and (3)
selected imports) at a level equivalent to the estimated
propose new investment restrictions on Chinese efforts to
economic losses incurred by U.S. firms from the foreign
acquire sensitive U.S. technology. In announcing these
barrier or practice.
measures, President Trump also stated that he had asked
After the United States implemented the UR agreements
China to “reduce the trade deficit immediately by $100
and joined the WTO in 1995, the USTR still sometimes
billion” (later raised to $200 billion over two years), and
began Section 301 investigations but then brought the
emphasized that trade should be “reciprocal.” On April 3,
issues at hand to the WTO for dispute resolution. After
the USTR released a list of proposed 25% tariff hikes on
2010, the USTR brought all trade disputes involving WTO
$50 billion worth of imports from China (a level the USTR
members directly to the WTO for adjudication. The Trump
estimated was comparable to annual U.S. economic losses
Administration’s use of Section 301, rather than solely
stemming from China’s IP and technology policies). China
utilizing the WTO dispute settlement process to address the
threatened to retaliate and initiated a WTO dispute
issues of concern, is a departure from past U.S. practices.
settlement case against the United States on April 4.
Past Section 301 Use and China
Prior to the UR agreements, China was a major target of
Section 301 actions. In 1992 and 1994, the United States
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Enforcing U.S. Trade Laws: Section 301 and China
U.S.-China Negotiations
Figure 1. Three Rounds of Tariff Hikes in 2018
On May 3-4, 2018, the two sides held high-level talks in
Total Products Affected ($ in bil ions) and Effective Dates
Beijing. The U.S. side released a draft Framework for
Discussion. It included calls for China to reduce the
bilateral trade imbalance by $200 billion over two years;
address each of the four practices identified in the Section
301 findings; halt subsidies for the Made in China 2025
initiative; remove foreign investment restrictions, make
China’s tariff levels comparable to U.S. tariff rates, and
remove certain nontariff barriers; improve market access
for U.S. service providers and agricultural products; and
agree not to oppose, challenge, or take any other action
against the United States’ action, including in the WTO, if
China failed to live up to a framework agreement. On May
Source: USTR and Chinese Ministry of Commerce.
19, the United States and China released a joint statement
Note: Tariff rates vary.
outlining progress on a number of trade issues. China
Issues for Congress
agreed that it would “significantly increase purchases of
While many business representatives and Members of
United States goods and services,” including U.S.
Congress have expressed support for the Administration’s
agricultural and energy products, and would strengthen its
goals of improving China’s IP and technology practices,
IPR laws and regulations. On May 21, 2018, U.S. Secretary
some question whether tariff hikes are the best strategy
of the Treasury Steven Mnuchin stated that because of the
because of the costs they impose on U.S. firms and
agreement, the trade war had been put “on hold.” However,
consumers resulting from higher prices on imports from
on May 29, the White House announced that it planned to
China and decreased U.S. exports to China. The USTR
move ahead with Section 301 action against China by (1)
created an exclusion process for the first two rounds of U.S.
imposing 25% ad valorem tariffs on $50 billion worth of
tariff hikes (but not for round 3) that enables U.S.
imports from China; (2) implementing new investment
stakeholders to request an exclusion for particular products
restrictions and enhanced export controls on Chinese
covered by the tariff hikes. Through May 3, the USTR has
entities and persons in regard to the acquisition of
“industrially significant technology”
granted 1,442 product exclusions out of 13,757 requested.
for national security
purposes (legislation was later enacted addressing these
A Trade Cease-fire?
issues); and (3) continuing to pursue the WTO case against
On December 1, 2018, Presidents Trump and Xi met at a
China’s licensing policies. The White House further stated
private dinner during the G20 Summit in Argentina.
that it would request China to remove “all of its many trade
According to a White House statement, they agreed to
barriers” and make taxes and tariffs between the two
immediately begin negotiations on “structural changes” in
countries “reciprocal in nature and value.” A subsequent
regard to IP and technology issues (related to the Section
statement by the Chinese government said that the White
301 case), along with agriculture and services, with the goal
House actions were “clearly contrary to the recent
of achieving an agreement in 90 days. President Trump
agreement between the two sides,” and said it would not
agreed to suspend the planned Stage 3 Section 301 tariff
implement the market-opening measures it had pledged to
rate increases that were planned to take effect on January 1,
make while being threatened with tariff hikes.
2019, but stated that the increases would be implemented if
Punitive Tariffs Are Implemented
no agreement was reached in 90 days (by March 1, 2019).
After several rounds of bilateral negotiations, President
On June 15, 2018, the USTR announced a two-stage plan to
Trump on February 24 tweeted that he would delay the
impose 25% ad valorem tariffs on $50 billion worth of
tariff hikes because of progress in trade talks. However, on
Chinese imports. When China on June 16 issued its own
May 5, President Trump tweeted that trade negotiations
two-stage retaliation plan against the United States,
were going “too slowly” and said he would rise tariffs from
President Trump directed the USTR on June 18 to propose
10% to 25% on the third round of Section 301 tariff hikes
a new list of products worth $200 billion that would be
on May 10 and would “shortly” impose 25% tariff hikes on
subject to increased 10% tariffs if China retaliated against
all remaining U.S. imports from China.
U.S. tariff hikes, and he warned of additional tariffs if
China retaliated a second time. The first two rounds of U.S.
Prospects for a bilateral deal are complicated by the Trump
25% tariff hike measures went into effect on July 6
Administration’s demands that, in addition to addressing IP
(covering $34 billion worth of products) and on August 23
and technology issues, China should take steps to reduce
(on $16 billion worth of products). China implemented
the bilateral trade imbalance, make large purchases of U.S.
comparable countermeasures on U.S. products.
goods and services, implement structural reforms to its
economy, and agree to verification and enforcement
On September 17, 2018, the Trump Administration
provisions. Many analysts have expressed concerns that a
announced a third round of tariffs (at 10%, increasing to
protracted U.S.-China trade conflict could sharply reduce
25% on January 1, 2019) on $200 billion worth of Chinese
bilateral commercial ties, disrupt international supply
products, effective September 24. President Trump warned
chains, and diminish global economic growth.
he would impose additional tariffs on $267 billion worth of
Chinese goods if China retaliated. On September 24, China
Wayne M. Morrison, Specialist in Asian Trade and
raised tariffs (by 5% and 10%) on $60 billion worth of
Finance
imports from the United States.
IF10708
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Enforcing U.S. Trade Laws: Section 301 and China
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https://crsreports.congress.gov | IF10708 · VERSION 44 · UPDATED