Updated May 14, 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. Consequently, the United
agreements before tariff hikes were implemented. In
States has implemented three rounds of tariff increases on a
October 2010, the USTR launched a Section 301
total of $250 billion worth of Chinese products, while
investigation into Chinese policies affecting trade and
China has increased tariffs on $110 billion worth of U.S.
investment in green technologies, and in December 2010,
products. The Trump Administration has threatened to
the USTR brought a WTO dispute settlement case against
increase tariffs on nearly all imports from China.
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 (UR) agreements in
conducts and supports cyberintrusions into U.S.
the World Trade Organization (WTO), the USTR is
computer networks to gain access to valuable business
required to use the formal dispute proceedings specified by
information.
the agreement. For Section 301 cases (except those
In response to these policies, the Administration proposed
involving a trade agreement or an IPR issue) the USTR has
to (1) direct the USTR to consider implementing tariff
12 to 18 months to seek a negotiated resolution. If one is
increases on imports from China; (2) initiate a WTO
not obtained, the USTR determines whether or not to
dispute settlement case against China’s “discriminatory”
retaliate (which usually takes the form of increased tariffs
technology licensing (which it did on March 23); and (3)
on 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. Both sides raised tariffs on Round 3 products
outlining progress on a number of trade issues. China
in May 2019.
agreed that it would “significantly increase purchases of
A Trade Truce Falters and Trade Conflict Resumes
United States goods and services,” including U.S.
On December 1, 2018, Presidents Trump and Xi met at a
agricultural and energy products, and would strengthen its
private dinner during the G20 Summit in Argentina.
IPR laws and regulations. On May 21, 2018, U.S. Secretary
According to a White House statement, China agreed to
of the Treasury Steven Mnuchin stated that because of the
make “very substantial” purchases of U.S. products and to
agreement, the trade war had been put “on hold.” However,
begin negotiations on making structural changes to various
on May 29, the White House announced that it planned to
aspects of its economy with the goal of achieving an
move ahead with Section 301 action against China by (1)
agreement in 90 days. President Trump agreed to suspend
imposing 25% ad valorem tariffs on $50 billion worth of
the planned Round 3 Section 301 tariff rate increases
imports from China; (2) implementing new investment
(which were set to take effect on January 1, 2019), but
restrictions and enhanced export controls on Chinese
stated that the increases would be implemented if no
entities and persons in regard to the acquisition of
“industrially significant technology”
agreement was reached in 90 days. After several rounds of
for national security
bilateral negotiations, President Trump on February 24,
purposes (legislation was later enacted addressing these
2019, tweeted that he would delay the tariff hikes because
issues); and (3) continuing to pursue the WTO case against
China’s licensing policies
of progress in trade talks. However, on May 5, President
. The White House further stated
that it would request China to remove “all of its many trade
Trump tweeted that trade negotiations were going “too
barriers” and
slowly” and said he would raise tariffs from 10% to 25% on
make taxes and tariffs between the two
countries “reciprocal in nature and value.”
the third round of Section 301 tariff hikes on May 10
A subsequent
(which occurred). He further threated to impose 25% tariff
statement by the Chinese government said that the White
hikes on all remaining U.S. imports from China. On May 8,
House actions were “clearly contrary to the recent
he accused China of attempting to backtrack on previous
agreement between the two sides,” and said it would not
commitments. On May 13, 2019, China announced it would
implement the market-opening measures it had pledged to
increase tariffs on its Third Round retaliation list on U.S.
make while being threatened with tariff hikes.
products (effective June 1, 2019). On the same day, the
Punitive Tariffs Are Implemented
USTR issued a draft notice calling for public comment on
On June 15, 2018, the USTR announced a two-stage plan to
proposed 25% tariff hikes covering approximately $300
impose 25% ad valorem tariffs on $50 billion worth of
billion in Chinese goods, or essentially all products not
Chinese imports. When China on June 16 issued its own
currently covered by Section 301 action, except
two-stage retaliation plan against the United States,
pharmaceuticals, certain pharmaceutical inputs, select
President Trump directed the USTR on June 18 to propose
medical goods, rare earth materials, and critical minerals.
a new list of products worth $200 billion that would be
A protracted and expanding U.S.-China trade conflict could
subject to increased 10% tariffs if China retaliated against
sharply reduce bilateral commercial ties, disrupt
U.S. tariff hikes, and he warned of additional tariffs if
international supply chains, and diminish global economic
China retaliated a second time. The first two rounds of U.S.
growth. The U.S. tariff hike from 10% to 25% on $200
25% tariff hike measures went into effect on July 6
billion worth of Chinese products along with the
(covering $34 billion worth of products) and on August 23
Administration’s threat to increase tariffs on nearly all
(on $16 billion worth of products). China implemented
remaining imports from China could lead to sharp price
comparable countermeasures on U.S. products.
increases in the United States for a variety of products,
On September 17, 2018, the Trump Administration
negatively impacting U.S. consumers and firms that utilize
announced a third round of tariffs (at 10%, increasing to
Chinese parts and components. China could further retaliate
25% on January 1, 2019) on $200 billion worth of Chinese
by limiting operations of U.S.-invested firms in China or
products, effective September 24. On the same day, China
reducing its holdings of U.S. Treasury securities.
raised tariffs (by 5% and 10%) on $60 billion worth of
imports from the United States.
Wayne M. Morrison, Specialist in Asian Trade and
Finance
IF10708
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Enforcing U.S. Trade Laws: Section 301 and China
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https://crsreports.congress.gov | IF10708 · VERSION 45 · UPDATED