Updated May 23, 2019
Enforcing U.S. Trade Laws: Section 301 and China
Overview
memorandum identified four broad policies that justified
Concerns over China’s policies on intellectual property
U.S. action against China under Section 301. It said China
(IP), technology, and innovation led the Trump
uses joint venture requirements, foreign investment
Administration in August 2017 to launch a Section 301
restrictions, and administrative review and licensing
investigation of those policies. Consequently, the United
processes to force or pressure technology transfers from
States has implemented three rounds of tariff increases on a
U.S. companies to a Chinese entity;
total of $250 billion worth of Chinese products, while
maintains unfair licensing practices that prevent U.S.
China has increased tariffs on $110 billion worth of U.S.
firms from getting market-based returns for their IP;
products. The Trump Administration has threatened to
directs and facilitates investments and acquisitions
increase tariffs on nearly all remaining imports from China.
which generate large-scale technology and IP transfer to
What Is Section 301 and How Does It Work?
support China’s industrial policy goals, such as the
Made in China 2025 (MIC 2025) initiative; and
Sections 301 through 310 of the Trade Act of 1974, as
amended, are commonly referred to as “Section 301.” It is
conducts and supports cyberintrusions into U.S.
one of the principal statutory means by which the United
computer networks to gain access to valuable business
States enforces U.S. rights under trade agreements and
information.
addresses “unfair” foreign barriers to U.S. exports. Section
Subsequently, the Trump Administration increased tariffs
301 procedures apply to foreign acts, policies, and practices
by 25% on three tranches of tariff products with combined
that the USTR determines either (1) violate, or are
value of $250 billion worth of imports from China and has
inconsistent with, a trade agreement; or (2) are unjustifiable
threatened to boost tariffs on nearly all remaining products
and burden or restrict U.S. commerce. The measure sets
from China (valued at $300 billion). China has increased
procedures and timetables for actions based on the type of
tariffs (at rates ranging from 5% to 25%) on $110 billion
trade barrier(s) addressed. Section 301 cases can be
worth imports from the United States (see table and figure).
initiated as a result of a petition filed by an interested party
with the USTR or initiated by the USTR. Once the USTR
Table 1. U.S.-China Section 301 Tariff Action
begins a Section 301 investigation, it must seek a negotiated
Ad
settlement with the foreign country concerned, either
Country
Valorem
Stated
through compensation or an elimination of the particular
Imposing
Tariff
Imports
Tariff Actions and
barrier or practice. For cases involving trade agreements,
Tariff
Rates
Impacted
Dates
such as those under the Uruguay Round (UR) agreements in
the World Trade Organization (WTO), the USTR is
U.S.
Implemented
required to use the formal dispute proceedings specified by
25%
$34 bil ion
Tranche 1
7/6/2018
the agreement. For Section 301 cases (except those
China
Implemented
involving a trade agreement or an IPR issue) the USTR has
25%
$34 bil ion
Tranche 1
7/6/2018
12 to 18 months to seek a negotiated resolution. If one is
not obtained, the USTR determines whether or not to
U.S.
Implemented
25%
$16 bil ion
retaliate (which usually takes the form of increased tariffs
Tranche 2
8/23/2018
on selected imports) at a level equivalent to the estimated
China
Implemented
economic losses incurred by U.S. firms from the foreign
25%
$16 bil ion
Tranche 2
8/23/2018
barrier or practice.
U.S.
10%, then
$200 bil ion 10% hike effective
After the United States implemented the UR agreements
Tranche 3 25%
9/24/2018; raised to
and joined the WTO in 1995, the USTR still sometimes
25% on 5/10/2019
began Section 301 investigations but then brought the
China
5% and
$60 bil ion
5% and10% hikes on
issues at hand to the WTO for dispute resolution. After
Tranche 3 10%, then
9/24/2018; increased
2010, the USTR brought all trade disputes involving WTO
10%, 20%,
to 10%, 20%, and
members directly to the WTO for adjudication. The Trump
and 25%
25% on selective
Administration’s use of Section 301, rather than solely
products, effective
utilizing the WTO dispute settlement process to address the
6/1/2019
issues of concern, is a departure from past U.S. practices.
U.S.
25%
$300 bil ion Draft USTR notice
New U.S. Section 301 Measures Against China
proposed
issued 5/13/19
Tranche 4
(action pending)
On March 22, 2018, President Trump signed a
Memorandum on Actions by the United States Related to
Source: USTR and Chinese Ministry of Finance.
the Section 301 Investigation. Described by the White
House as a targeting of China’s “economic aggression,” the
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Enforcing U.S. Trade Laws: Section 301 and China
Figure 1. Four Tranches of Implemented and
On June 15, 2018, the USTR announced a two-stage plan to
Proposed Tariff Hikes under Section 301 Actions
impose 25% ad valorem tariffs on $50 billion worth of
Chinese imports. When China on June 16 issued its own
two-stage retaliation plan against the United States,
President Trump directed the USTR on June 18 to propose
a new list of products worth $200 billion that would be
subject to increased 10% tariffs if China retaliated against
U.S. tariff hikes, and he warned of additional tariffs if
China retaliated a second time. The first two rounds of U.S.
25% tariff hike measures went into effect on July 6, 2018,
(covering $34 billion worth of products) and on August 23
(on $16 billion worth of products). China implemented
comparable countermeasures on U.S. products. On
September 17, 2018, the Trump Administration announced
a third round of tariffs (at 10%, increasing to 25% on
January 1, 2019) on $200 billion worth of Chinese
Sources: USTR and Chinese Ministry of Commerce
products, effective September 24. On the same day, China
Notes: U.S. tariff hikes at 25%, while China’s range from 5% to 25%.
raised tariffs (by 5% and 10%) on $60 billion worth of
imports from the United States.
U.S.-China Trade Negotiations
A Temporary Trade Truce
The two sides have conducted negotiations on the U.S.
Section 301 investigation. These discussions have gone on
On December 1, 2018, Presidents Trump and Xi met at a
to include issues beyond the four IP and innovation policies
private dinner during the G20 Summit in Argentina.
cited by the Trump Administration.
According to a White House statement, China agreed to
make “very substantial” purchases of U.S. products and to
On May 3-4, 2018, the two sides held high-level talks in
begin negotiations on making structural changes to various
Beijing. The U.S. side released a draft Framework for
aspects of its economy with the goal of achieving an
Discussion. It included calls for China to reduce the
agreement in 90 days. President Trump agreed to suspend
bilateral trade imbalance by $200 billion over two years;
the planned tranche Section 301 tariff rate increases (to
address each of the four practices identified in the Section
25%) but stated that the increases would be implemented if
301 findings; halt subsidies for the Made in China 2025
no agreement was reached in 90 days. After several rounds
initiative; remove foreign investment restrictions, make
China’s tariff levels comparable to U.S. tariff rates
of bilateral negotiations, President Trump on February 24,
, and
2019, tweeted that he would delay the tariff hikes because
remove certain nontariff barriers; improve market access
of progress in trade talks.
for U.S. service providers and agricultural products; and
agree not to oppose, challenge, or take any other action
Trade Conflict Resumes and Intensifies
against the United States’ action, including in the WTO, if
On May 5, 2019, President Trump tweeted that trade
China failed to live up to a framework agreement. On May
negotiations were going “too slowly” and on May 8
19, the United States and China released a joint statement
claimed that China tried to walk back on previous trade
outlining progress on a number of trade issues. China
commitments. As a result, he ordered that tariffs be raised
agreed that it would “significantly increase purchases of
from 10% to 25% on the third tranche of imports from
United States goods and services,” including U.S.
China (these became effective on May 10). He further
agricultural and energy products, and would strengthen its
ordered the USTR to begin the process of increasing tariffs
IPR laws and regulations. On May 21, U.S. Secretary of the
by 25% on nearly all remaining U.S. imports from China
Treasury Steven Mnuchin stated that because of the
(except rare earth materials, critical minerals
agreement, the trade war had been put “on hold.” However,
pharmaceuticals, certain pharmaceutical inputs, and select
on May 29, the White House announced that it planned to
medical goods), valued at $300 billion. On May 13, China
move ahead with Section 301 action against China by (1)
announced it would increase tariffs on many of the products
imposing 25% ad valorem tariffs on $50 billion worth of
on retaliatory third tranche list against U.S. products
imports from China; (2) implementing new investment
(effective June 1, 2019).
restrictions and enhanced export controls on Chinese
A protracted and expanding U.S.-China trade conflict could
entities and persons in regard to the acquisition of
sharply reduce bilateral commercial ties, disrupt
“industrially significant technology” for national security
international supply chains, and diminish global economic
purposes (legislation was later enacted addressing these
growth. Many economists warn that imposing tariffs on
issues); and (3) continuing to pursue the WTO case against
nearly all products from China could be costly to U.S.
China’s licensing policies. The White House further stated
consumers and firms that depend on trade with China. In
that it would request China to remove “all of its many trade
addition, China could further retaliate by curbing operations
barriers” and make taxes and tariffs between the two
of U.S.-invested firms in China, reducing its holdings of
countries “reciprocal in nature and value.” A subsequent
U.S. Treasury securities, and curtailing rare earth material
statement by the Chinese government said that the White
exports to the United States.
House actions were “clearly contrary to the recent
agreement between the two sides,” and said it would not
Wayne M. Morrison, Specialist in Asian Trade and
implement the market-opening measures it had pledged to
Finance
make while being threatened with tariff hikes.
IF10708
https://crsreports.congress.gov
Enforcing U.S. Trade Laws: Section 301 and China
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https://crsreports.congress.gov | IF10708 · VERSION 46 · UPDATED