Updated June 11, 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
Sections 301 through 310 of the Trade Act of 1974, as
Made in China 2025 (MIC 2025) initiative; and
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
settlement with the foreign country concerned, either
Ad
through compensation or an elimination of the particular
Country
Valorem
Stated
barrier or practice. For cases involving trade agreements,
Imposing
Tariff
Imports
Tariff Actions and
such as those under the Uruguay Round (UR) agreements in
Tariff
Rates
Impacted
Dates
the World Trade Organization (WTO), the USTR is
required to use the formal dispute proceedings specified by
U.S.
Implemented
25%
$34 bil ion
the agreement. For Section 301 cases (except those
Tranche 1
7/6/2018
involving a trade agreement or an IPR issue) the USTR has
China
Implemented
12 to 18 months to seek a negotiated resolution. If one is
25%
$34 bil ion
Tranche 1
7/6/2018
not obtained, the USTR determines whether to retaliate
(which usually takes the form of increased tariffs on
U.S.
Implemented
selected imports) at a level equivalent to the estimated
25%
$16 bil ion
Tranche 2
8/23/2018
economic losses incurred by U.S. firms from the foreign
barrier or practice.
China
Implemented
25%
$16 bil ion
Tranche 2
8/23/2018
After the United States implemented the UR agreements
and joined the WTO in 1995, the USTR still sometimes
10% hike effective
U.S.
10%, then
began Section 301 investigations but then brought the
$200 bil ion 9/24/2018; raised to
Tranche 3 25%
issues at hand to the WTO for dispute resolution. After
25% by 6/15/2019
2010, the USTR brought all trade disputes involving WTO
5% and10% hikes on
members directly to the WTO for adjudication. The Trump
Administration’s
5% and
9/24/2018; increased
use of Section 301, rather than solely
China
10%, then
to 10%, 20%, and
utilizing the WTO dispute settlement process to address the
Tranche 3
$60 bil ion
10%, 20%,
25% on selective
issues of concern, is a departure from past U.S. practices.
(4 lists)
and 25%
products, effective
New U.S. Section 301 Measures Against China
6/1/2019
On March 22, 2018, President Trump signed a
Memorandum on Actions by the United States Related to
U.S.
Draft USTR notice
the Section 301 Investigation. Described by the White
Tranche 4 25%
$300 bil ion issued 5/13/19
House as a targeting of China’s “economic aggression,” the
proposed
(action pending)
Sources: USTR and Chinese Ministry of Finance.
https://crsreports.congress.gov
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, the Trump Administration announced a third
round of tariffs (at 10%, then raised to 25% on January 1,
2019) on $200 billion worth of Chinese products (effective
Sources: USTR and Chinese Ministry of Commerce.
September 24). China then raised tariffs (by 5% and 10%)
Notes: U.S. tariff hikes at 25%, while China’s range from 5% to 25%.
on $60 billion worth of imports from the United States.
China has not yet responded to the proposed U.S. fourth tranche.
A Temporary Trade Truce
U.S.-China Trade Negotiations
On December 1, 2018, Presidents Trump and Xi met at a
The two sides have conducted negotiations on the U.S.
private dinner during the G20 Summit in Argentina.
Section 301 investigation. These discussions have gone on
According to a White House statement, China agreed to
to include issues beyond the four IP and innovation policies
make “very substantial” purchases of U.S. products and to
cited by the Trump Administration.
begin negotiations on making structural changes to various
aspects of its economy with the goal of achieving an
On May 3-4, 2018, the two sides held high-level talks in
agreement in 90 days. President Trump agreed to suspend
Beijing. The U.S. side released a draft Framework for
the planned tranche 3 Section 301 tariff rate increases (to
Discussion. It included calls for China to reduce the
25%) for 90 days, pending the outcome of intense bilateral
bilateral trade imbalance by $200 billion over two years;
negotiations. On February 24, 2019, President Trump
address each of the four practices identified in the Section
tweeted that progress had been made in the trade talks and
301 findings; halt subsidies for the Made in China 2025
that he would further delay the tariff hikes.
initiative; remove foreign investment restrictions, make
China’s tariff levels comparable to U.S. tariff rates
Trade Conflict Resumes and Intensifies
, and
remove certain nontariff barriers; improve market access
On May 5, 2019, President Trump tweeted that trade
for U.S. service providers and agricultural products; and
negotiations were going “too slowly” and that China was
agree not to oppose, challenge, or take any other action
attempting to “renegotiate” previous trade commitments.
against the United States’ action, including in the WTO, if
He then ordered that tariffs be raised from 10% to 25% on
China failed to live up to a framework agreement. On May
the third tranche of imports from China and for the USTR
19, the United States and China released a joint statement
to begin the process of increasing tariffs by 25% on nearly
outlining progress on a number of trade issues. China
all remaining U.S. imports from China valued at $300
agreed that it would “significantly increase purchases of
billion. On May 13, China announced it would increase
United States goods and services,” including U.S.
tariffs on many of the products on its retaliatory third
agricultural and energy products, and would strengthen its
tranche. On June 2, China said that the United States had
“persisted with
IPR laws and regulations. On May 21, U.S. Secretary of the
exorbitant demands,” including issues
Treasury Steven Mnuchin stated that because of the
concerning “China’s sovereign affairs.”
agreement, the trade war had been put “on hold.” However,
A protracted and expanding U.S.-China trade conflict could
on May 29, the White House announced that it planned to
sharply reduce bilateral commercial ties, disrupt
move ahead with Section 301 action against China by: (1)
international supply chains, and diminish global economic
imposing 25% ad valorem tariffs on $50 billion worth of
growth. Many economists warn that imposing tariffs on
imports from China; (2) implementing new investment
nearly all products from China could be costly to U.S.
restrictions and enhanced export controls on Chinese
consumers and firms that depend on trade with China. In
entities and persons in regard to the acquisition of
addition, China could further retaliate by curbing operations
“industrially significant technology” for national security
of U.S.-invested firms in China, reducing its holdings of
purposes (legislation was later enacted addressing these
U.S. Treasury securities, and curtailing rare earth material
issues); and (3) continuing to pursue the WTO case against
exports to the United States. A study by the Organization
China’s licensing policies. The White House further stated
for Economic Cooperation and Development estimated that
it would request China remove “all of its many trade
current and threatened U.S.-China tariff hikes could reduce
barriers” and make taxes and tariffs between the two
global GDP by 1.6% by 2021-2022 (relative to its baseline).
countries “reciprocal in nature and value.” A subsequent
statement by the Chinese government said that the White
Wayne M. Morrison, Specialist in Asian Trade and
House actions were “clearly contrary to the recent
Finance
agreement between the two sides,” and said it would not
IF10708
implement the market-opening measures it had pledged to
make while being threatened with tariff hikes.
https://crsreports.congress.gov
Enforcing U.S. Trade Laws: Section 301 and China
Disclaimer
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https://crsreports.congress.gov | IF10708 · VERSION 49 · UPDATED