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Mainland China Pushing for Section 301 Tariff Rollback in Talks with U.S.

Mainland China is reportedly pushing harder to roll back U.S. tariffs on its goods as part of the “phase 1” bi-lateral trade agreement the two sides are currently negotiating. In the meantime, a new World Trade Organisation ruling could give Beijing further leverage in the talks.

President Trump announced on 15 October an agreement in principle on the first phase of a broad trade agreement with mainland China that he said could be finalised in three to five weeks. Since then the two sides have been discussing the commitments each will make as part of this agreement, and while officials say recent talks have made progress in this direction there are still some outstanding issues.

One of those is how far the United States is willing to roll back its tariffs on mainland Chinese goods. In October President Trump said only that he would delay increasing from 25 percent to 30 percent tariffs on so-called list 1, 2 and 3 goods from mainland China. According to press reports, Beijing is demanding that the United States also cancel the additional 15 percent tariff on List 4B goods that is set to take effect on 15 December. Mainland China has also reportedly asked the United States to eliminate the 15 percent tariff on List 4A goods that was imposed on 1 September and lower the tariff on list 1, 2 and 3 goods. While at least one source suggests that the president may be open to these changes, others point out that he has expressed an interest in keeping the tariffs in place to ensure mainland China complies with its commitments.

Separately, a WTO arbitrator ruled on 1 November that mainland China can seek authority to impose US$3.58 billion in retaliatory sanctions against the United States for its failure to comply with a previous WTO ruling against its use of certain methodologies in calculating antidumping duties on dozens of mainland Chinese goods. That amount is roughly half what Beijing had requested but represents the third-largest retaliation award in WTO history.

Sanctions typically take the form of higher tariffs on imported goods, but mainland China has already increased tariffs on most imports from the United States in response to Washington’s Section 301 tariff hikes. Mainland China could opt to raise its tariffs on U.S. goods even further, but an article in The New York Times notes that Beijing “has been reluctant” to do so “because it could raise costs for essential products like medical devices and food.” Instead, mainland China could consider other options, such as measures that would make it more difficult for U.S. companies to do business there.

Whatever form the sanctions may take, if mainland China requests and receives WTO authority to impose them, they could remain in place for an extended period given that Trump administration officials reportedly said they have no plans to change the practices the WTO ruled against. However, press reports indicate that mainland China may opt to delay the sanctions as a show of good faith in the on-going trade agreement negotiations.

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