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White House Signals Intention to Impose Section 301 Tariffs Soon After 15 June

Just a week after saying it would suspend the imposition of an additional 25 percent tariff on US$50 billion worth of imports from mainland China, the Trump administration has announced plans to move ahead on this and other measures in response to a Section 301 investigation concluding that Beijing is coercing U.S. companies into transferring their technology and intellectual property to mainland Chinese enterprises. Many observers were baffled by this decision while others see it as merely the latest iteration of a series of unconventional and often unpredictable negotiating tactics on trade that are broadly aimed at reducing the U.S. trade deficit while catering to President Trump’s political base.

According to a statement from the White House, the final list of imports from mainland China on which the additional tariffs will be imposed will be announced by 15 June and the tariffs will take effect shortly thereafter. The preliminary list included more than 1,300 products worth some US$50 billion in the following HTSUS chapters: 29 – chemicals; 30 – medicines; 40 – some rubber, tyres & conveyor belts; 72 – iron/non-alloy steel; 73 – alloy steel; 76 – aluminium; 84 – machinery and mechanical appliances, including machinery used in manufacturing textiles and apparel; 85 – electrical machinery, television image and sound recorders and reproducers; 86 – railway/tramway; 87 – motor vehicles; 88 – planes and helicopters; 89 – boats; 90 – glass and microscopes; and 93 – guns.

While no travel goods or textile, apparel or footwear products were included in the preliminary list, there is still a possibility that these or other commercially significant goods could be added to the final list. In  this regard, the National Council of Textile Organizations called on the administration on 17 May to add to the Section 301 list (i) finished apparel items that track closely with products being sourced from U.S. free trade agreement partners, (ii) textile-based home furnishings, and (iii) advanced textiles, defined as textile inputs or finished products designed to meet rigorous safety and/or unique high-performance criteria. The association also recommended that textile machinery be removed from the list.

Moreover, the United States will announce by 30 June and implement shortly thereafter specific investment restrictions and enhanced export controls for mainland Chinese persons and entities related to the acquisition of industrially significant technology. The United States will also continue to pursue a World Trade Organisation case filed on 23 March alleging that mainland China has violated the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights based on its “discriminatory practices for licensing intellectual property.”

Seemingly in an effort to justify its change of course, the White House issued a fact sheet on 29 May with a long list of grievances on mainland China. The administration claims that for many years Beijing has pursued industrial policies (such as the “Made in China 2025” plan) and unfair trade practices, including dumping, discriminatory non-tariff barriers, forced technology transfers, overcapacity and industrial subsidies, that champion mainland Chinese companies while making it impossible for the United States to compete on a level playing field. The fact sheet notes that mainland China imposes much higher tariffs on U.S. exports than the United States imposes on mainland Chinese goods, with mainland China’s average tariff rate ostensibly nearly three times higher than the average U.S. rate.

The White House further states that mainland China has banned imports of U.S. agricultural products such as poultry and has dumped and unfairly subsidised a range of goods intended for the U.S. market. In 2018 alone, the United States found dumping or unfair subsidies on 13 different mainland Chinese products, including steel wheels, cold-drawn mechanical tubing, tool chests and cabinets, forged steel fittings, aluminium foil, rubber bands, cast iron soil pipe fittings, and large diameter welded pipe. Moreover, the administration has determined that mainland China’s overproduction of steel and aluminium, as well as the resulting impact on global markets, are circumstances that threaten to impair U.S. national security.

With regard to intellectual property rights, the fact sheet asserts that mainland China’s IPR theft costs U.S. innovators billions of dollars a year, including through forced technology transfers and cyber theft, by requiring licencing at less than economic value, and by directing the acquisition of sensitive U.S. technology for strategic purposes. For example, mainland China allegedly requires foreign companies that access the new energy vehicles market to transfer core technologies and disclose development and manufacturing technology. Additionally, Beijing imposes contractual restrictions on the licencing of intellectual property and technology by foreign firms into the mainland but does not put the same restrictions on contracts between two mainland Chinese enterprises. The fact sheet also states that mainland China conducts and supports cyber intrusions into U.S. computer networks to gain access to valuable business information so that mainland Chinese companies can copy products.

The toughened stance towards mainland China represents yet another victory for the more confrontational, isolationist and protectionist wing of the administration, led by White House Office of Trade and Manufacturing Policy Director Peter Navarro. Indeed, Navarro on 30 May referred to U.S. Treasury Secretary Steve Mnuchin’s announcement that the Section 301 tariffs would be put on hold as “an unfortunate soundbite.” Meanwhile, U.S. Commerce Secretary Wilbur Ross travelled to the mainland in early June in an effort to secure more concrete commitments from mainland Chinese authorities to increase purchases of U.S. agricultural and energy products.

Beijing is pushing for the United States to rescind the ban on exports to Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd. (collectively, ZTE), mainland China’s second-largest telecommunications firm, in exchange for these and possibly other concessions. Indeed, it appears the administration may have already reached a preliminary deal with ZTE that would replace the ban with a large fine and would require the company to make certain managerial and compliance changes. However, many U.S. lawmakers strongly oppose such a deal and language currently under consideration in the U.S. Congress would prevent the president from reversing the export ban.

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