The Trump administration has engaged in a trade showdown with China, targeting more than $50 billion worth of products. The administration’s actions are the result of investigations under Section 301 of the Trade Act of 1974 (“Section 301”) and Section 232 of the Trade Expansion Act of 1962 (“Section 232”).
On April 3, the U.S. Trade Representative announced proposed tariffs under Section 301 to be assessed against 1,300 tariffs lines. The tariffs are the result of President Trump’s announcement on March 22 that the government intended to levy additional tariffs on Chinese goods, potentially targeting upwards of 1,300 products, worth more than $50 billion. But why is the administration taking these steps?
Since August of 2017, the Administration has been investigating China under Section 301, which allows the U.S. to take broad actions when partners are in violation of trade commitments.
President’s Trump directive is based upon the USTR Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, published by the agency on March 22. Among others, the report by the UTSR highlighted the following conclusions:
- China uses restrictions on foreign ownership to facilitate and pressure technology transfer from U.S. to Chinese companies.
- China imposes discriminatory licensing requirements, limiting U.S. technology owners’ ability to bargain and set market-based terms for technology transfers, thus unfairly favoring Chinese recipients.
- China facilitates state-funded acquisitions of U.S. companies and assets, allowing Chinese companies to obtain technologies and IP necessary to grow Chinese domestic champions.
- China conducts and supports State-backed hacking of U.S. firms to obtain business information.
President Trump had instructed USTR Robert Lighthizer to take several steps to respond appropriately to China’s harmful policies and practices. President Trump instructed USTR to:
- Publish a proposed list of products and any tariff increases within 15 days of the March 22nd
- Pursue dispute settlement in the World Trade Organization (WTO) to address China’s discriminatory technology licensing practices.
A fact sheet published by the White House affirmed that a proposed list would be published no later than April 6, and on April 3 the UTSR announced 8-digit tariffs covering 1,300 products, including, among others, chemicals, medicines, iron/ non-alloy steel, alloy steel, aluminum, machinery and mechanical appliances, electrical machinery, railway, motor vehicles, boats, and guns.
As expected, China quickly hit back against the Trump administration plans, and retaliate with a list of similar duties on key U.S. imports, including beef, soybeans, cars and chemicals. The new duties proposed by China’s Ministry of Commerce add on China’s previous imposition of tariffs on $3 billion worth of U.S. nuts, fruits, pork and wine.
However, Trump’s foot-print on U.S. trade relationships is not limited to Section 301 actions.
The Trump administration also recently announced that the U.S. will levy a 25 percent duty on steel imports and 10 percent on aluminum imports. While some key trade partners – namely the European Union, Mexico, Canada, Argentina, Brazil, South Korea, and Australia – will not be affected by the announced tariffs, other major exporters to the U.S. market, including China, will face the tariffs.
Section 232, as amended, allows the Executive branch to conduct investigations to determine the effects on the national security of imports. A report – focusing on whether the import of the article in question threatens national security – is issued to the President within 270 days of initiation of investigations. In case the President concurs with the findings, actions can be taken to adjust imports of such article, and any derivates, as deemed necessary.
The Department of Commerce listed the following key findings pertaining to steel and aluminum reports:
- Steel Report:
- The United States is the world’s largest importer of steel. Our imports are nearly four times our exports.
- Six basic oxygen furnaces and four electric furnaces have closed since 2000 and employment has dropped by 35% since 1998.
- World steelmaking capacity is 2.4 billion metric tons, up 127% from 2000, while steel demand grew at a slower rate.
- The recent global excess capacity is 700 million tons, almost 7 times the annual total of U.S. steel consumption. China is by far the largest producer and exporter of steel, and the largest source of excess steel capacity. Their excess capacity alone exceeds the total U.S. steel-making capacity.
- On an average month, China produces nearly as much steel as the U.S. does in a year. For certain types of steel, such as for electrical transformers, only one U.S. producer remains.
- As of February 15, 2018, the U.S. had 169 antidumping and countervailing duty orders in place on steel, of which 29 are against China, and there are 25 ongoing investigations.
- Aluminum Report:
- Aluminum imports have risen to 90% of total demand for primary aluminum, up from 66% in 2012.
- From 2013 to 2016 aluminum industry employment fell by 58%, 6 smelters shut down, and only two of the remaining 5 smelters are operating at capacity, even though demand has grown considerably.
- At today’s reduced military spending, military consumption of aluminum is a small percentage of total consumption and therefore is insufficient by itself to preserve the viability of the smelters. For example, there is only one remaining U.S. producer of the high-quality aluminum alloy needed for military aerospace. Infrastructure, which is necessary for our economic security, is a major use of aluminum.
- The Commerce Department has recently brought trade cases to try to address the dumping of aluminum. As of February 15, 2018, the U.S. had two antidumping and countervailing duty orders in place on aluminum, both against China, and there are four ongoing investigations against China.
The aforementioned new tariffs on steel and aluminum entered in full-force on March 23, 2018.
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