U.S.-China Trade Relations

On January 22nd, President Trump imposed new “safeguard” tariffs on imported solar panels and washing machines, which will be in place for the next three years before tapering downward.  For the renewable energy industry, this is another major blow from this administration. Solar panels, most of which currently come from China will have an additional tariff rate of 30% imposed. Notably, there are already more than 150 other U.S. trade measures in place against various Chinese products. This new measure threatens to handicap a $28 billion industry that relies on parts made abroad for 80 percent of its supply chain.

Trump has also imposed a tariff of 20% on imported washing machines.  This is the first use of safeguard tariffs by the United States since 2002 when President Bush used them to restrict steel imports.  This decision comes on the heels of a determination by the International Trade Commission (ITC) that imports of these goods had injured domestic producers.

While many have seen the action as a necessary means of protecting American manufacturers, members of the South Korean government have harshly criticized the move and signaled a willingness to formally air their grievances before the World Trade Organization (WTO).  Significantly, the 2002 safeguard tariffs imposed by the Bush Administration were ultimately withdrawn after an adverse ruling at the WTO put the United States under the threat of retaliation.

The Department of Commerce submitted its report on the impact of steel mill product imports on U.S. national security to President Trump on January 11.

In a statement on its website, the Department announced that the long-awaited results of the investigation, commonly known as the Section 232 Report, will not be made public until after the President makes his final decision. 

Although the president has 90 days to act, he has the discretion to announce his decision early. 

 

At President Trump’s direction, on August 14, the United States Trade Representative (USTR) initiated an investigation under Section 301 of the Trade Act of 1974 against China’s laws, policies, or actions that could threaten U.S. intellectual property and technology development.

USTR Robert Lighthizer commenced the preliminary stages of the investigation and will convene a public hearing on October 10 at the U.S. International Trade Commission. The results of the investigation could lead to additional tariffs or restrictions on imports from China.

This is the third investigation the administration has initiated concerning foreign imports and trade practices. The U.S. Department of Commerce is currently conducting two investigations on whether U.S. imports of aluminum and steel products threaten national security.

The President’s August 14 memorandum unveiled the following four types of conduct USTR will consider during the investigation:

  • Whether the Chinese government uses a variety of tools to regulate or intervene in U.S. companies’ operations in China to transfer U.S. technologies and intellectual property to Chinese companies;
  • Whether the Chinese government’s policies and practices deter U.S. companies from issuing market-based terms in licensing and technology-related negotiations with Chinese companies; and
  • Whether the Chinese government obtains high-technology products and intellectual property by investing in or acquiring U.S. companies pertinent to Chinese government industrial plans;
  • Whether the Chinese government is breaching U.S. commercial computer networks to access and/or steal intellectual property, trade secrets, or business proprietary information.

USTR will determine whether the aforementioned four types of conduct are actionable under Section 301 of the Trade Act.  Pursuant to the Trade Act of 1974, USTR must determine within 12 months from the beginning of the initiation whether any act, policy, or practice described in Section 301 exists.

In general, the retaliatory action proposed by USTR must be implemented within 30 days of the determination. USTR may delay the implementation up to 180 days if it determines that substantial progress is being made regarding removing the trade barrier. If the determination is affirmative, then USTR will decide what action, if any, to take.

Though certain company executives and politicians support the investigation as a way to help U.S. businesses access the Chinese market without conceding their intellectual property to the Chinese government, others are more reluctant to voice their opinions due to their fear of drawing retaliation from China.

The investigation comes shortly after the Chinese government unveiled a new cybersecurity law to “protect personal information and individual privacy” in late May of 2017. The law requires foreign companies operating in China to reveal intellectual property to the PRC and forces these companies to store their data to local servers. U.S. companies are now instructed to participate in a joint venture with Chinese enterprises, therefore sharing valuable technology information with their Chinese counterparts.

There has only been one recent USTR Section 301 investigation in the past two decades. In 2010, USTR initiated a Section 301 investigation of Chinese policies and subsidies supporting its wind and solar industries. Because the issues covered involved U.S. rights under the World Trade Organization, USTR requested WTO dispute settlement consultations with the government of China. Less than a year after the initiation of the investigation, China removed the challenged acts. Thus, it is possible that this current Section 301 investigation could follow a similar timeline, whether or not WTO rights are implicated.

For more information, contact: Robert Holleyman, Dan Cannistra, Ben Caryl, Cherie Walterman

The long awaited U.S.-China Comprehensive Economic Dialogue (CED), which marked the end of the 100-Day Plan launched by President Trump and Chinese President Xi in Mar-a-Lago, took place on July 19. In an anti-climactic fashion, the talks did not yield any deliverables despite Commerce Secretary Ross’ statement in May touting the plan as accomplishing “more than has been done in the whole history of U.S.-China relations on trade,” when the “early harvest” of deliverables was released.

No Big Wins

There were no notable “wins” announced from the highly anticipated talks, and signs that the talks were faltering emerged early. The scheduled press conferences by the White House and the Chinese delegation were cancelled in the morning. In the afternoon, it was reported there would not be a joint statement, indicating no agreed outcomes from the talks. The U.S. and Chinese statements issued at the end of the CED showed some overlap in themes: both noted how reducing the trade deficit was a shared objective, though there was little substantive information beyond that. The Chinese called the talks a good “framework” for future bilateral economic cooperation, and Secretary Ross called the 100-Day plan a “work in progress,” noting that the bilateral process was moving into more in-depth issues that were inherently harder to solve.

Top Issues Raised: Export Controls and Reducing Overcapacity

The breakdown in talks was not surprising. Secretary Ross stated before the July 19 CED that the 100-Day plan focused on “low-hanging fruit.” Indeed, many issues in the initial results list had been agreed to in previous Strategic and Economic Dialogue sessions held under the Obama administration.

The priority issues identified by both sides during the CED provided little room for compromise. China’s top priority was export controls. This is an area where the Chinese know well the United States has little flexibility, and pushing on it may have indicated China’s unwillingness to move on the talks in general. There has been speculation that the stall also may have been due to political pressures from China, given the upcoming 19th Party Congress scheduled for late October/early November.

Meanwhile, the United States focused on reducing overcapacity, particularly on steel, and lifting restrictions on cloud computing and foreign equity caps on financial services and other services. The concern over restrictive cloud computing was especially a focus for industry after China released its latest cyber security law containing vague but highly restrictive rules for the sector.

The impasse that occurred in the CED on July 19 has carried over into the Trump administration’s subsequent debates on U.S.-China policy. The Chinese have implied that both sides are working on a one-year work program as a follow-on to the 100-Day Plan; U.S. officials deny this is the case. They will confirm only that “discussions continue” on where the U.S.-China relationship is headed next. Similarly, China would like to re-engage in negotiations on a bilateral investment treaty (BIT), a process the Trump administration has suspended. U.S. officials will only say that the administration has made no decision regarding the future of the BIT.

From Friend to Foe?

Since the Mar-a-Lago meeting, President Trump has praised Chinese President Xi Jinping, tying collaborative trade talks to China’s efforts to address North Korean aggression. However, after North Korea’s latest provocative long-range ballistic missile test, President Trump’s rhetoric has shifted. The President has blamed China for only talking and “doing NOTHING for us with North Korea.” China responded by saying that “the North Korea nuclear issue and China-U.S. trade … aren’t related. They should not be discussed together.”

Given the Trump administration’s willingness to employ all of the tools in the policy toolbox, speculation is growing that the White House may seek to impose additional economic actions against China in the weeks ahead. Options could include more trade cases being self-initiated by the U.S. Government against U.S. imports from China, or broadening economic sanctions in response to China’s alleged inaction against North Korea.

For more information, contact: Melissa Morris, Tracy Huang