This week, among the chaos of the Trump administration, talks of trade actions against China swirled after Reuters reported that Trump was expected to issue a memorandum which specifically cited issues of Chinese IP theft. It was expected to be announced today, but has been postponed.
Two weeks ago at the Comprehensive and Economic Dialogue, the trade war narrative concerned a little known section of a 1962 trade law to impose tariffs on steel. Now the focus has shifted to another obscure section under a 1974 trade statute, which according to The Financial Times, "has not been employed widely since the 1995 creation of the World Trade Organization." Section 301 would allow the U.S. to eschew the WTO for unilateral action against Chinese companies engaging in IP theft. The FT quoted Deborah Elms who authored a dissertation on Section 301 cases, saying that in this types of cases, "[The US Trade Representative's office] is exclusively the judge, jury and executioner."
Why is the Trump administration seeking to work around the WTO? A Tuesday op-ed in the Wall Street Journal by U.S. Commerce Secretary Wilbur Ross specifically took issue with the WTO's effectiveness, citing the 403 outstanding WTO cases against 42 countries. He further criticized that "the WTO consistently casts the increase of trade enforcement cases as evidence of protectionism by the countries lodging the complaints. Apparently, the possibility never occurs to the WTO that there are more trade cases because there are more trade abuses."
The American Chamber of Commerce in China was not aware that the U.S. would be using Section 301, and also warned the U.S. side to be prepared for countervailing measures by China. Bloomberg reports that one potential tit-for-tat measure by China could involve stemming the amount of soybeans imports, which already numbers 12.5 million tons. "Autos, aircraft and rare-earth commodities have also been identified as potential categories for restriction," according to Bloomberg. Here is more information on the other key industries essential to U.S.-China bilateral trade. The Brookings Institution also has a good roundup on what the potential Trump administration actions could mean for trade, writing, "Previous U.S. forays into protectionism—such as the Smoot-Hawley tariffs or Reagan's voluntary restraint agreements with Japan—were followed by increases, not decreases, in the U.S. trade deficit. Talk of getting tough with China on trade runs into the classic problem that small actions are mostly symbolic and big actions hurt the U.S. and world economies."
Interestingly, according to the U.S. Commerce Department figures released today, the bilateral trade deficit with China widened during the initial months of Donald Trump's presidency. While the U.S. trade deficit did decline nearly 6 percent in June, as a result of rising exports and a slight decline in imports, the bilateral goods trade deficit with China totaled $170.7 billion from January through June, compared to $161.0 billion in the first half of 2016.
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