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Stewart and Stewart
Washington DC

On April 25, 2018, the Global Business Dialogue held an event at the National Press Club titled, “Searching for Reciprocity:  Section 301 and the Future of U.S.-China Trade”.  In a paper prepared for the event, the author reviews the serious and longstanding U.S. concerns in areas such as forced technology transfer, discriminatory licensing restrictions on U.S. companies, outbound investments in strategic industries and cyberattacks, theft of intellectual property, and the Trump Administration’s investigation under section 301 of the Trade Act of 1974, as amended, of these practices and its conclusions on the same.  There is broad agreement that there are longstanding and serious problems posed by China’s laws, regulations and practices, and that the efforts of prior Administrations to achieve results, while often promised by China, have in fact not resulted in a resolution of the concerns.  Because the areas reviewed by the 301 investigation go to the U.S. competitive advantage in innovation, the concerns within the business community and government run deep on the need to achieve correction by China.

But China’s economic system and government five-year plans for the next 5-10 years are being built on the practices complained of, making meaningful correction of the Chinese actions highly improbable in fact.  Thus, China has been unable or unwilling to modify its system to address these ongoing U.S. concerns.

The Trump Administration’s response has been the 301 investigation, its findings, and Presidential directive to examine imposition of tariffs of 25% on some $50 billion of imports from China, commencement of a WTO challenge on any practices viewed as covered by WTO agreements, and action by Treasury to handle investment practices by China viewed as harmful to U.S. security interests.  This has led to threats of retaliation by China on $50 billion of U.S. exports, a threat of counterretaliation by the Trump Administration of an additional $100 billion (but without providing to date a potential list of additional products), recriminations from each side, the filing of competing WTO cases, and, with an apparent effort to reduce tensions, talk about possible negotiations to determine if bilateral negotiations may provide a solution.

Parts of the business community are concerned about retaliation and the Chinese have picked sectors for potential retaliation that will cause concern with some important business and agricultural groups.  The challenges for the Trump Administration are complicated by the fact that many of the areas of concern with China are not clearly addressed under the various agreements that make up the World Trade Organization rules.  None of the options potentially available provide an easy solution if China is not willing to rebalance the trading relationship.  Despite its rhetoric, there have not been any actual actions by China to believe that fundamental reform will occur.  The paper reviews a number of possible options and explores the potential challenges of any of them achieving U.S. objectives without short-term to medium-term damage to, at least, sectors of the U.S. economy.

How this set of issues is resolved will say a lot about whether there is a path to rebalancing our trade relationship with China to one that is more sustainable and that doesn’t threaten the U.S. economic model.

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