CHINAMacroReporter

'Trump's tariffs just first shot—the big China action is Section 301'

Leland points out that President Trump's really big trade move against China yet to come, that is, Section 301 penalties. If you aren't up to speed on 301, you will be after you read and watch Leland's comments. As Leland says, with Section 301, 'regardless of how Section 232 steel and aluminum tariffs end up in the next few days - you're seeing the beginning, not the end, of Trump's aggressiveness on trade.' 'And, I don't think people have prepared themselves yet for the fact that 301 is coming.'
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CHINADebate

March 1, 2018
'Trump's tariffs just first shot—the big China action is Section 301'

1. 'Today's tariffs just Trump's first shot - the real China action is Section 301'

[Note: If you're not up on the difference - and it's a vitally important difference - Section 232 and Section 301, please go to part 2, below.]

Leland Miller, CEO of China Beige Book told me: 'Donald Trump just announced several minutes ago that he was indeed going forward with Section 232 tariffs on steel and aluminum. Here's my take and some context.'

'When the Trump administration was originally developing the strategy for responding to China trade problems, they evaluated two major lines of attacks using tariffs.'

  • 'One line of attack was Section 232 - that's what you're hearing about today.'
  • 'Today's 232 move is just for steel and aluminum tariffs, it's not China specific, and it's something that relies on the ability of the White House to be able to say, "National security dictates that we regulate these imports with particular tariffs."
  • ''The big problem with that as a China move: China is not a major exporter steel or aluminum to the U.S. So, this is not really something that's going to hit China particularly hard directly.'
  • 'Indirectly, this will hit China. China has been sending its steel through third-party countries in Southeast Asia and elsewhere so that it comes into the U.S. not identified as Chinese. Today's action is partly designed to stop this.'

'But, because these are tariffs on global imports, this is going to upset a lot of America's strongest allies.'

  • 'You're already having foreign delegations rush to the White House right now to lobby to get them out, carve them out.'
  • 'Trump hasn't signed anything yet. So, you could see carve outs for allies in the final document.' 

'What the President might do after making such a splash today brings us to the other line of attack: Section 301.'

  • 'Section 301 has always been the White House's underlying platform - its center- for the anti-China assault on the trade side.'
  • Why? 'Unlike Section 232, Section 301 targets unfair trade practices, not products; and it targets a specific country, not the whole world.'
  • 'So, with 301, the President has the power to basically do whatever he wants to China on the tariff side in order to deal with the fact that the Chinese have been stealing intellectual property and a 301 investigation has found them guilty of that.'

'In response, he has the option to either have a very mild action or something that would be much larger than what he announced today with Section 232 tariffs on steel and aluminum, much more severe.'

  • 'If he went for something severe, such as broad sectoral tariffs - tried to take down, say, China consumer electronics - then, you would have justifiable reason to call this a trade war.'

'With today's 232 tariffs on steel and aluminum, there was actually strong opposition across the government, across the administration. Even within the White House where, except for a handful of people, advisors were very, very against this - they think Trump's opening up Pandora's box.'

  • 'So, it's interesting that there's not much opposition to the country-specific Section 301.'
  • '301 is likely to go forward as planned. We just don't know how big yet.'

'How big 301 actions will be depends on how this 232 tariffs saga ends up'.

  • 'As I mentioned, if 232 goes forward in anywhere close to the current way it's being described by the President, it is absolutely against the wishes and inclinations of almost everyone, within most of the industries, even within the Trump White House.'
  • 'Republicans in Congress don't want it, either. So there's a lot of politics to this.'
  • 'The President's backed himself into a little bit of a corner - I think you're most likely going to see 232 going forward, but the chances are that it gets pulled back some.'
  • 'All this is something that's going to have to be sorted through before the President decides whether these 232 tariffs are enough, whether he has to pull 232 back a bit, or whether he wants to go even bigger with 301.'

'The President's impulse seems to be to go bigger. And 3o1 - it's faster, it's louder, it's bigger, than other routes, such as going through WTO processes.'

  • 'Section 301 essentially allows the President to right the wrongs that he believes have not been dealt with by the WTO.'
  • 'Wrongs that in his mind and in the minds of Wilbur Ross and Peter Navarro and Bob Lighthizer that the Chinese have been committing for years, for decades now.'
  • 'Where WTO has not done anything about them, and other Presidents have not done anything about them, he will.
  • 'And, quite frankly, what the President wants here is a big splash - if he uses 301, he can show that his campaign rhetoric about being a strong warrior on trade is credible.'

'For these reasons, I believe that you're seeing right now - regardless of how 232 ends up in the next few days - you're seeing the beginning, not the end, of Trump's aggressiveness on trade.' 

'And, I don't think people have prepared themselves yet for the fact that 301 is coming.'

2. Section 232 & Section 301: The Difference

Leland Miller explains the difference between Section 232 (Trade Expansion Act of 1962) and Section 301 (Trade Act of 1974).

'Broadly speaking, these are two very different measures.'

  • 'Section 232, is product specific and focuses on whether imports of that product threaten U.S. national security. The President can take any actions to “adjust the imports of an article and its derivatives” or other non-trade related actions he thinks are necessary to protect national security.'
  • 'Section 301 is country specific and allows the U.S. to impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices.'

'The Section 232 tariffs the President has announced today are specifically for steel and aluminum.'

  • 'Steel and aluminum are each the subject of an active 232 investigation and their imports have been deemed threats to national security.'
  • 'Because of these findings, the President has declared their import  threats to national security, and that's why he's taking action on them.'
  • 'When he signs the tariff orders, the effect is global. That means, the President is putting steel and aluminum tariffs on imports from everywhere around the world, but he can carve out certain countries to be exempt.'

'Section 301 is very different -  it's country specific, not product specific.'

  • 'Section 301 has to do with unfair trade practices - in this case, it is intellectual property theft, and it is a China-specific investigation that nailed China.'

 'The idea behind how to push an aggressive trade front against China has always been centered around 301.'

  • 'That's the way you really get at China, not through 232, which is global, but through 301, which allows China-specific application.'

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