There have been multiple media reports in the last six hours that President Trump is going to announce trade investigation/sanctions against China during a press conference scheduled for Monday.
It makes sense the previously postponed 301 trade investigation against China for violations of intellectual property rights might be announced.
Section 301 of the Trade Act of 1974 provides the United States with the authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services. It is the principal statutory authority under which the United States may impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices. When negotiations to remove the offending trade practice fail, the United States may take action to raise import duties on the foreign country’s products as a means to rebalance lost concessions. (LINK)
However, a note of caution. Substantive trade negotiations, the kind which involve economics and national security, are always fluid and subject to pause, postponement or changes in direction based on compliance – or expressions of a willingness to comply.
Remember, this is Trump. Looking out for U.S. economic interests is the baseline for trade “leverage”, a tactic and skill uniquely evident in this administration’s trade team. Section 301 is a tool, actually a massive atomic sledgehammer, to force compliance.
Historically S-301 trade investigations are considered so scary to the receiving country that almost every nation just complies with USTR requests and the investigations became moot. The sanctions which follow the 301 investigations are rarely needed.
When trade negotiations are carried out on behalf of lobbyist interests, there’s not much need for strategy and leverage. This is the historic reference for the U.S. in the past 30 years.
In the modern era, almost all U.S. trade agreements have been constructed for political benefit and special interest lobbyists, not necessarily tied to the U.S. economy.
The results of these decades-long special interest approaches are visibly evident across most of the U.S. rust belt states. Additional reference points can be found in the historic North-American Free Trade Agreement (NAFTA – Mexico/Canada), the Trans-Pacific Partnership (TPP – Asia), and Transatlantic Trade and Investment Partnership (TTIP – Europe).
Much to the angst of the lobbying team within the U.S. Chamber of Commerce, President Trump has dispatched both the TPP and TTIP schemes in favor of bilateral trade deals with individual nations; and NAFTA renegotiation starts next week.
Last night President Trump and Chinese President Xi Jinping held a previously scheduled phone call. No doubt the keenly instinctual negotiator President Trump would give the respect of advance notice to Xi Jinping if 301 investigations are going to be announced.
Again, what is often forgotten is that modern China has never seen the U.S. launch a 301 trade investigation against it, or anyone else. China’s rise to economic power has been within two prior decades where prior U.S. administrations’ were selling out the American economy using the World Trade Organization (WTO), created in 1995.
This is why launching a series of 301 Trade Investigations is such a big deal. The conclusions are drawn from facts, there’s no way to skewer the data or hide the tariff that China applies to U.S. goods. If China applies a 35% import tariff on something, Section 301 allows the U.S. to apply the same tariff to the import of that something from China.
When you grasp how much this 301 equalizer can impact trade opponents, and recognize how one-sided our trade deals are with China, you begin to grasp how devastating it will be for China if 301’s are utilized. This is atomic sledgehammer type unidirectional leverage. China has nothing they can do, other than the silly threats they have already made.
Now you know why China is using North Korea as their only bargaining chip.
Even the announcement of deploying the S-301 investigations is enough to move markets once the young traders teach themselves what the end ramifications are.
WASHINGTON – […] The ordering of the investigation will not immediately impose sanctions but could lead to steep tariffs on Chinese goods. Trump has expressed frustration in recent months over what he sees as China’s unfair trade policies.
The closely watched announcement appears to have bipartisan support, although Democrats have accused Trump of not being tough enough on trade.
Trump suggested in comments to reporters on Thursday that he might be more lenient on China if officials take more aggressive action to stop North Korea from developing a nuclear weapon that could strike the United States. But it appears his longstanding frustration with China has remained.
Trump told reporters in New Jersey that he would call Chinese President Xi Jinping on Friday night to discuss North Korea. “We have been working very closely with China and with other countries,” he said.
The president was slated to announce the China trade action last week. But the announcement was delayed amid sensitive negotiations with China over the UN sanctions. (more)
BEIJING (Reuters) – The North Korean nuclear issue needs a peaceful resolution, Chinese President Xi Jinping told U.S. President Donald Trump in a telephone call on Saturday, and called on the “relevant side” to exercise restraint, state television said.
Xi told Trump that it was in the joint interests of both China and the United States to achieve the denuclearisation of the Korean peninsula and protect peace and stability there, state television said in a brief report.
“The relevant side must at present exercise restraint, and avoid words and actions that exacerbate tensions on the Korean peninsula,” the report paraphrased Xi as saying.
Resolving the nuclear issue ultimately needs to be done politically via talks, and China is willing to maintain communication with the United States on the basis of mutual respect to push for an appropriate resolution, Xi added.
Chinese state television cited Trump as telling Xi that he fully understands the role China has been playing on the North Korean nuclear issue. (link)
I bet he did…
And I bet he does.