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5 min read . Updated: 02 Mar 2022, 05:37 PM IST Biden administration weighs potential new probe under Section 301 among efforts aimed at protecting America’s edge in new technologies
WASHINGTON : The Biden administration is preparing to confront China on its industrial subsidies and seek ways to protect America’s edge in new technologies, hardening U.S. economic policy toward the nation’s chief global rival.
U.S. efforts to be rolled out in coming months could include a new investigation into Beijing’s support for sectors it considers strategic, using Section 301 of the Trade Act, according to people familiar with policy discussions.
Section 301 is a powerful tool allowing U.S. officials to single out certain practices of a trading partner and take punitive action should they determine those practices violate trade law. While the people didn’t cite potential targeted sectors, China has identified semiconductors, artificial intelligence, 5G wireless and electric vehicles as areas where it seeks global leadership.
The White House is also weighing heightened scrutiny of U.S. companies’ investments in China, tighter export controls on sensitive technologies and greater cooperation with European and Asian allies and partners on subsidies and other issues, these people said.
The approach is motivated by growing convictions within the Biden administration that former President Donald Trump’s tariff campaign against Chinese imports failed to persuade Beijing to compete fairly in international trade. The Office of the U.S. Trade Representative said in its annual policy agenda on Tuesday that it is realigning its China policy to confront Beijing’s nonmarket practices but didn’t provide new details on specific measures.
“It is apparent that existing trade tools need to be strengthened, and new trade tools need to be forged," the USTR said in a Feb. 16 report to Congress
The changes will allow President Biden, a Democrat, to distance himself from his Republican predecessor’s trade policy, which resulted in a “phase one" trade deal with China in 2020 and remains largely intact more than a year after Mr. Trump left office.
“We are seeing increasing signs of their own distinctive approach," said Scott Kennedy, senior adviser at the Center for Strategic and International Studies, of White House officials.
While the administration has been considering a potential new 301 case for some time, the new initiative comes as efforts to build on the phase-one deal have stalled, with high-level U.S. and Chinese officials no longer in close communications on trade, according to people close to both sides.
Russia’s invasion of Ukraine has become another source of tension with Beijing. In the weeks leading up the invasion, China dismissed U.S. warnings that Russian President Vladimir Putin was preparing an attack, instead saying Washington was stoking fears of armed conflict.
Relations between the two countries eased with the signing of the trade deal in 2020 but have since soured over issues including the Covid-19 pandemic, Taiwan and China’s crackdown on Muslim ethnic groups.
On trade, Chinese leaders are frustrated that Washington has largely left the Trump-era tariffs in place while expanding the list of Chinese technology companies subject to blacklisting over their alleged support for China’s military and Beijing’s mass surveillance of Muslim and other ethnic groups.
A fresh 301 investigation could have severe repercussions, according to some Chinese officials and government advisers, who say China might respond with retaliatory measures of its own—including adding U.S. companies to its “unreliable entity" list barring them from the Chinese market.
“Hundreds of Chinese companies are on the U.S. government’s entity list these days," said a government adviser in Beijing. “But China has refrained from putting any U.S. firms on its entity list. That can change, of course."
Chinese President Xi Jinping’s priority in coming months is ensuring a smooth transition to a tradition-busting third term in power. He doesn’t want relations with Washington to become outright hostile, the officials and advisers say, but has little motivation to compromise on key issues at the heart of the strained bilateral ties, from China’s economic practices to human rights.
Despite signing of the 2020 trade accord, the Trump administration kept 25% tariffs on approximately $250 billion of Chinese imports and 7.5% tariffs on $120 billion of Chinese imports.
Mr. Biden has faced growing pressure from business groups representing companies that must pay the import duties. “The current policy with the tariffs…hasn’t worked," said Jon Gold, a spokesman for the National Retail Federation. “We haven’t seen an improvement."
While a new Section 301 case could lead to revisions of the Trump-era tariffs, trade experts say the Biden administration likely isn’t currently considering any major reduction given China’s failure to meet its purchase targets under the trade deal.
China bought 57% of the U.S. goods and services it committed to purchase over a two-year period ended Dec. 31, according to an analysis by Chad Bown, a senior fellow at Peterson Institute for International Economics.
“China has made all-out efforts to work with the U.S. to implement the agreement despite the multiple challenges brought by the pandemic, global economic recession and supply-chain disruptions," said Liu Pengyu, a Chinese embassy spokesman in Washington.
The Biden administration has yet to respond to the purchase shortfall, and Russia’s invasion of Ukraine has slowed its deliberations, the people familiar with policy discussions say.
“No doubt [the] administration’s patience is running low, and they clearly are considering a menu of options to address not only phase-one shortcomings, but also longstanding structural concerns," said Myron Brilliant, executive vice president and head of international affairs at the U.S. Chamber of Commerce.
A new 301 investigation would likely focus on China’s use of industrial subsidies to promote strategic domestic sectors, the people familiar with the administration’s deliberations say. The U.S. believes such subsidies have undermined American businesses and violated international trading rules.
In the Feb. 16 report, the USTR took particular issue with Beijing’s “Made in China 2025" initiative, a 10-year plan to promote 10 strategic sectors including advanced information technology, robotics and biopharmaceuticals.
Mr. Bown said an investigation into subsidies would provide “a useful transparency exercise to explain to the world that this is what we’re worried about and this is what we need to negotiate over so we can get along better."
While Section 301 probes usually lead to the imposition of tariffs, policy makers are now trying to come up with non-tariff measures in case the U.S. decides to punish China amid concerns about inflation, people familiar with the matter said.
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