By: Sofya Bakradze
President Trump’s unilateral tariff initiative against China raised a lot of eyebrows in 2018, with legal and trade professionals across the country questioning the validity and common sense of such action. It is evident from the U.S. Constitution that it is within Congress’s power to “lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defen[s]e and general Welfare of the United States,” and regulate trade between the US and other countries.[1] However, because the power to levy imports is so intertwined with the matters of foreign policy, which are within the presidential domain, Congress has effectively entitled the executive branch to unilaterally initiate any duty increases.[2] The Trade Act of 1974, one of the acts that the current Administration is particularly fond of, contains a section that authorizes the President to take any action deemed appropriate to obtain a removal of any act, policy, or practice of a foreign government that burdens or restricts U.S. commerce.[3]
While typically Section 301 investigations are initiated on behest of the American industries, the direction for this particular investigation into China’s allegedly unfair policies came directly from the Office of the President. [4] The investigation determined that China required or pressured technology transfer from U.S. companies, deprived U.S. companies of the ability to set licensing terms that would allow to protect their intellectual property, and conducted cyber intrusions into U.S. commercial computer networks.[5] Pursuant to these results, the U.S. Trade Representative has determined that an appropriate action included the imposition of an additional ad valorem duty of twenty-five percent on a number of products from China totaling over $50 billions of import value, based on estimated annual damages from China’s unfair acts, policies, and practices.[6]
Despite the stated goal of protecting U.S. businesses and forcing China to modify their forcible technology transfer policies, the primary impact landed heavily on the average U.S. businesses and consumers[7]. While President Trump is defending his policies, the economists, including Morgan Stanley researchers, estimate that the latest round of tariffs could reduce economic growth in the United States by 0.1 percentage points in 2018.[8]
During the public comment and petition process, over 8,000 petitions and comments were submitted, outlining a number of negative consequences including disrupted supply chains, loss of established relationships, unavailability of materials outside of China, and higher prices that cannot always be absorbed by the businesses and will eventually get passed to the consumers.[9] The industry representatives and private firms had an opportunity to testify during the public hearings held for each of the three proposed lists, and the testimonies echoed the petitions with an overwhelming majority opposing the tariff increases.[10] Additionally, many feared that Chinese retaliatory actions would have the potential to hurt their business, just as much as the United States Trade Representative (hereinafter “USTR”) measures.[11] The very tariff measures that were meant to protect American businesses are now projected to cause lay-offs, factory closures, and increased prices.[12] In the meantime, it is doubtful that that the additional duties will force China to change its IP laws and practices.[13]
The Administration did remove 297 product lines from the final list, but that raised additional issues when it came up that partial product lines will be taxed while other parts will not.[14] Furthermore, it was unclear what guided the USTR in its decision-making: some of the most heavily petitioned articles remained on the lists while some of those that received minimal support were removedThe lack of transparency during the entire process has been troubling.
Rising opposition to Section 301 tariffs undoubtedly should culminate into a legal challenge. The Consumer Technology Association (“CTA”), among others, has raised a number of concerns in its public comment.[15] According to the argument, Section 301 authorizes action following fact-based investigations[16], and it is evident that the latest $200 billion list was authorized by President Trump only to serve as the next step in the trade war, in excess of the original USTR recommendation of $50 billion.[17] The Administration may have been looking for a quick fix but ended up bringing two of the largest economies in the world to the brink of a full-fledged trade war. The Administration’s actions, from the investigation’s sudden inception to the ruthless implementation of additional duties, need to be addressed by Congress or in the court of law.
[1] U.S. Const. art. 1, § 8, cl. 1.
[2] See Jay Cost, Congress Handed to the President the Power to Level Tariffs, Nat’l Rev. (Mar. 5, 2018, 6:30 AM), https://www.nationalreview.com/2018/03/tariffs-congress-handed-president-power-to-levy/.
[3] Trade Act of 1974, 19 U.S.C. § 2411 (2018).
[4] See Chad P. Bown, Rogue 301: Trump to Dust off Another Outdated US Trade Law?, Peterson Inst. for Int’l Econ. (Aug. 3, 2017, 11:45 AM), https://piie.com/blogs/trade-investment-policy-watch/rogue-301-trump-dust-another-outdated-us-trade-law (highlighting that the original goal of Section 301 was to serve as the main avenue for American companies and workers to push policymakers to expand the export market).
[5] See Office of the U.S. Trade Rep., Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974 (2018), https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF.
[6] Id.
[7] See Ryan Port, A Brief Overview of What Trump’s Tariffs Have Wrought, Rolling Stone (Aug. 13, 2018, 9:43 AM), https://www.rollingstone.com/politics/politics-news/trump-tariff-effects-708376/ (outlining the negative consequences imposed on the manufacturing, automotive, and agricultural sectors); see also Michael Selby-Green, Everyday Items Are Set to Get More Expensive Because of the Trade War, Bus. Insider (Aug. 20, 2018, 5:37 AM), https://www.businessinsider.com/us-china-trade-war-the-everyday-items-set-to-get-more-expensive-2018-8 (citing the US Chamber of Commerce’s written testimony stating the new tariffs would dramatically expand the harm to American consumers, workers, businesses, and the economy by imposing tariffs on everyday consumer goods).
[8] Donald J. Trump (@realDonaldTrump), Twitter (Sept. 17, 2018, 6:11 AM), https://twitter.com/realDonaldTrump/status/1041630722413527040; Jim Tankersley & Keith Bradsher, Trump Hits China With Tariffs on $200 Billion in Goods, Escalating the Trade War, N.Y. Times (Sept. 17, 2018), https://www.nytimes.com/2018/09/17/us/politics/trump-china-tariffs-trade.html.
[9] Procedures to Consider Requests for Exclusion of Particular Products from the Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, https://www.regulations.gov/docket?D=USTR-2018-0025. (last visited Oct. 17, 2018).
[10] See generally Office of the U.S. Trade Rep., Section 301 Hearing Transcript on Proposed Tariffs: Day 1 (Aug. 20, 2018), https://ustr.gov/sites/default/files/enforcement/301Investigations/0820USTR.pdf (providing testimonies from the first day of the hearings).
[11] See Lingling Wei, China Retaliates With Tariffs on $60 Billion of U.S. Goods, Wall Street J. (Sept. 19, 2018, 7:47 AM) https://www.wsj.com/articles/chinese-officials-scramble-to-respond-to-trumps-new-tariffs-1537275015.
[12] See Bob Bryan, Trump’s Trade Was Is Already Leading to Layoffs And Pain for American Businesses, Bus. Insider (Aug. 9, 2018, 11:42 AM), https://www.businessinsider.com/trump-tariffs-trade-war-layoffs-business-losses-2018-8 (providing examples of businesses and industries across the United States that announced layoffs or paused expansion plans in connection with increased tariffs); see also $200 Billion Tariffs Vulnerable to Legal Challenge, Says Consumer Technology Industry, Bus. Wire (Sept. 7, 2018), https://www.businesswire.com/news/home/20180907005070/en/200-Billion-Tariffs-Vulnerable-Legal-Challenge-Consumer (claiming that the impact of a 25% tariff on connected devices alone will cost average American consumers an extra $3.2 billion annually).
[13] Karishma Vaswani, US-China Trade: How Badly Could New US Tariffs hurt China?, BBC News (Apr. 4, 2018), https://www.bbc.com/news/business-43624925 (citing a conversation with Martin Medeiros of Mederois Law).
[14] See Tankersley & Bradsher, supra note 8 (“for example, tech network routers and smart watches share a product line, but under the United States trade representative plan, the routers would be subject to tariffs while watches are not.”).
[15] See $200 Billion Tariffs Vulnerable to Legal Challenge, supra note 12.
[16] Id.
[17] See Tankersley & Bradsher, supra note 8.
