It’s time for Congress to modernize Section 301 tariffs

In 2020, HTMX, an American manufacturer of vinyl tiles, went to court to get a refund for President Trump’s China tariffs. Since then, thousands of domestic companies have filed over 130 cases, hoping to do the same thing.

In April, the U.S. Court of International Trade (CIT) said no but told the government to do a better job answering the plaintiffs’ concerns. The answers were filed in early August. They make it clear that Congress must claw back authority over tariffs by modernizing Section 301.

The backstory is that Trump used Section 301 tariffs to punish China for “forced-technology transfer” practices, and theft of intellectual property. The legislation authorizes the president to punish foreign countries that compromise U.S. exporters’ rights abroad. The tariffs impose substantial costs on American companies too, however, including those that use imported inputs to produce their exports.

Trump’s China tariffs were rolled out in four rounds. HTMX, like many plaintiffs, challenged the third and fourth rounds, but not the first or second. They urged that the third and fourth rounds were used to clean up the mess made by the first and second rounds, which inspired China to retaliate. Specifically, HTMX argued that the third and fourth rounds had given rise to “an unprecedented, unbounded and unlimited trade war,” and were illegal.

The CIT didn’t disagree, but said it would “not try to unscramble this egg.” Instead, it asked the office of the United States Trade Representative (USTR) to connect more of the dots. The USTR responded last month. Among other things, USTR said China’s retaliation was “inextricably linked” to the actions that had originally given rise to the Section 301 tariffs, and were thus legal.

True, Section 301 tariffs can be modified, including when the policies and practices “that are the subject of such action has increased or decreased…” But fine-tuning these tariffs to deal with changing circumstances is a far cry from what has happened with China.

The third and fourth rounds of tariffs were as much (if not more) about China’s retaliation as they were about Beijing’s failure to comply with the first two rounds. As the CIT explained things, “China directly connected its retaliation to the US action and to its own acts, policies, and practices that the US action was designed to eliminate.”

Put another way, the third- and fourth-round tariffs scrambled the egg because they were meant to do two things, not one. The legislation permits tweaking the tariffs to gain compliance, but that isn’t the same as recalibrating them to fight back against retaliation. The CIT declined to “unscramble this egg,” but Congress can do it. If it doesn’t, Section 301 will be license to wage an all-out trade war.

The need to differentiate enforcement, on the one hand, from fending against retaliation, on the other, is clear in what the USTR says about whether the tariffs are working. Only one criterion is raised: whether China has changed “certain acts, policies and practices” related to “technology transfer, intellectual property and innovation.” Yes, but the third- and fourth-round tariffs should also be evaluated in light of China’s retaliation for the first and second rounds.

Section 301 is showing its age. It debuted in the 1974 Trade Act, when little about today’s U.S.-China trade war could have been anticipated. Many of the U.S.’s trade partners, including Canada and Europe, have armed themselves with Section 301-equivalents of their own. They can hit back. That wasn’t true in 1974.

HTMX and thousands of other U.S. companies got the CIT to explain that the egg is scrambled. Now it’s up to Congress to unscramble it.  

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University. Follow him on Twitter @marclbusch.