The China tariffs live to see another day

Last week, American importers suffered a setback in the ongoing saga of the Trump/Biden China tariffs. Thousands of U.S. companies had gone to court looking for relief from many of these import duties. They didn’t get it and plan to appeal the ruling. The bigger picture is that Congress needs to legislate a “fix” to help America’s beleaguered importers and reclaim its tariff authority.

On March 17, the U.S. Court of International Trade (CIT) issued a 27-page opinion upholding the legality of two of the four rounds of China tariffs. President Trump triggered these tariffs under Section 301 of the 1974 Trade Act to punish China for its forced-technology transfer practices and theft of intellectual property. President Biden has eagerly left these tariffs in place.

The first two rounds of tariffs (List 1 and List 2) didn’t do the trick, so Trump authorized a third and fourth round (List 3 and List 4A) to increase pressure on Beijing. This was a substantial escalation. List 1 and List 2 covered $50 billion worth of trade, whereas List 3 and List 4A hit $500 billion. List 1 and List 2 also spared consumer goods, but List 3 and List 4A had to include them to get to $500 billion. As the ones shouldering these costs, American importers thus challenged List 3 and List 4A at the CIT.

The plaintiffs argued that List 3 and List 4A were meant to clean up the mess made by List 1 and List 2, which had motivated China to retaliate. In its original filing, HTMX, a U.S. manufacturer of vinyl tiles, had argued that List 3 and List 4A amounted to “an unprecedented, unbounded and unlimited trade war,” and thus ran afoul of Section 301.

In its first ruling, 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 better explain its actions. 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.

Section 301 tariffs can be recalibrated, 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. List 3 and List 4A were more about China’s retaliation than about its failure to comply with List 1 and List 2. As the CIT observed, “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.”

The USTR filed its answers last August. The plaintiffs pushed back, arguing that the agency failed to give proper weight to their concerns. They drew a distinction between USTR addressing their comments, on the one hand, and analyzing or considering their comments, on the other. In particular, American importers saw List 3 and List 4A as qualitatively different from List 1 and List 2 and wanted a new notice-and-comment round with USTR that reflected as much. The CIT didn’t buy this distinction and said USTR “has complied with the court’s remand order and has supplied the necessary explanation supporting the imposition of duties pursuant to Final List 3 and Final List 4.”

Yet, the CIT also conceded that the standard USTR had to meet in this regard “is not particularly demanding” (emphasis added). And that’s the problem.

The plaintiffs specifically asked whether USTR was “weighing the costs” of “Chinese retaliation” in its answers. Section 301 is about trade enforcement not a license to wage a trade war. The CIT bought the USTR’s argument that China’s “ongoing and retaliatory conduct” is one action, but it’s really two. If Congress hopes to reclaim its tariff authority, it needs to reform Section 301 to reflect this.

The court also conceded USTR’s point that the agency lacked “much discretion to deviate from the President’s direction.” This should be a wake-up call for Congress. Section 301 has been brought out of retirement in recent years, following on the heels of an adverse ruling at the World Trade Organization in 1999. There have been five Section 301 investigations since 2017, including one on Boeing-Airbus and another on digital trade. Unless this statute is reformed, the president will use Section 301 to get around congressional oversight in waging trade wars of their choosing.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University and a global fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Follow him on Twitter @marclbusch.