January 10, 2018 4:10 am JST

US to decide on trade sanctions against China this month

Concern grows over potential side effects and retaliation

TAISEI HOYAMA, Nikkei staff writer

A steelworker at a plant in the U.S. state of Iowa. © AP

WASHINGTON -- The U.S. will decide by month's end whether to impose trade sanctions as a remedy for its massive trade deficit with China, though many at home and abroad worry that far-reaching measures could impact American trade with other countries and trigger retaliatory measures.

President Donald Trump had not taken action on the issue until now, despite railing against Chinese trade practices since the election campaign. With a year under his belt and tax reform all wrapped up, 2018 will be a year of action, a former U.S. trade representative said.

Trump will soon decide whether to enact safeguards for solar panels. The U.S. International Trade Commission claims that American companies have suffered greatly from increased imports and recommends a tariff rate of 35%. The administration could decide on even tougher measures.

To compete with Chinese players, which lead the world in solar panel production, the U.S. has in the past imposed anti-dumping tariffs and countervailing duties on their products. Chinese companies, meanwhile, have attempted to evade them by moving production to Southeast Asia.

Trade safeguards can be enacted only under specific conditions but can apply to imports from a wide range of countries. This means that they can cover exports by a Chinese company from a third country. The U.S. last enacted such safeguards, under Section 201 of the Trade Act of 1974, when it imposed tariffs of up to 30% on steel in 2002.

Washington is also mulling restrictions on aluminum and steel imports on national security grounds. The Department of Commerce launched an investigation last April into the impact of steel imports on the ability to produce defense equipment. Trump will announce response measures based on the department's findings.

The Global Forum on Steel Excess Capacity has been trying to tackle overproduction by Chinese companies, which control half the world's steel market. But it "has not made meaningful progress yet on the root causes of steel excess capacity," the Office of the U.S. Trade Representative has said.

U.S. Trade Representative Robert Lighthizer also launched an investigation into whether China is responsible for violating intellectual property rights and other unfair technology transfers that hurt American companies under Section 301 of the 1974 Act. Results are due out in August, but some expect Washington to impose higher tariffs and other measures in advance. Washington took a similar hard-line approach in the 1980s to correct trade frictions with Japan.

"China's hurting us very badly on trade, but I have been soft on China" in exchange for its cooperation over the North Korea issue, Trump told The New York Times in a December interview. But Beijing is reportedly not fully complying with sanctions, and Trump has expressed disappointment with the country. Additional trade restrictions will only deepen the Sino-American rift amid rising tensions over Pyongyang's weapons development.

Unintended consequences

A hard line on Chinese trade will likely impact other economies and American industry as well. Safeguards, for example, would impact imports from not only China, but also from such other countries as Canada, South Korea and Japan. Some in the Department of Defense want to exclude American allies from trade penalties. The European Union has threatened to retaliate against any trade sanctions by the U.S.

American companies that use steel, aluminum and solar panels have also raised concerns that additional trade restrictions would add to their costs.

There is also concern about the Section 301 investigation regarding intellectual property rights. William Reinsch, former president of the National Foreign Trade Council, has expressed support for the probe while warning against provoking China. He argued that the move will only lead to retaliatory measures from Beijing and fail to address fundamental issues.

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