Record-high inflation has reportedly prompted President Biden to consider lifting at least some of the tariffs imposed by former President Donald Trump on Chinese imports under Section 301 of the Trade Act of 1974. As Cato scholars have repeatedly written, the tariffs have imposed large costs on consumers, producers, and workers, so removing them would be a sensible policy. It would also be practical, as the law gives President Biden the authority to repeal them with the stroke of a pen. But as desirable as this solution is in the short term, our experience with these unilateral tariffs should make Congress aware of the need to reform the flaws in Section 301 to prevent another president from abusing this law in the future. In a Policy Analysis released this week, we (along with Inu Manak) analyze the elements of Section 301 that the Trump administration exploited to impose tariffs and restrict trade, and recommend amendments to reduce the possibility of future abuses of this law.
Section 301 Background
Congress legislated Section 301 as part of the Trade Act of 1974 to grant the executive branch additional powers to investigate and act against “unfair” trade practices by foreign countries. As explained in greater detail in the paper, the statute enables the Office of the U.S. Trade Representative (USTR) to initiate investigations on such practices upon request from concerned domestic parties or at its discretion (following consultations with the private sector). The statute also prescribes when, upon finding that such practices exist and “burden or restrict” U.S. commerce, the USTR is mandated to act to obtain the elimination of the targeted foreign acts, policies, or practices; when it is not required to act; and when it may choose, at its discretion, to act.
Invocation of Section 301 became rare after the World Trade Organization (WTO) was established in 1995. This is mainly because the United States, under the Clinton administration, committed to following WTO procedures and law in its application of Section 301—bringing trade concerns that fall under the purview of the WTO agreements to the organization’s dispute settlement bodies and following their proceedings, rather than acting unilaterally. The Trump administration broke with this practice and proceeded to (self-)initiate six investigations under Section 301—nearly half of the total investigations initiated since 1997.
How Did Trump (Ab)use Section 301 to Impose Tariffs?
As indicated above, Section 301 contains several provisions that grant the president and the USTR substantial discretion for identifying, investigating, and acting against supposed unfair foreign trade practices. And once the president and the USTR decide to take action under Section 301, several procedural loopholes also undermine protections for domestic parties that are negatively affected by any trade restrictions (i.e., tariffs) imposed as a result. Specifically, Trump and USTR Robert Lighthizer exploited the following flaws in the statute:
- Section 301 grants the executive branch far too much discretion in defining an actionable foreign trade practice. The law defines such practices in a way that could technically make Section 301 applicable to virtually any foreign practice the United States finds objectionable.
- Section 301 also grants the USTR with wide discretion to determine the scope, objective, and magnitude of a Section 301 action, especially for those taken at the USTR’s sole discretion (i.e., not statutorily mandated). In the case of the investigation against China’s practices related to intellectual property, technology, and innovation, this ambiguity allowed the USTR to impose tariffs far in excess of the estimated $50 billion in annual damages supposedly caused by Chinese policies (a recent Court of International Trade ruling on this issue, if upheld, provides additional license for future abuse).
- Section 301 also provides the USTR with unchecked authority to interpret what measures or actions violate trade agreement rules and whether an issue falls under the WTO agreements. In its investigation of China’s tech- and IP-related practices, the USTR employed ambiguous language to obscure the trade rules China supposedly violated, allowing it to address the issue unilaterally—even though almost all the targeted practices are quite plainly covered by WTO rules. Furthermore, Congress has no say on whether the USTR should implement a proposed 301 action.
- Section 301 contains numerous procedural loopholes that undermine domestic parties that are negatively affected by any trade restrictions imposed under the law. These include:
- A lack of due process for such parties, such as an explicit requirement that the USTR respond to comments received or wait a set amount of time to implement a proposed action. This was evidenced by the truncated timelines of the third and fourth tranches of tariffs on Chinese imports (i.e., lists 3 and 4A).
- A lack of a requirement that an independent arbiter (such as the International Trade Commission) publish an estimate of a Section 301 action’s likely economic effects prior to its entry into force.
- A lack of rules or requirements regarding exclusions of Section 301 tariffs and the process regarding them (the exclusion process implemented for the China tariffs, unprecedented in the history of Section 301 actions, was riddled with problems and a lack of transparency).
What Reforms Should Congress Pursue?
Given the weaknesses identified above and the way the Trump administration exploited them—leading to significant economic and (geo)political damage—our paper recommends the following amendments to Section 301:
- Specify when the USTR can implement a unilateral action and set the default action as dispute settlement through the WTO or an applicable trade agreement. The law should require that the appropriateness of unilateral action be confirmed by an independent entity and that all foreign trade practices be presumed to fall under WTO rules unless specifically proven otherwise by an entity other than the USTR.
- Limit the USTR’s discretion to define an actionable unfair foreign trade practice. The law should expressly list the general categories of foreign trade policies that may be subject to unilateral action under Section 301. It should also require the USTR to detail the specific foreign laws, regulations, and practices that any unilateral action is targeting, such that the elimination of these policies would immediately terminate the action.
- Tighten language on the implementation and modification of a unilateral Section 301 action. The law should expressly require that any unilateral action taken by the USTR under Section 301 be no greater than the annual harm the targeted foreign trade practice has inflicted on the U.S. economy. Rules on subsequent modification of an action should also be changed to require that the modification strictly relate to the specific unfair foreign laws, regulations, and trade practices identified in the original Section 301 investigation rather than to foreign government retaliation or any other issue.
- Actions must sunset. Any unilateral action taken by the USTR must also be subject to a hard sunset of two years from the date that action goes into effect unless extended by a majority vote of both chambers of Congress.
- Procedural loopholes must be closed. The law should ensure proper due process protections for interested parties affected by a proposed Section 301 action, including by requiring the USTR to respond to party comments and wait a set amount of time (e.g., six months) before implementing a proposed action. The law should also require an International Trade Commission assessment of a Section 301 action’s likely economic effects prior to the action’s implementation, and it should establish a formal and transparent exclusion process once any action is implemented.
In sum, Section 301 would ideally be repealed entirely. In the alternative, Congress should correct the law’s substantive and procedural flaws to protect against future executive branch excess and reclaim some of its constitutional powers to regulate international commerce. Doing so would not only bolster global confidence in the United States, but also ensure that another president does not follow in Trump’s footsteps, with equally disastrous results.
You can read the whole paper here.
