China’s Industrial Subsidies Make Troubles Again

United States President Joe Biden and China’s leader Xi jinping have spoken by phone for 90 minutes, in their first talks in seven months, while senior U.S. officials are debating whether to open an investigation into China’s use of industrial subsidies, in a move that could spark an escalation in trade between Washington and Beijing.

From people familiar with the matter, Katherina Tai, the U.S. trade representative, and Gina Raimondo, the U.S. commerce secretary, have considered launching a probe of China’s subsidies under section 301of the 1974 Trade Act.

What is section 301 of the 1974 Trade Act

To obtain the removal of any act, policy, or practice of a foreign government violates an international trade agreement or is unjustified, unreasonable or discriminatory, and that burdens or restricts U.S. commerce. The U.S. Trade Act of 1974 was published (last amended March 23, 2018), which authorizes the President to take all appropriate action, including tariff-based and non-tariff-based relationships. Section 301 cases can be self-initiated by the United States Trade Representative (USTR). They must seek to negotiate a settlement with the foreign country in the form of compensation or elimination of the trade barrier. Unilateral trade sanctions under section 301 were imposed on China by President Trump in March 2018, setting off the 2018 China-United States trade dispute.

According to people familiar with their plans, administration officials are considering launching an investment into Chinese subsidies under Section 301 of the U.S. trade law, which could lead to new tariffs.

Subsidies in China

According to an official report, the total among of subsidies provided by China government reach 211.6 billion RMB in 2020, increasing 33.4 billion from last year. Nearly 98% of listed companies have accepted subsidies, which rise dramatically in the semiconductor and military industry.

China experts say it is improbable Beijing would negotiate seriously on subsidies, which it sees as essential to its economic success.

WTO prohibits governments from providing subsidies for improving domestic products’ competitiveness, but WTO does not ban subsidies. Authorities amount the world provide subsidies in different industries.

If the price of export commodities is lower, importing countries cannot compete, WTO allows members to impose the anti-subsidies duty. Since the establishment of the WTO in 1995, the United States has levied anti-subsidies duty 173 times, which is the country with the most significant number, followed by the European Union, with 45 times.

• Subsidies in other areas

The U.S. and its allies have long pressed China to stop help favoured industries with subsidies, government preferences and other interventions.
Now they are beginning to copy it. Last month, the U.S. Senate voted for direct industry subsidies with little precedent: $52 billion for new semiconductor fabrication plants, called “fabs”.

Other regions have done the same. The European Union has committed to nearly doubling its global semiconductor manufacturing capacity share to 20%。 South Korea approved up to $65 billion in support for semiconductors, and Japan promised to match other countries’ semiconductors aid while planning to turn Japan into an Asian data centre hub.

• Which other countries were included on a Special 301 Report watchlist?

A Special 301 Report watchlist released by the U.S. in May 2021, except China, Argentina, Chile, India, Indonesia, Russia, Saudi Arabia, Ukraine and Venezuela are included.

Taiwan was also on the watchlist from 2001 to 2004 and was delisted in 2009.