301 Section investigation, 'a tool for advancing US hegemony'

President Trump's move is unprecedented in terms of breadth, intensity and targets, argues Zhang Monan 张茉楠 China Centre for International Economic Exchanges US and EU Centre deputy director, explaining that Section 301 investigations

• undermine the foundations of global trade rules, triggering the most serious crisis for the WTO since its establishment
  • this move fully entrenches the hegemonic logic that 'domestic law overrides international law'
    • the Trump administration disregarded the 1998 WTO ruling and the US own commitments, launching investigations on the basis of US domestic law, without WTO authorisation
    • this amounts to positioning the US as the legislator, enforcer and adjudicator of global trade, denying the WTO’s authority
  • this move undermines the already fragile WTO dispute settlement mechanism and accelerate the paralysis of the multilateral trade system
    • bypassing dispute settlement procedures and launching unilateral investigations against major trade partners, Washington is claiming that multilateral rules impose no constraints upon it, and that US domestic law is the 'supreme rule' of global trade
    • such unilateral actions set a highly damaging precedent, shifting the global trade order from a rule-based system towards a power-based one
  • this move overturns the WTO's core principles of non-discrimination and free trade, opening a Pandora's box of global protectionism
    • invoking vague and highly politicised justifications such as 'overcapacity', the US is seeking to legitimise unrestrained trade protectionism
• may trigger a global chain reaction of trade protectionism
  • this move is likely to produce immediate spillover effects
  • such unilateral coercive actions by the US will inevitably provoke retaliatory measures worldwide
    • the targets of the investigations include not only major global economies but also key US trade partners, covering over 90 percent of US goods trade
    • should the US impose punitive tariffs based on the findings, affected economies will inevitably respond
    • the PRC, the EU, Canada and Mexico all swiftly introduced countermeasures to tariffs imposed in 2018 under Section 301
    • current investigations are far broader in scope than those in 2018 and the resulting wave of retaliation and trade conflict could escalate significantly
  • this move undermines trade trust between the US and its allies, accelerating the regional fragmentation of the global trade landscape
    • the list of targets includes not only strategic competitors but also core US allies, some of which have signed bilateral economic agreements with the Trump administration
    • disregarding these agreements and launching unilateral investigations, Washington demonstrates that
      • its 'America First' trade logic now transcends alliance boundaries
      • its policies no longer distinguish between 'adversaries' and 'allies'
      • any economy with a trade surplus with the US or with industries that threaten US domestic competitiveness may become a target
    • this self-interest will erode US international credibility and trade trust, prompting allies to lose confidence in US trade policy
      • while the EU, Japan and South Korea may rely on the US for security, threats to their core industrial interests will likely accelerate their pursuit of independent trade cooperation, driving the global trade system from a US-centred unipolar structure towards a multipolar configuration characterised by regional blocs such as the EU, the Asia-Pacific and the Americas
  • this move is likely to further 'geopoliticise' global trade
    • linking economic and trade issues with ideology and geopolitics, the US is attempting to use trade sanctions as leverage to compel economies to take sides in US–PRC competition and the restructuring of global supply chains
• disrupt global division of labour across industrial chains
  • this move negates the fundamental logic of the global industrial division of labour, prompting inefficient restructuring of supply chains
    • the 16 targeted economies form a complete loop of the global manufacturing chain
      • the PRC is the only country with a full spectrum of industrial sectors
      • the EU, Japan and South Korea dominate high-end manufacturing and core technologies
      • Mexico, Vietnam, Malaysia and Indonesia act as key hubs for mid- to low-end manufacturing and industrial relocation
      • India is among the fastest-growing emerging manufacturing markets
    • targeting all critical nodes of the global industrial chain at once, the US is  launching a 'full-chain strike' on global manufacturing, leading to resource misallocation and a decline in production efficiency
  • the escalation of trade barriers resulting from the investigations will intensify global inflationary pressures and hinder the recovery of the world economy
    • the 2018 data demonstrated that over 90 percent of the cost of US tariffs on PRC goods was borne by American importers and consumers, pushing up domestic prices
    • the ongoing investigations cover a broader range of goods than in 2018
    • tariff costs will cascade through global supply chains, generating imported inflation worldwide, ultimately borne by businesses and consumers across countries
  • the investigations will heighten the risk of fragmentation in global supply chains and increase systemic vulnerability