Does The EU Need Its Own Section 301 To Counter China's Distortions?
Recently, economists Sander Tordoir and Brad Setser suggested that the EU may need its own version of Section 301 in order to "confront China’s systemic distortions beyond piecemeal trade defence." Here's the case they made:
A European 301
Safeguards are meant to be strictly temporary and time-bound, thereby buying breathing space, but they do not obviate the EU’s lack of a true instrument to respond to China’s economy-wide distortions. The EU needs an instrument to penalise large countries with unbalanced domestic economies, closed domestic markets and an unhealthy reliance on a rising trade surplus for growth that they cannot generate at home. The EU’s anti-coercion instrument (ACI) is powerful but too sweeping – its use should be restricted to actual instances of coercion (for example supply restrictions aimed to force changes in European policy) rather than for sectoral self-defence. The EU needs a tool to occupy the space in between, and the Commission is mulling launching legislation to build it.40
One promising model is America’s Section 301 of the 1974 Trade Act. It allows Washington to investigate and respond to a wide set of foreign practices deemed unreasonable or discriminatory, even when they do not fit narrowly within WTO case law. That makes it a much stronger instrument than classic anti-dumping or anti-subsidy cases: it does not require the US to prove firm-level subsidies, or litigate one product at a time. Instead, the US can impose targeted tariffs on entire sectors and keep them in place for as long as the underlying distortion persists. Washington has used Section 301 across a wide range of disputes, from intellectual property theft and forced technology transfer to industrial overcapacity and forced labour. Currency practices can also fall within its scope: in 2021, the US trade representative (USTR) used Section 301 to challenge Vietnam’s excessive foreign exchange intervention and competitive devaluation.41
The EU should use the Commission’s trade defence review to build a European equivalent. A European 301-type instrument would allow Brussels to respond to systemic distortions that fall outside traditional trade defence – notably China’s persistent currency undervaluation and macroeconomic policies that generate demand externally while suppressing it at home. A 301 does not imply indiscriminate tariffs on all Chinese imports, but flexibility to apply a remedy on key sectors. A 301-style tool would let Brussels flexibly target precisely the sectors that matter most – autos, machinery, chemicals, batteries, clean tech and the semiconductors to build them.
That is likely to be an easier sell than the call of France’s national planning office for a broad 30 per cent tariff on all Chinese imports. It is far easier to keep Germany, the Nordics and business on board if Europe is defending machine tools and cars rather than raising prices on toys, consumer goods and in other sectors where it has little production and little strategic interest. A China-specific EU 301 measure is also easier to defend with trade partners than a broad de facto withdrawal of most-favoured-nation treatment, the cornerstone equal-treatment principle of the WTO. While ideally a 301 would provide the basis for a negotiated change in policy, US 301s are not time-bound and thus a European equivalent would allow Brussels to defend itself for as long as the China shock endures. One possible bargain with China would be that Beijing revalued the yuan in exchange for the EU dropping its 301.
I think this is a bad idea for three reasons: (1) It is unlikely to change China's practices, (2) there are better options for doing so, and (3) it will undermine the rule of law in international trade. Let's take a look at each one.
Section 301 hasn't been very effective against Chinese practices
If changing China's practices is the objective, it is worth noting that the U.S. tried this with Section 301 and it has not gone very well. Pursuant to a Section 301 investigation that was started in the early part of Trump's first term, the U.S. imposed tariffs on Chinese imports in order to address "China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation." How did those Section 301 tariffs work out? In 2024, the Biden administration conducted a review of the tariffs, and its assessment of their impact does not provide a ringing endorsement. While it claimed that "the imposition of section 301 tariffs, or threat thereof, has induced China to take steps toward eliminating some of its technology transfer-related acts, policies, and practices," it also acknowledges that the situation actually got worse in some ways:
China has not eliminated many of its technology transfer-related acts, policies, and practices. Instead of pursuing fundamental reform, the Chinese government largely took superficial measures aimed at addressing negative perceptions of its technology transfer-related acts, policies, and practices. At the same time, China has persisted and even become more aggressive, particularly through cyber intrusions and cybertheft, in its attempts to acquire and absorb foreign technology, which further burden or restrict U.S. commerce.
The USTR report provides a lot of details that are worth reading in full to get a sense of all this, but at best the outcomes seem like a mixed bag.
Could the EU use a version of Section 301 more effectively against China than the U.S. was able to do? This is one of those questions where an "anything is possible" answer seems appropriate, but the practical reality is that an effective use of a Section 301-type mechanism by the EU on these issues seems unlikely. Sander and Brad probably need to grapple a bit with the lack of success under Section 301 on these issues if they want to convince people in the EU to try this approach.
I would also note here that some people may not be looking to change China's practices, but rather just want to impose broad tariffs on Chinese imports. For those people, the outcomes related to China's practices are not the main point. Here, though, Sander and Brad say that "[o]ne possible bargain with China would be that Beijing revalued the yuan in exchange for the EU dropping its 301"; they also talk about keeping the tariffs in place "for as long as the underlying distortion persists"; and they say "ideally a 301 would provide the basis for a negotiated change in policy." I take all this to mean that, unlike some other advocates of a Section 301-style approach, Sander and Brad are hoping for a change in China's practices, which means the outcomes on these issues matter.
There are better options than Section 301
Second, on possible alternatives to Section 301, I'm not totally clear on the full scope of the Chinese practices Sander and Brad want to address, but I'll note two main items they mention: (1) "persistent currency undervaluation," and (2) "macroeconomic policies that generate demand externally while suppressing it at home." On the first one, I think there may be a better approach, although it is totally untested; on the second one, I would say there are two parts to this, with one part having a better option available and the other one possibly too difficult to deal with anywhere.
On currency undervaluation, I would encourage Sander and Brad to look at GATT Article XV:4, which says:
Contracting parties shall not, by exchange action, frustrate* the intent of the provisions of this Agreement, nor, by trade action, the intent of the provisions of the Articles of Agreement of the International Monetary Fund.
The word "frustrate" is intended to indicate, for example, that infringements of the letter of any Article of this Agreement by exchange action shall not be regarded as a violation of that Article if, in practice, there is no appreciable departure from the intent of the Article. Thus, a contracting party which, as part of its exchange control operated in accordance with the Articles of Agreement of the International Monetary Fund, requires payment to be received for its exports in its own currency or in the currency of one or more members of the International Monetary Fund will not thereby be deemed to contravene Article XI or Article XIII. Another example would be that of a contracting party which specifies on an import licence the country from which the goods may be imported, for the purpose not of introducing any additional element of discrimination in its import licensing system but of enforcing permissible exchange controls.
This obligation has a non-violation nullification or impairment feel to it. If you are concerned with a WTO Member's currency practices, I think this provision is worth exploring, although doing so would break new ground and it's hard to say how a WTO panel or the MPIA would interpret and apply it.
On the macroeconomic policies, I think here they have in mind both subsidies and various policies that lead to low consumer demand. For the latter, I'm skeptical that Chinese consumer demand is going to change much, although I confess I'm not sure what would happen to consumer spending if, say, China instituted a stronger safety net. In my view, though, pressuring other countries to change how they run their safety nets, or their fiscal policies more generally, is probably not going to have much impact. (I would also note here that some people accuse Germany of engaging in the same sorts of practices, although Sander and Brad do argue that Germany has shifted gears recently.)
Turning to subsidies, if the goal is for China to rein these in, I would suggest a WTO complaint based on the SCM Agreement adverse effects provisions. A neutral ruling based on international adjudication of the issues is much more likely to convince China to change its practices than approaches such as countervailing duties or tariffs under a Section 301-style mechanism, which will be seen as unilateral protectionism and probably lead to retaliation.
Sander and Brad talk about using a European Section 301 to address issues that "do not fit narrowly within WTO case law." I'm not sure why they refer to "WTO case law," rather than just WTO law, but as set out above, it's clear there are WTO obligations that on their face could apply here. It seems to me that it would be worth bringing complaints under these provisions and see how they go.
The rule of law still matters
Finally, there is the rule of law issue. Sander and Brad don't have anything to say about whether a European Section 301 could be used against China consistently with WTO rules. There are, of course, arguments about how it might be consistent (some sort of Article XX defense?), but these arguments tend not to be very persuasive. The EU has been a strong defender of the rule of law in international trade in recent years, and most EU leaders believe they benefit from such a system and are currently seeking to maintain it in the face of ongoing attacks. If they decide to turn away from it, a lot will have been lost. And if they don't even get anything out of this in terms of changes to China's practices, the new approach definitely does not seem worth it.