Section 301 trade probes put China in U.S. crosshairs ahead of Xi-Trump meeting

Less than three weeks before a high-stakes summit in Beijing, the United States has launched sweeping trade investigations that put China squarely in the crosshairs, adding a new layer of friction to an already complicated relationship.

Investigations to be carried out within the scope of Article 301 of the Commercial Code dated 1974, aim to define Unfair trade practices, especially structural overcapacity and production in manufacturing sectors.

Dan Wang, China director at political consultancy Eurasia Group, said the 301 investigation clearly targets China, given its well-documented problems with overcapacity and forced labor, while casting a wide net against a dozen trading partners.

“The United States needs to pose a credible threat on tariffs because they remain Trump’s biggest leverage tool,” Wang said, although Beijing was likely not surprised by the escalation, as Trump’s negotiating position has been weakened by military aggression in Iran.

“Maximizing influence ahead of major bilateral meetings now seems standard,” he said.

The investigations follow the US Supreme Court’s decision last month to strike down Trump’s “reciprocal” tariffs; This decision limited Trump’s ability to impose tariffs at his own discretion, giving China an advantage ahead of the summit.

The Trump administration is “turning to other tools to pursue its tariff agenda… [tariff] “This is clearly a card Trump wants to keep in his pocket for negotiations,” said Lynn Song, chief economist at ING Bank.

Section 301 allows the president to impose taxes without congressional approval on countries found to engage in unfair trade practices. Trump has repeatedly accused China of tolerating unfair trade practices dating back to his first term as president, when he invoked Section 301 to raise tariffs.

Meanwhile despite this criticism China’s export machine continued to operate at full throttle against the excessive dependence of global trade partners, including the United States, on foreign demand. China’s exports increased by 21.8% in the first two months compared to the previous year, bringing the trade surplus to a record level of $213.6 billion.

The trade investigations add new uncertainty to an already complex diplomatic environment and fragile trade truce between the world’s two largest economies; The gap between both sides’ agendas for the summit is widening.

“It’s unclear what’s on the table for both sides to discuss, and the summit is fast approaching,” said Deborah Elms, head of trade policy at the Hinrich Foundation.

“If additional investigations are launched targeting forced labor practices and China is named… Beijing will get worse and at least not want to settle with an administration that is not stable,” he told CNBC’s “China Connection” program on Thursday.

The investigation comes as U.S. actions against Iran put China’s energy supplies at risk and further complicate Beijing’s calculations regarding bilateral talks.

Alfredo Montufar-Helu, managing director of Ankura Consulting in Beijing, said that although China was temporarily insulated by its strategic oil and gas reserves, it was not immune to prolonged supply chain disruptions from the Strait of Hormuz.

“A volatile external environment is exactly the opposite of what policymakers in Beijing need right now,” Montufar-Helu said. he said.

The U.S. and Israeli strikes that killed Iran’s Supreme Leader Ayatollah Ali Khamenei drew sweeping retaliation from Tehran, which moved to close the Strait of Hormuz, a waterway that carries roughly one-fifth of the world’s oil supply.

China, a major buyer of Iranian crude oil, sent a special envoy to the region to mediate and called for an immediate ceasefire and a return to diplomatic negotiations.

Trump will be in China from March 31 to April 2 for a meeting with his Chinese counterpart Xi Jinping, the first visit by an American president since his last visit in 2017. Trade negotiators from both sides reportedly It is planned to meet in mid-March to lay the foundations of the leaders’ summit.

The meeting is expected to yield limited progress as both sides seek to maintain the stability that has marked bilateral relations since late last year.

“We should not expect a fundamental reframing of bilateral relations,” Montufar-Helu said. “Maintaining the stability achieved in Busan is in itself an excellent result.”

Chinese Foreign Minister Wang Yi struck a conciliatory tone at a news conference on Sunday, saying both sides should “create a favorable environment” for the summit and “eliminate unnecessary disruptions.”

Washington will likely push for an extension of commitments for agricultural purchases, including soybeans and aircraft, and assurances that China will not restrict rare earth exports, analysts say.

Deliveries are narrowing toward commercial purchases like soybeans rather than a grand bargain, Elms said, and he expects the two leaders to frame the meeting as the beginning of a longer set of talks that will unfold through the rest of 2026.

China, for its part, will likely seek clarity on the course of US technology export restrictions. “Beijing will essentially ask how high the fence will be and how big the garden will be,” Montufar-Helu added.

The possibility of American executives accompanying Trump on his trip to Beijing also seems to be diminishing, indicating how much the expectations for the summit have diminished.

“With each passing day, the chances of an official CEO delegation joining the president’s trip are diminishing,” Han Lin, China Country Director for The Asia Group, told CNBC on Thursday. he said. “Few CEOs were invited, and probably even fewer agreed to come, given how little time was left.”