Trump is reportedly set to blow a trade war with China wide open

Reuters/Carlos Barria

President Donald Trump welcomes Chinese President Xi Jinping at Mar-a-Lago state in Palm Beach, Florida.

• President Donald Trump is reportedly pushing members of his administration to come up with new tariffs and trade restrictions on China.
• The restrictions would be part of an investigation under Section 301 of the the US Trade Act of 1974 that is looking into intellectual property theft by Chinese firms.
• The move would likely spark a swift reaction from China and possibly prompt a trade war between the two countries.

President Donald Trump is pushing advisers to prepare a set of trade actions against China that would likely provoke a strong response, according to a new report.

Politico's Adam Behsudi and Andrew Restuccia reported Tuesday that during a White House meeting last week, Trump asked US Trade Representative Robert Lighthizer to prepare large-scale tariffs and trade restrictions against China as part of an investigation into intellectual property theft by the country.

Trump teased the action in a tweet on March 7.

"The U.S. is acting swiftly on Intellectual Property theft," Trump said. "We cannot allow this to happen as it has for many years!"

The trade actions would stem from an investigation launched in August 2017 under Section 301 of the the US Trade Act of 1974, which gives the president far-reaching powers to counter unfair trade practices.

Specifically with respect to China, the 301 investigation is looking into instances of intellectual property theft from US businesses. If the US determines that China is pressuring companies to domicile their patents or IP in China or disregards the licenses of US companies, Trump could respond with new restrictions.

According to Politico, Lighthizer presented a set of tariffs that would affect $30 billion in annual imports from China. Trump requested an even bigger package of restrictions. Trump is also pressuring members of the Treasury to come up with ways to limit investment by China into the US and requested options to limit Chinese visas. The announcement could come as soon as next week.

According to economists and policy analysts, using Section 301 to hit Chinese tariffs would be a monumental protectionist step by Trump.

"If 232 is the small sector-specific scalpel; 301 is the protectionist zero-sum sledgehammer," Chris Kreuger, strategist at Cowen Washington Research Group, wrote Friday.

Kreuger said broad tariffs or tariffs coupled with investment restrictions (options he calls the "big" and "ugly" scenarios, respectively) could set off a serious back-and-forth trade war between China and the US and possible fights at the World Trade Organization.

That isn't to say Chinese intellectual property theft isn't a major issue. According to a 2017 report from The Commission on the Theft of American Intellectual Property, the cost of Chinese IP theft to the US economy ranges from $225 billion to $600 billion annually.

Bu broad retaliation and a trade fight with China would likely cause serious economic uncertainty in the short-term US Chief Economist Lewis Alexander.

"For the Section 301 investigation regarding China's intellectual property violations, if President Trump's remedies result in a trade conflict with China, there would be, as we expected, overall an adverse economic impact on the US outlook," Alexander said.

The timing would also be accelerated, as Lighthizer technically has until August 18 to complete the review and offer recommendations to the president. After the recommendations, Trump would have a 90-day window to decide on a final action.

Trump's patience on trade, however, has been waning. The president could have waited until early April to decide on steel and aluminum tariffs, but instead rolled out the policy at the start of this month.