Section 301 trade investigation puts China in US crosshairs ahead of Xi-Trump meeting

With a high-stakes summit in Beijing less than three weeks away, the United States has launched a sweeping trade investigation that puts China squarely in its crosshairs, adding a new layer of friction to an already complicated relationship.

The investigation, conducted under Section 301 of the Trade Act of 1974, aims to identify unfair trade practices, particularly structural overcapacity and production in manufacturing.

Dan Wang, China director at political consultancy Eurasia Group, said while the 301 investigation cast a wide net across more than a dozen trading partners, it clearly targeted China given its well-documented problems such as overcapacity and forced labor.

Beijing was likely not surprised by this escalation, as President Trump’s negotiating position has been weakened by the military invasion of Iran, but “the United States remains President Trump’s biggest pressure tool, so we need to establish a credible threat on tariffs,” Wang said.

“Maximizing influence before major bilateral meetings now appears to be standard behavior,” he said.

The investigation follows the U.S. Supreme Court’s decision last month to cancel President Trump’s “reciprocal” tariffs, which limited his ability to impose tariffs at will and increased China’s influence ahead of the summit.

Lin Song, chief economist at ING Bank, said the Trump administration is “pivoting to other tools to continue tariff policy…(Tariffs) are clearly a card that President Trump wants to have in his pocket for negotiations.”

Section 301 allows the president to impose taxes on countries found to have engaged in unfair trade practices without Congressional approval. President Trump has repeatedly accused China of indulging in unfair trade practices dating back to his first term as president, when he invoked Section 301 and imposed tariffs.

Meanwhile, despite criticism from global trading partners, including the United States, for over-reliance on foreign demand, China’s export machine continues to run at full capacity. China’s exports rose 21.8% year-on-year in the first two months, pushing its trade surplus to a record $213.6 billion.

The trade probe now adds new uncertainty to an already complex diplomatic backdrop and fragile trade truce between the world’s two largest economies, widening the gap between the two sides’ agendas ahead of the summit.

“It’s not even clear what’s on the table on both sides, and the summit is quickly approaching,” said Deborah Elms, director of trade policy at the Hinrich Foundation.

“If additional investigations into forced labor practices are opened and China is named… the Chinese government will be much worse off, and at least less likely to want to do business with a regime that is not stable,” he told CNBC’s “The China Connection” on Thursday.

The investigation comes as U.S. actions against Iran are putting China’s energy supplies at risk and further complicating Beijing’s calculations for bilateral talks.

Alfredo Montufur Hell, managing director of Ancra Consulting in Beijing, said that although China is temporarily isolated by its strategic oil and gas reserves, it is not immune to long-term supply chain disruptions arising from the Strait of Hormuz.

“An unstable external environment is exactly the opposite of what policymakers in Beijing need right now,” Montufar Hell said.

The U.S. and Israeli airstrike that killed Iran’s supreme leader Ayatollah Khamenei has been met with sweeping retaliation from Tehran, which is moving to block the Strait of Hormuz, which carries about a fifth of the world’s oil supplies.

As a major buyer of Iranian oil, China sent special envoys to the region to mediate, urging an immediate ceasefire and a return to diplomatic negotiations.

President Trump will visit China from March 31st to April 2nd to meet with Chinese President Xi Jinping, making this the first visit by a US president since Trump’s last visit in 2017. According to reports, trade negotiators from both countries are scheduled to meet in mid-March to lay the groundwork for a summit.

However, the talks are expected to yield limited results as both sides seek to maintain the stability that has characterized bilateral relations since late last year.

“We should not expect a fundamental review of bilateral relations,” said Montoufar Hell. “Maintaining the stability achieved in Busan is a great achievement in itself.”

Chinese Foreign Minister Wang Yi struck a conciliatory tone at a press conference on Sunday, saying both sides needed to “create an appropriate environment” for the summit and “remove unnecessary confusion.”

Analysts said the United States is likely to seek an extension to its commitments on purchases of agricultural products, including soybeans and aircraft, as well as assurances that China will not restrict rare earth exports.

Elms said the deliverables were likely to focus on commercial purchases, such as soybeans, rather than big deals, and that the two leaders were expected to position the meeting as the start of a long-term dialogue that would unfold over the remainder of 2026.

China will likely request clarification on the future of US technology export restrictions. “Beijing will essentially be asking about the height of the fence and the size of the garden,” Montoufar Hell added.

The chances of a top US official accompanying President Trump on his Beijing trip also appear to be fading, showing how hopes for a summit have waned.

Han Lin, Asia Group’s China country director, told CNBC on Thursday that “the chances of a formal CEO delegation participating in the presidential visit are becoming less likely with each passing day.” “Few CEOs have been invited, and given the short amount of time left, it is likely that even fewer will agree to attend.”