China threatens retaliation after US launches 3rd 301 probe

The US launched a Section 301 investigation into China's industrial production capacity on Tuesday, escalating trade tensions as Beijing warned it would retaliate against what it called "typical unilateralism" that undermines international economic order.

"The US cannot unilaterally define 'overcapacity' or impose unilateral restrictions on trading partners," Lin Weilong, director of the policy research office at China's Ministry of Commerce, said at a State Council Information Office press conference.

The probe marks the third active Section 301 action the US has initiated, following similar investigations into Vietnam and other nations over alleged excess manufacturing capacity. Vietnam, which faces three separate Section 301 actions, recorded a $178 billion trade surplus with the US in the 12 months through May — the largest monthly deficit of any nation, according to US Census Bureau data. The US has also imposed forced-labor-related tariffs on 60 economies, including Vietnam, which the foreign ministry said on Saturday did not "fully reflect the reality and Vietnam's efforts" in combating forced labor.

The investigation threatens to disrupt supply chains across manufacturing, semiconductors, clean energy, and industrial goods, potentially triggering new tariffs that could raise costs for US importers and consumers. China's commerce ministry said it reserved the right to take "necessary measures" to defend its interests, without specifying what actions it might take.

The Section 301 probe focuses on whether China's production capacity in key industrial sectors exceeds domestic demand and relies on export markets to absorb surplus output — a practice Washington argues distorts global markets. The US Trade Representative's office will examine sectors including clean energy technology, semiconductors, and industrial machinery, according to people familiar with the matter.

The last time the US deployed a Section 301 investigation against China was in 2018 under the first Trump administration, targeting intellectual property practices. That probe led to tariffs on $250 billion of Chinese goods over two years, with Beijing retaliating with duties on $110 billion of US products. Bilateral trade between the two countries fell roughly 15 percent in the year after the initial tariffs took effect, Census Bureau data show. The current average US tariff on Chinese goods stands at about 19.3 percent after multiple rounds of escalation, according to the Peterson Institute for International Economics.

Escalation Risks Mount as Talks Stall

Negotiations between Washington and Hanoi over a trade framework agreement reached in October have stalled, with the two sides unable to agree on transshipment rules and non-tariff barriers, people familiar with the talks said. US Trade Representative Jamieson Greer said earlier this month that the US is looking for "pure illegal shipment" where goods are sent to Vietnam and relabeled as Made in Vietnam with little value added.

The transshipment issue is particularly difficult, said Laura Schwartz, senior Asia analyst at Verisk Maplecroft. The pressure to reach an agreement will rise as "findings from the investigations translate into implemented tariffs," she said.

For China, the stakes are higher. The country's trade surplus with the US stood at $280 billion in 2025, according to US Commerce Department data, making it the largest bilateral imbalance Washington targets. Any new tariffs could compound pressure on Chinese manufacturers already grappling with weak domestic demand and overcapacity in sectors from steel to solar panels.

This article is for informational purposes only and does not constitute investment advice.