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Trump Administration Is Said to Open Broad Inquiry Into China’s Trade Practices

Tuesday,Aug 01, 2017

President Trump with President Xi Jinping of China at Mar-a-Lago in Palm Beach, Fla., in April.CreditDoug Mills/The New York Times

WASHINGTON — The White House is preparing to open a broad investigation into China’s trade practices, according to people with knowledge of the Trump administration’s plans, amid growing worries in the United States over a Chinese government-led effort to make the country a global leader in microchips, electric cars and other crucial technologies of the future.

The move, which could come in the next several days, signals a shift by the administration away from its emphasis on greater cooperation between Washington and Beijing, in part because administration officials have become frustrated by China’s reluctance to confront North Korea over its nuclear and ballistic missile programs.

The investigation will focus on alleged Chinese violations of American intellectual property, according to three people with a detailed knowledge of the administration’s plans. The people spoke on the condition of anonymity because the deliberations were not yet public.

Any move by the Trump administration to punish China over its trade practices would raise tensions within the world’s largest trade relationship between two countries. China’s export sector still contributes heavily to its economy growth despite Beijing’s efforts to diversify its economy, and China represents a lucrative market for American automakers, technology companies like Apple, farmers and many others.

Still, China’s industrial ambitions — and growing frustration among American companies doing business there — have become harder for United States officials to ignore.

China’s policy to become a leading manufacturer by 2025 in the fields of driverless cars, medical devices, semiconductors, artificial intelligence, robotics and many other technologies has caught the attention of officials in President Trump’s administration. The policy, known as Made in China 2025, sets goals for China to be a global leader in 10 fields of industry with the help of huge infusions of state money and the protection of those industries from American competitors.

At the same time, the Chinese government has demanded that American companies cut the licensing fees that they charge for key patents and has insisted that companies set up joint ventures to do business in China.

In recent months, citing cybersecurity concerns, Chinese officials have said international technology companies like Apple, Amazon and Microsoft must set up China-based data centers if they want to do business there. Chinese officials have also demanded that Western automakers move much of their research into electric cars to China if they want to qualify for large subsidies.

Chinese officials did not immediately respond to requests for comment. He Weiwen, a former Commerce Ministry official and longtime trade expert who is now a senior fellow at the Center for China and Globalization (CCG), a Beijing research group, said that the Chinese government would study any American trade case before deciding how to respond and whether to seek intervention from the World Trade Organization, which hears trade disputes.

“China thinks that the bilateral trade relation is governed by W.T.O. rules, not American domestic law,” Mr. He said.

Despite his harsh rhetoric during the presidential campaign, Mr. Trump has dangled the prospect of smoother trade relations with China in exchange for helping contain North Korea. In May, the two sides claimed modest progress when they reached a trade deal that largely bolstered agreements reached during the Obama administration.

Then the policy began to founder.

The two sides met on July 19 to produce a series of trade deals that could be portrayed as an “early harvest” in the three months following Mr. Trump’s meeting with President Xi Jinping of China last spring at Mar-a-Lago, Trump administration officials and trade policy advisers said. The two sides were unable to agree on any deals that went significantly beyond what China had previously promised the Obama administration, they said. Both sides ended up abruptly canceling the news conferences they had scheduled to discuss what were supposed to have been their accomplishments.

China has also publicly dismissed linking trade and North Korea policy and defended its efforts to improve intellectual property protections. “China highly emphasizes intellectual property protection and has taken many effective measures,” said Sun Jiwen, a Commerce Ministry spokesman, in May following criticism from American trade officials.

Under the process that the Trump administration plans to set in motion, the Office of the United States Trade Representative will start an investigation into China’s trade practices. Following the investigation, which could be completed in as little as a few months, the United States could impose steep tariffs on Chinese imports, rescind licenses for Chinese companies to do business in the United States, or take other measures. The process is known as a Section 301 investigation, after the relevant portions of the 1974 Trade Act.

Much is at stake for both sides. Exports to the United States represent more than 4 percent of China’s entire economic output. Those exports have created tens of millions of jobs in China and prompted multinationals to shift thousands of factories to China along with much of their latest technology. American exports to China are much smaller, representing about two-thirds of 1 percent of the American economy.

American companies have tended to supply the Chinese market using factories and staff in China, instead of exports from the United States. But their profits from the Chinese market are large enough that many corporate executives have been loath to cooperate with United States trade officials, for fear that Chinese government ministries may retaliate against them.

The potential impact of the American investigation is unclear at this early stage. Still, previous cases suggest their effect on China’s industrial ambitions may be limited.

The last Section 301 case was in 2010 and was initiated by a labor union, the United Steel Workers, instead of by the government, as the Trump administration is preparing to do. The case focused on Chinese business practices in the solar panel and wind turbine industries, and the Chinese government later promised to limit some of these practices.

But China’s solar and wind turbine industries have gone on to dominate their global industries, after receiving multibillion-dollar loans from China’s state-controlled banking system despite major defaults on earlier loans.

Mindful of those limits, Congressional Republicans discussed in recent months whether to include what is known as a border adjusted tax, which would penalize all imports while benefiting exports, in their plans to overhaul the tax code this year. But the proposed tax ran into heavy opposition from retailers like Wal-Mart that rely heavily on selling goods imported from China.

Until a couple weeks ago, it had looked as though the first industry on which the Trump administration would confront China would be steel. But any move to punish Chinese steel imports could hit other nations, too, and the Trump administration decided last month to rely instead on negotiations among the Group of 20 member countries scheduled for August and November.

The United States used Section 301 energetically against other countries during the Reagan administration and the administration of President George Bush. Mr. Lighthizer was a deputy United States trade representative in the Reagan administration and has been an advocate of shielding the American industrial base from government-assisted foreign competitors.

But the cases then thoroughly antagonized America’s trading partners.

“It was really the aggressive uses of this in the late 1980s and early 1990s that prompted the rest of the world to set up the dispute resolution system” of the World Trade Organization, said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics here. (By KEITH BRADSHER)

From ,2017-08-01
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