Trade war not likely despite US probe

Editor’s note: The Ministry of Commerce on Monday termed US investigation into Chinese intellectual property practices “irresponsible” and “biased”. Washington’s protectionist, unilateral approach to bilateral trade issues, it said, risks undermining the progress made by both sides during earlier negotiations and sending out the “wrong signals”. Three experts share their views on the issue with China Daily’s Cui Shoufeng.

No need to panic or overreact

The exit of Steve Bannon, one of the loudest China critics and trade war proponents in the Donald Trump administration, from the White House is being read by some optimists as a “temporary” relief to Beijing. To discerning eyes, that is illusory.

Shortly before he was removed as White House chief strategist, Bannon told The American Prospect magazine that the United States and China are locked in an “existential battle” for domination of the global economy. Bannon’s White House stint ended on the same day that US Trade Representative Robert Lighthizer formally launched the investigation into so-called unfair Chinese trade practices, likely a farewell gift from the US president he advised.

With Bannon and a string of other political confidants gone, Trump will have to learn how to work with the Republican establishment and return to the “mainstream”. This is not to say Washington’s trade policymaking is in safe hands. The latest probe into intellectual property allegations targeting Beijing was bound to happen on the pretext of correcting the US trade imbalance, with or without Bannon in office.

Bannon’s endorsement of economic nationalism and white supremacy contradicts the principles of globalization and cultural diversity enshrined in US politics. His departure was a matter of time, especially after he decided to offer trade war ammunition. But he and his pro-establishment rivals in the divisive Trump administration want the same thing — Beijing’s concessions and a major cutback in Washington’s trade deficit.

Beijing is right to emphasize the role of non-government organs in bilateral trade exchanges and the need to cooperate. A “mainstream” Trump team could become more aggressive in “dealing with” the trade deficit with China, as inside the White House opinions were largely divided and undermined by Bannon’s call for a trade war. And Trump could be tempted to employ sophisticated negotiation tactics to demand his end of the bargain.

Despite the challenges, China need not panic or overreact. The Trump administration’s policymaking mechanism is still fraught with uncertainties and divisions. That said, China should keep interacting with the US trade policymakers and seek consensus on outstanding issues. It could also try to cooperate with decision-making entities outside the White House to make sure the US’ overall China policy is fully debated and balanced.

China-US relations will continue making headlines before and during Trump’s visit to China scheduled for later this year, when Beijing will get an opportunity to further explain the relationship’s reciprocal nature to the US public and media.

Negotiations still best way to end disputes

The latest US investigation into China’s intellectual property policies and practices under Section 301 of the Trade Act of 1974 is not the first of its kind. But the US has rarely used Section 301 against China after the latter’s accession to the World Trade Organization in 2001, because the WTO mechanism offers a fairer, more comprehensive solution to bilateral trade disputes.

Washington still has the right to invoke Section 301 because on the eve of the founding of the world trade body it promised to use it in line with WTO rules. In 2010, it said that it would initiate a Section 301 investigation into China’s green energy policies, yet the case was eventually settled through the WTO.

Beijing need not shy away from direct negotiation with Washington, though. It can resort to the WTO mechanism once the Section 301 probe triggers unilateral US action beyond the WTO rules, and submit a list of countermeasures to the world body. And since the world’s largest and second-largest economies are no strangers to trade disputes, China’s foreign investment management could even benefit from the latest US move if handled properly.

Washington’s major arguments, particularly on the compulsory transfer of US patent technology that neither the Chinese central government nor lower-level governments nor domestic companies require, are not subject to multilateral rules. And as it is unlikely that China has violated relevant WTO rules in this regard, it stands a better chance of winning the case through the WTO if the US decides to sanction Chinese enterprises unilaterally.

Still, if the WTO rules go against China based on the findings of the US probe, China will abide by and implement the ruling instead of shunning it. The fundamental cure to similar disputes, however, is still through negotiations under the Bilateral Investment Treaty, which has been stalled since Trump took office.

Reciprocal thinking should prevail

Intellectual property has been a constant issue in China-US trade disputes since the 1980s, a time when the US and Japan were locked in an enduring trade war over steel, intellectual property and automobiles. During those days Robert Lighthizer, incumbent US Trade Representative, established his credentials by leading a campaign of voluntary restraint agreements, countervailing duties and antidumping duties against Japanese imports. He might try to do the same against China.

Accusing Chinese enterprises of “intellectual property theft” and enjoying favorable policies vis-a-vis US companies in China, Washington has always wanted Beijing to open its financial market so that US companies could explore the A-share market. It has also expressed the wish of seeing the renminbi continuously appreciate against the US dollar, which it believes will reduce the trade deficit.

The two countries were embroiled in three major intellectual property disputes in the 1990s, but none of them involved more than $2 billion, let alone take a heavy toll on bilateral ties. A trade war is unlikely this time, too, because China has greatly strengthened its intellectual property protection mechanism. Both sides have enough time and wisdom to avoid a full-blown crisis, and China has good reason to confront the US should the latter seek to impose punitive sanctions on Chinese businesses.

Admittedly, the US has been a front-runner in intellectual property management and its knowledge economy will likely continue leading the way over the next two decades or so. So cooperative, reciprocal thinking should prevail among the decision-makersinBeijingandWashington unless tit-for-tat actions become necessary. On its part, China also needs to get rid of dubious enterprises that have violated intellectual property rights of other companies, with or without the Section 301 investigation.

Li Haidong, a professor at the Institute of International Relations, China Foreign Affairs University Cui Fan, a professor at the University of International Business and Economics, and nonresident senior fellow with the Center for China and Globalization Sun Zhe, director of the Center of China-US Relations at Tsinghua University