Trade case to take aim at Chi­nese

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - KEITH BRAD­SHER

WASH­ING­TON — The White House is pre­par­ing to open a broad in­ves­ti­ga­tion into China’s trade prac­tices, ac­cord­ing to peo­ple with knowl­edge of the 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 tech­nolo­gies.

The move, which could come in the next sev­eral days, sig­nals a shift by Pres­i­dent Don­ald Trump’s 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 pur­ported Chi­nese vi­o­la­tions of U.S. in­tel­lec­tual prop­erty, ac­cord­ing to three peo­ple with 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. China’s ex­port sec­tor still con­trib­utes heav­ily to its eco­nomic growth de­spite ef­forts to di­ver­sify its econ­omy, and China rep­re­sents a lu­cra­tive mar­ket for U.S. au­tomak­ers, tech­nol­ogy com­pa­nies such as Ap­ple Inc., farm­ers and many oth­ers.

China’s in­dus­trial am­bi­tions — and the grow­ing frus­tra­tion among U.S. com­pa­nies do­ing business there — have be­come harder for U.S. of­fi­cials to ig­nore.

China’s push 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 Trump’s ad­min­is­tra­tion. The pol­icy, known as Made in China 2025, sets goals for China to be a global leader in 10 fields with the help of huge in­fu­sions of state money and the pro­tec­tion of those in­dus­tries from U.S. com­peti­tors.

At the same time, the Chi­nese gov­ern­ment has de­manded that U.S. 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 such as 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, a Bei­jing re­search group, said the Chi­nese gov­ern­ment would study any U.S. 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 WTO rules, not Amer­i­can do­mes­tic law,” He said.

De­spite his rhetoric dur­ing the pres­i­den­tial cam­paign, Trump has dan­gled the prospect of smoother trade re­la­tions with China in ex­change for its help in con­tain­ing North Korea. In May, the two sides claimed mod­est progress when they reached a trade deal that largely bol­stered agree­ments reached dur­ing Pres­i­dent Barack Obama’s ad­min­is­tra­tion.

Then the ef­forts be­gan to founder.

Of­fi­cials from both coun­tries met July 19 to pro­duce a se­ries of trade deals in re­sponse to Trump’s meet­ing three months ear­lier with Chi­nese Pres­i­dent Xi Jin­ping at Trump’s Mar-a-Lago re­sort, ad­min­is­tra­tion of­fi­cials and trade pol­icy ad­vis­ers said. The two sides couldn’t 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.

Un­der the process that the Trump ad­min­is­tra­tion plans to set in mo­tion, the Of­fice of the U.S. Trade Rep­re­sen­ta­tive will start an in­ves­ti­ga­tion into China’s trade prac­tices. Af­ter 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 U.S., or take other mea­sures. The process is known as a Sec­tion 301 in­ves­ti­ga­tion, cit­ing a sec­tion 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 eco­nomic out­put. Those ex­ports have cre­ated tens of mil­lions of jobs in China and prompted busi­nesses to shift thou­sands of fac­to­ries to China along with much of their new­est tech­nol­ogy. U.S. ex­ports to China are much smaller, rep­re­sent­ing about two-thirds of 1 per­cent of the U.S. econ­omy.

U.S. 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 U.S. trade of­fi­cials, for fear that Chi­nese gov­ern­ment min­istries may re­tal­i­ate against them.

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

The most re­cent Sec­tion 301 case was in 2010 and was in­sti­gated by a la­bor union, the United Steel­work­ers, 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 those 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 in­clud­ing Wal-Mart that rely heav­ily on sell­ing goods im­ported from China.

Un­til a cou­ple of 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 Ron­ald Rea­gan ad­min­is­tra­tion and the ad­min­is­tra­tion of Pres­i­dent Ge­orge H.W. Bush. Robert Lighthizer, Trump’s re­cently con­firmed U.S. trade rep­re­sen­ta­tive, was a deputy trade rep­re­sen­ta­tive in the Rea­gan ad­min­is­tra­tion and has been an ad­vo­cate of shield­ing the U.S. in­dus­trial base from gov­ern­ment-as­sisted for­eign com­peti­tors.

But the cases back 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 Bown, a se­nior fel­low at the Peter­son In­sti­tute for In­ter­na­tional Economics in Wash­ing­ton.

The New York Times/GIULIA MARCHI

A worker stands in the body shop of a Ford plant in Hangzhou, China, in April. China rep­re­sents a lu­cra­tive mar­ket for U.S. au­tomak­ers, tech­nol­ogy com­pa­nies such as Ap­ple Inc., farm­ers and many oth­ers, and any ef­fort by the Trump ad­min­is­tra­tion to pun­ish China over its trade prac­tices could harm the coun­tries’ trade re­la­tion­ship.

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