Trade case to take aim at Chinese
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.
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.