White House to prepare trade case against China

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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 US 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 US 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 Beijing’s efforts to diversify its economy, and China represents a lucrative market for US automakers, technology companies like Apple, farmers and many others.

Still, China’s industrial ambitions – and growing frustration among US companies doing business there – have become harder for US 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 Donald 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 US competitors.

At the same time, the Chinese government has demanded that US 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 centres 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.

He Weiwen, a former commerce ministry official and longtime trade expert who is now a senior fellow at the Centre for China and Globalisation, a Beijing research group, said that the Chinese government would study any US trade case before deciding how to respond and whether to seek intervention from the World Trade Organisation, which hears trade disputes.

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

Under the process that the Trump administration plans to set in motion, the Office of the US 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 US could impose steep tariffs on Chinese imports, rescind licences for Chinese companies to do business in the US, 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 US represent more than 4 per cent of China’s 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. US exports to China are much smaller, representing about two-thirds of 1 per cent of the US economy.

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

The potential effect of the US 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 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 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.

by Keith Bradsher

The New York Times

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