Why the US has a weak case against China’s ‘unfair’ trade practices

Stephen Roach says the claims of hostile trading policies that the US trade representative has made against China ignore the diminishing threat of Chinese cyberespionage and the history of industrial policy among the US and its allies

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The case made by the US trade representative is an embarrassing symptom of a scapegoat mentality that has turned America into a nation of whiners. Illustration: Craig Stephens

Published: 6:00pm, 26 Apr 2018Updated: 8:50pm, 26 Apr 2018

On the surface, US Trade Representative Robert Lighthizer appears to have made an ironclad case against China in the so-called Section 301 report issued on March 22. Laid out in a detailed 182-page document (which, with 1,139 footnotes and five appendices, would make any legal team blush with pride), the indictment of China on charges of unfair trading practices regarding technology transfer, intellectual property and innovation seems both urgent and forcing. It has quickly been accepted as foundational evidence in support of the tariffs and other punitive trade measures that President Donald Trump’s administration has initiated against China in recent months.

But don’t be fooled. The report is wide of the mark in several key areas.

First, it accuses China of “forced technology transfer”, arguing that US companies must turn over the blueprints of proprietary technologies and operating systems in order to do business in China. This transfer is alleged to take place within the structure of joint-venture arrangements – partnerships with domestic counterparts which China and other countries have long established as models for the growth and expansion of new businesses.

Significantly, US and other multinational corporations willingly enter these legally negotiated arrangements for commercially sound reasons – not only to establish a toehold in China’s rapidly growing domestic markets, but also as a means to improve operating efficiency with a low-cost offshore Chinese platform. Portraying US companies as innocent victims of Chinese pressure is certainly at odds with my own experience as an active participant in Morgan Stanley’s joint venture with the China Construction Bank (and a few small minority investors) to establish China International Capital Corporation in 1995.

Yes, as we joined our partners in creating China’s first investment bank, we shared our business practices, proprietary products and distribution systems. Yet, contrary to the assertions of the US trade representative, we were hardly forced into these arrangements. We had our own commercial objectives and wanted to build a world-class financial services firm in China. By the time we sold our stake in 2010, the bank was well on its way to attaining those goals.