China-US relations

Did Trump back-pedal on plan to hit China with trade sanctions?

US reportedly planned to impose measures against Beijing over its lack of help with North Korea crisis and tensions over intellectual property violations

PUBLISHED : Saturday, 05 August, 2017, 5:27am
UPDATED : Saturday, 05 August, 2017, 8:09am

US President Donald Trump may have backed away from a plan to announce trade measures aimed at forcing China to give US companies easier access to its markets.

US media, including The Wall Street Journal and Politico, said earlier this week that Trump’s aides were drawing up trade sanctions against Beijing. The Trump administration was responding, according to the reports, to a lack of cooperation from Beijing in halting North Korea’s nuclear weapons programme and tensions over intellectual property violations and market access for US companies in China.

With no China announcements from the White House by the end of the week and Trump preparing for a 17-day vacation, reports from Washington said the sanctions plan was on ice, at least temporarily. Citing unnamed sources, Politico said the trade action had been “postponed” without a new date. CNBC said the US agriculture lobby pressured US Trade Representative Robert Lighthizer to hold back as soybeans are one of the US’s biggest exports to China. Moreover, China agreed last month to open its markets to American rice for the first time.

“The decision to impose tougher trade restrictions and other economic measures as a retaliatory action on an important global player like China deserves careful, deliberate thought and planning, so I see hitting the pause button as a good thing,” said Andrew Karolyi, a finance professor at Cornell University and author of Cracking the Emerging Markets Enigma.

Trump close to decision on China trade sanctions – source

Among other reasons Trump might want to hold back is that China’s improving trade and investment relations with the EU creates the risk that Beijing would have more alternatives than the US in a prolonged sanctions war.

“We’ve seen an intensification in talks between the EU and China,” Karolyi said. “Both parties feel like there are natural synergies, including a number of big infrastructure spends [related to Beijing’s Belt and Road Initiative] that are good for EU members.”

China and the EU discussed a range of trade issues during the Seventh EU-China Strategic Dialogue in Beijing in April. The talks were co-chaired by EU foreign policy chief Federica Mogherini and China’s top diplomat and state councillor, Yang Jiechi.

Meanwhile, the first Sino-US Comprehensive Dialogue ended abruptly last month, with both sides cancelling press conferences. High-level US and Chinese officials including Vice-Premier Wang Yang and US Treasury Secretary Steven Mnuchin had gathered in Washington to find ways to rebalance their trade relationship.

Still, pressure from some US government bodies and business associations, which predates the president’s tenure, has been building for years and won’t likely end with whatever convinced Trump to hold back this week.

The US Federal Trade Commission warned Congress about China’s IP protection practices last year, after determining that efforts to advise Beijing to avoid opaque procedures with respect to its antitrust regulations had largely failed.

Trump weighs new sanctions against China to pressure Beijing to halt North Korea threat

“China’s agencies are pursuing non-competition objectives through competition enforcement to promote either certain industries or particular Chinese competitors,” the FTC said in a prepared statement to a subcommittee of the US House of Representatives in June 2016.

“We recognise that the pursuit of competition enforcement without procedural safeguards or based on opaque, non-competition standards undermines the legitimacy of antitrust enforcement around the world. Many of the concerns about IP-related antitrust enforcement have been focused on China,” the FTC statement said.

Requirements Chinese regulators place on foreign companies looking to market or license their IP is becoming an increasingly sensitive issue because tech innovations have become key differentiators for all industries, including manufacturing, health care, transport and energy.

Companies with easier market access in an economy the size of China’s are better positioned to become competitive globally.

Under the terms of China’s entry into the World Trade Organisation in 2001, the country was allowed to limit foreign ownership of companies in key industries including telecommunications and auto manufacturing. These limitations forced many foreign companies into joint ventures with Chinese entities, many of them state-owned, effectively a form of technology transfer.

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US government negotiators agreed to these allowances because Chinese companies weren’t competitive internationally at the time. US companies and government officials largely approved of these terms to gain access to Chinese markets.

The growth of companies like Huawei, now a global manufacturer of telecommunications networking equipment and a competitor to US companies like Qualcomm and Cisco, underscores how the 2001 scenario has changed.

China also limits foreign participation through restrictive licensing and requirements to submit source code to regulators on national security grounds. These measures have earned China the Organisation for Economic Co-operation and Development’s lowest ranking among G20 countries in terms of regulatory restrictiveness when it comes to foreign direct investment.

China received a score of 0.33 on the body’s most recent FDI Regulatory Restrictiveness Index, compared with 0.09 for the US.

Citing China and other countries, the Washington-based US Chamber of Commerce said in a report issued earlier this year: “Many jurisdictions do not appreciate the unique demands of economic analysis and competition law enforcement in [tech-related] industries.”

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Problems that arise when authorities rely on protectionist instincts rather than objective economic analysis when drafting competition regulation “are compounded in complex, novel and dynamic industries – precisely those industries that generate and apply the most innovative technologies and business models, where incentives to invest in IP play a particularly important role,” the report said.

The timing of Trump’s plan to sanction Beijing is also complicated because of moves by lawmakers in Washington to clamp down on investments by Chinese companies in the US.

The US-China Economic and Security Review Commission’s most recent report to the Committee on Foreign Investment in the United States (CFIUS), an intra-agency government body, recommended tighter restrictions on state-owned Chinese companies looking to buy US technology, potentially blocking Chinese companies from US assets they’re most inclined to acquire.

US Senate Majority Whip John Cornyn and Senate Minority Leader Chuck Schumer are writing legislation to strengthen the authority of CFIUS, a body led by the US Treasury, which can recommend that the president block foreign deals on national security grounds.

“In the intellectual property category, this is an issue that we have been discussing for over 20 years, and the commitments or concessions at this stage have to be very specific,” said Deborah Lehr, senior fellow at the Paulson Institute, a Chicago-based think tank founded by former US Treasury Secretary Henry Paulson.

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In the last 10 years, Lehr added, China has accomplished a lot of reform, but it has opened up only somewhat to foreign firms. “When Chinese companies have become global players, they can withstand the competition,” she said. “There is a lot of room for improvement.”

China’s Ambassador to Washington, Cui Tiankai, said that during the Comprehensive Economic Dialogue in Washington, the two sides agreed on a “commitment to conduct the economic relations and manage possible differences through dialogue and coordination rather than confrontation”.

“Both sides recognise that while dialogues may not solve all problems at once, confrontation will lead nowhere,” Cui said last month at a conference sponsored by the Institute for China-America Studies, a Washington-based think tank.