The Donald Trump administration’s landmark decision to confront China’s unfair and illegal practises is the opening salvo of the key economic battle of the 21st century and part of a worldwide struggle that the United States must lead.
The Chinese government’s strategy to amass control of critical technologies while undermining the rules-based trade system built by the US and its partners will be hard to combat. Exactly how the administration plans to tackle the task remains unclear, but the implications of that long-term project reach far beyond the short-term battle over tariffs or deficits now brewing between Washington and Beijing.
The administration of US President Trump is now basing American policy on a recognition that the massive scale of China’s technology transfer effort cannot be addressed with the usual levers of trade policy. That means the US and other countries will have to respond with new tools and a new attitude.
US Trade Representative Robert Lighthizer released the results of a months-long investigation by his office meant to form the basis of the new US response. Its findings confirm what academics and the private sector have long known. His office estimates that Chinese illicit practices rob the US economy of at least $50 billion (Dh183.9 billion) annually. A bipartisan commission chaired by retired Admiral Dennis Blair and former Utah governor Jon Huntsman estimated the loss to the US economy due to intellectual property theft overall to be between $225 billion and $600 billion annually. The commission’s 2017 report named China as the “principal IP infringer”.
The administration plans new tariffs and will bring a case against China at the World Trade Organisation regarding discriminatory licensing practises. But officials told me that the real game changer is yet to come, saying that the administration will soon announce restrictions on Chinese investment in a range of technology and other critical sectors.
While the specific actions haven’t been finalised, expect executive actions aimed at preventing Chinese state-controlled companies from swallowing up US technology firms, stopping US companies from handing over key technologies to China and working to persuade other western countries to do the same.
The Senate is sitting on legislation to reform the Committee on Foreign Investment in the US to cover new industries and fix loopholes. The administration is already increasing actions to prevent foreign firms from purchasing US companies crucial to our technological infrastructure or that control personal information of Americans.
Make no mistake, these are deviations from normal practice to single out China — for good reason. For one, Chinese firms are increasingly connected to the Chinese government, serve the political objectives of the Chinese Communist Party and are the beneficiaries of massive subsidies and protectionist benefits given by Beijing. In essence, China has politicised its entire economy.
There was a belief that China would develop a private economy that would prove compatible with the World Trade Organisation (WTO) system. Chinese leadership has made a political decision to do the opposite. So now we have to respond.
Given the stakes and risks, the next US moves must be smart and strategic. If this really is the economic battle of the future, the US needs allies in the fight. Alienating partners with tariffs on steel and aluminium at the start of this journey was a counterproductive distraction. European countries face the same threat from China, but need to be brought along via positive US engagement. Persuading them to join America’s new WTO case would be a good start.
Overreach is also a risk. Some Chinese investment in the US is positive, and defining which sectors to protect is key. The US must not embrace protectionism for its own sake. Extreme ideas like banning Chinese students from American university science and technology programmes feed the false notion that the US is against the Chinese people. America’s issue is with the Chinese Communist Party. There must also be a dialogue with Beijing to offer it the opportunity to change its behaviour, abide by its international commitments and build reciprocity into the US-China economic relationship.
This new effort to prevent China from unfairly moving to dominate the industries of the future is complex, risky and sure to have unintended consequences that will have to be managed over time. But the future of our economy depends on its success.
— Washington Post
Josh Rogin is a columnist for the Global Opinions section of the Washington Post. He writes about foreign policy and national security.