Trump to Ramp Up Trade Restraints on China

WASHINGTON—The White House is preparing to crack down on what it says are improper Chinese trade practices by making it significantly more difficult for Chinese firms to acquire advanced U.S. technology or invest in American companies, individuals involved in the planning said.

The administration plans to release on Thursday a package of proposed punitive measures aimed at China that include tariffs on imports worth at least $30 billion.

But the tariffs won’t be imposed immediately. Rather, U.S. industry will be given an opportunity to comment on which products should be subject to the duties. As part of the package, the White House will announce possible investment restrictions by Chinese firms in the U.S. and will direct the Treasury Department to outline rules governing investment from China.

Final details of the plan, including the amount of imports to be hit by tariffs, remain in flux, those involved with the discussions said. While the rough amount and rationale for the tariffs are expected to be disclosed on Thursday, the final decisions will come once U.S. industry has had its say, they said.

A White House spokeswoman declined to comment.

The effort stems from a months long investigation by the administration into Chinese intellectual property practices that found the damage to U.S. companies from forced technology transfer is $30 billion annually.

The administration has warned Beijing that it risked tariffs if it didn’t significantly liberalize its market and eliminate practices that disadvantage foreign firms.

While the administration’s plans to put tariffs on China have received most of the attention, it is considering other significant penalties, especially those aimed at state-owned Chinese firms. It plans to argue that Chinese state-owned firms buy U.S. technology not for commercial purposes, but to apply for military use and otherwise gain an edge in the race for global technological dominance.

The administration believes that Beijing, in requiring U.S. companies to form joint ventures to do business in China, then pressures them to transfer important technology to their Chinese partners. The U.S. also contends Beijing improperly subsidizes Chinese companies looking to overtake U.S. rivals in such advanced technologies as semiconductors, artificial intelligence and robotics.

Chinese officials have said that they are improving their protection of intellectual property and liberalizing their economy. They also complain that the U.S. hasn’t given them a specific list of demands that they need to meet to head off tariffs.

The country’s responses to challenges from President Donald Trump loomed large as China’s leaders closed out an annual political gathering on Tuesday.

Premier Li Keqiang, the titular No. 2 leader, struck a conciliatory tone on trade with the U.S. At a news briefing in Beijing’s Great Hall of the People, Mr. Li said “there are no winners” in a trade war between the world’s two largest economies, and appealed for calm.

People involved in the planning say the Trump administration is looking at making reciprocity the core of U.S. investment relations with China, meaning that the U.S. would impose restrictions on Chinese investment similar to those that U.S. firms face in China. That could mean that the U.S. would insist that Chinese firms form joint ventures before doing business in the U.S., unless China dropped those restrictions.

The U.S. has already made it more difficult for Chinese companies to invest in the U.S. by blocking Chinese bids to purchase U.S. semiconductor firms. That is done by an interagency review of foreign acquisitions by the Committee on Foreign Investment in the U.S. Congress is looking to broaden CFIUS reviews of acquisitions so they include joint ventures too.

The expansion would include reviews of technology transfers to foreigners and could apply to joint ventures both outside and within the U.S. But CFIUS looks solely at national security concerns. The administration wants to address economic harm as well, according to these people.

Any imposition of tariffs, without going first to the World Trade Organization, is sure to prompt a chorus of criticism not just from Beijing but from U.S. industry, which has opposed tariffs as counterproductive. The WTO adjudicates trade cases and has the power to authorize tariffs in cases where a losing party doesn’t change its practices. The administration is also considering bringing a case against Chinese trade practices that are covered by the WTO.

Oregon Sen. Ron Wyden, the senior Democrat on the Senate Finance Committee, said he opposes the broad imposition of tariffs. “American producers who haven’t gotten a fair shake in the past aren’t going to get that back by just having tariffs slapped on imports indiscriminately,” he said.

Tariffs are bound to cause China to retaliate, said Clement Leung, Hong Kong’s representative in the U.S. Chinese officials “cannot show any weakness” at a time when the country’s leader, Xi Jinping, has just been confirmed for his second term, Mr. Leung said. Hong Kong, a trading center that operates somewhat independently from the rest of China, would be hurt by limits on trade.

Whatever the political blow back, Harvard law professor Mark Wu, a trade expert, says that the White House has authority to impose tariffs under section 301 of the Trade Act of 1974.

“In situations where the U.S. Trade Representative deems unfair trade practices to fall outside the scope of a WTO-covered agreement, then the statute permits the executive branch to take action directly without first seeking recourse through WTO dispute settlement” procedures, he said.

Frustration with Chinese trade practices has been building among both the governments and private sectors of the U.S., Japan and Europe. One reason the U.S. is considering a separate WTO case is to try to recruit allies to pressure China. But any move to impose tariffs could allow Beijing to portray itself as a victim. Coalition-building has become more complicated in the wake of a separate U.S. action to levy tariffs on steel and aluminum imports from allied nations.

For instance, finance ministers and central bankers from the Group of 20 countries, meeting in Buenos Aires on Tuesday, failed to reach any new agreement on shared principles when it comes to trade policies, as the split between the U.S. and other major economies deepened over the U.S.’s tariff policies.

The administration is considering recommendations from two other reports that would impose draconian investment restrictions on China. The U.S.-China Economic and Security Review Commission, a Congressional panel that takes a hard line on China, last year urged the administration to prohibit “the acquisition of U.S. assets by Chinese state-owned or state-controlled entities, including sovereign wealth funds.”

A report for the Pentagon by its Defense Innovation Unit Experimental, which examines technology issues, has recommended that the Pentagon pursue a policy of “deterring Chinese technology transfer” by broadening CFIUS’s mandate and strengthening export controls on technology to China.

China Investment Corp¸ Chinese sovereign-wealth fund which could get hit by sanctions, is putting together a fund targeting as much as $5 billion with Goldman Sachs Group Inc.,aimed at investing in U.S. manufacturing and other sectors. CIC hopes the fund would pass muster with U.S. regulators, say those people familiar with the plans.

It is unclear how far the administration will go in pursuing these ideas. Blocking the acquisition of all purchases by Chinese state firms, for instance, would mean that Chinese state-owned airlines couldn’t buy Boeing jets. Toughening export controls on, say, semiconductor production machinery could cede the market to Japanese vendors.

The administration’s actions on China come on the heels of plans to levy tariffs on steel and aluminum imports. Japan, Korea and the European Union are scrambling to get exemptions from those levies, which are set to go into effect on Friday.

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Author;  Bob Davis
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