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Abu Dhabi, UAEMonday 10 December 2018

Trump may impose $50bn in China tariffs over intellectual-property violations

The president is considering targeting more than 100 different types of Chinese goods,

President Donald Trump is set to announce about $50bn of tariffs against China over intellectual-property violations on Thursday. Evan Vucci / AP Photo
President Donald Trump is set to announce about $50bn of tariffs against China over intellectual-property violations on Thursday. Evan Vucci / AP Photo

President Donald Trump is set to announce about $50 billion of tariffs against China over intellectual-property violations on Thursday, according a person familiar with the matter.

The president is considering targeting more than 100 different types of Chinese goods, according to the person, who spoke on the condition of anonymity. The value of the tariffs was based on US estimates of economic damage caused by intellectual-property theft by China, the person said.

“Tomorrow the president will announce the actions he has decided to take based on USTR’s 301 investigation into China’s state-led, market-distorting efforts to force, pressure, and steal US technologies and intellectual property,” White House official Raj Shah said in an emailed statement on Wednesday.

It will be Trump’s first trade action directly aimed at China, which he has blamed for the hollowing out of the American manufacturing sector and the loss of US jobs. The decision comes as policy makers including the IMF managing director Christine Lagarde warn of a global trade conflict that could undermine the broadest world recovery in years.

"If Trump really signs the order, that is a declaration of trade war with China,” said Wei Jianguo, former vice commerce minister and now an executive deputy director of the China Center for International Economic Exchanges, a government-linked think tank.

"China is not afraid, nor will it dodge a trade war," Wei said. "We have plenty of measures to fight back, in areas of automobile imports, soybean, aircraft and chips. On the other hand, Trump should know that this is a very bad idea, and there will be no winner, and there will be no good outcome for both nations."

Trump instructed Trade Representative Robert Lighthizer last year to probe allegations that China violates US intellectual property. After seven months of investigation, US officials found strong evidence that China uses foreign-ownership restrictions to compel US companies to transfer technology to Chinese firms, said an official with the US. Trade Representative’s office who spoke to reporters Wednesday on condition of anonymity.

The US also suspects Beijing directs firms to invest in the US with the purpose of engineering large-scale transfers of technologies that the Chinese government views as strategic, said the USTR official. The investigation also found strong evidence China supports and conducts cyberattacks on US companies to access trade secrets, according to the official.

American officials have been raising their concerns about China’s IP practices since Bill Clinton was president, and Beijing has repeatedly failed to deliver on promises to reform, said the official, adding the administration is still open to discussing the issue with the government of President Xi Jinping. The official declined to comment on the remedies planned, emphasizing it’s Trump’s decision.

Lighthizer confirmed Wednesday the administration is considering both tariffs and curbs on Chinese investment, among other options. US companies from Walmart to Amazon have warned that sweeping sanctions against China could raise consumer prices and hit the stock market.

China is preparing to hit back at Trump’s planned sweeping tariffs with levies aimed at industries and states which tend to employ his supporters, the Wall Street Journal reported on Wednesday, citing unidentified people familiar with the matter.

“Our view is that we have a very serious problem of losing our intellectual property, which is really the biggest single advantage of the American economy,” Mr Lighthizer told lawmakers. "We are losing that to China” in a way that doesn’t reflect economic fundamentals, he said.

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Sweeping US tariffs will test the resolve of Chinese President Xi Jinping, whose government has so far reacted in a measured fashion to Mr Trump’s repeated complaints about the US’s

record $375bn deficit with China. The country’s foreign minister said earlier this month, in response to Trump’s decision to impose steel and aluminum tariffs, that China would have a “justified and necessary response” to any efforts to incite a trade war.

U.S. Planning Action Against China Over IP in ‘Very Near Future’

Chinese Premier Li Keqiang said on Tuesday that the nation will further open its economy, including the manufacturing sector, and pledged to lower import tariffs and cut taxes. In opening manufacturing further, China won’t force foreign companies to transfer technology to domestic ones and will protect intellectual property, he said.

A simulation by Oxford Economics suggests a 25 per cent US tariff on $60bn worth of Chinese exports, with comparable retaliation, would reduce China’s growth by about 0.1 percentage point this year and a little less next year, chief Asia economist Louis Kuijs in Hong Kong said in a recent note. There would be a slightly smaller impact on the US economy, he said.

“The key risk is that it does not end with this modest baseline scenario,” said Mr Kuijs, who formerly worked for the World Bank in Beijing. “More measures may follow, and tit-for-tat responses could lead to escalation. Collateral damage in other economies will be significant and could further complicate the trade friction.”

Bloomberg Economics estimates a global trade conflagration could wipe $470bn off the world economy by 2020.

The Chinese exports most at risk of protectionist measures by the US are ones that compete with US-based production and are produced via Chinese or Asian supply chains with little involvement of US firms and products. Items that fit these criteria include portions of China-made furniture, textiles, shoes, toys, as well as China-branded information technology, electronics and telecom products, said Mr Kuijs.

Mr Lighthizer has been probing China’s IP practices under section 301 of the Trade Act of 1974. The law allows Mr Lighthizer, at the president’s discretion, to take broad steps, including tariffs, to correct against any harm against U.S. businesses.

The USTR has argued that China uses a range of practices to force companies to transfer IP, and Chinese entities engage in widespread theft of US trade secrets, as it seeks to become a leader in advanced manufacturing and artificial intelligence. US businesses in China have long complained about being forced to hand over technology as the price of gaining access to the market.

Republican House Ways and Means Committee Chairman Kevin Brady on Wednesday cautioned against the US imposing “indiscriminate” tariffs against China and he encouraged a wider public discussion before the U.S. takes new trade measures. It’s “not about backing down, it’s about hitting the target,” said Mr Brady.