Is the U.S. taking trade action against China?
Not quite, but in a preliminary step, U.S. President Donald Trump signed an executive memorandum on Monday asking U.S. Trade Representative (USTR) Robert Lighthizer to determine whether an investigation into China’s trade practices and policies was warranted. There are provisions of the U.S. Trade Act, 1974, notably Section 301, which enable the U.S. to take action to enforce trade treaties, or use counter measures, such as retaliatory tariffs, on practices the U.S. deems as unfair. Section 301 was used heavily, for instance by the Reagan administration, before the WTO started operating.
What is the U.S. objecting to?
The U.S. has taken issue with Chinese laws that require American and other foreign companies directly investing in China to set up joint ventures with Chinese partners, or in some cases, transfer technological and intellectual property (IP) assets. In addition there is bipartisan support for the administration to tighten the screws on China regarding allegations of IP theft. China is already on the USTR Priority Watch List – a list of countries, that currently also includes India, whose IP regimes are deficient, according to the U.S.
What are trade ties between the countries like?
During his campaign, Mr. Trump had adopted a tough stance against China, accusing the country of “stealing” American jobs, saying he would impose tariffs on Chinese imports into the U.S. and labelling China a currency manipulator. China is the U.S.’s largest goods trading partner. The U.S. goods trade deficit with China was $347 billion in 2016 but it had a $37 billion services trade surplus with China in the same year. Travel, transport and intellectual property (including software) constitute the main services the U.S. sells to China according to U.S. government data.
How will the situation develop?
China has said if that it “will not sit by and watch” if the U.S. acts against it in a manner that violates existing international trade agreements. If Mr. Trump’s order results in retaliatory measures, then it is possible that a trade war could ensue between the two countries. However, it is not a given that such retaliation will occur. First, the U.S could work through the WTO’s dispute resolution process rather than its domestic trade laws. Second, in the past, disputes have been resolved once an investigation has been undertaken by the U.S. but before they have concluded.
But perhaps most importantly, in this case, the issue extends beyond trade. While some U.S. officials have denied a connection, Mr. Trump has said that China cooperating with the U.S. on the North Korean missile build-up will soften his view on Chinese trade practices; given that Monday’s memo merely asks for a determination on whether or not to investigate rather than to investigate right away, it is likely this is for now, only a signal to China to cooperate more on trade and other areas, such as North Korea.
China joined other members of the UN Security Council last week in a 15-0 vote to impose sanctions against the North Korean regime.
