Punitive US trade action against China to come ‘imminently’, a former top trade negotiator warns

A former US government trade official warned that Washington is likely to announce trade retaliation measures against China “imminently”.

US Trade Representative Robert Lighthizer “has [US President Donald Trump’s] ear on China, and as such he has initiated a Section 301 investigation on Chinese unfair trade practices on intellectual property, including the practice of so-called forced technology transfer, and we are expecting actions to be announced against China imminently”, former acting deputy US trade representative Wendy Cutler said.

“There is a real convergence of different views on how to handle these issues going forward,” Cutler said during a panel discussion at the New York-based Asia Society.

“We’re going to see more trade actions taken against certain trading partners in the coming weeks. The announcement that was made just two weeks ago on import protection for washing machines and solar panels is just the beginning of a series of announcements that will be coming. “

Cutler’s comments reflect a harder line Trump has taken against China since he wrapped up a state visit to China in November. Trump hailed a raft of business deals and investments worth approximately $250 billion, which he said would help offset a yawning trade imbalance in China’s favour. Since then the deficit has grown, reaching a record US$276 billion for full-year 2017.

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The US Chamber of Commerce, which counts IBM, Ford Motor Co and other multinationals operating in China among its members, hailed the prospect of imminent action by Trump.

The industry group’s president and CEO, Thomas Donohue, called for an international “response to China’s state capitalism”.

The warnings reflect gathering momentum in a trade war that has so far been one way.

Last month, Trump implemented a 30 per cent tariff on fully assembled imported solar panels and the cells used to make these panels, a move the US leader said was needed to protect American jobs.

Trump will impose a 20 per cent tariff on the first 1.2 million imported large residential washers in the first year, and a 50 per cent tariff on machines above that number.

In August, Lighthizer launched the Section 301 investigation, authorised under the US Trade Act of 1974, into Chinese regulations that force US companies operating in China to transfer technology and intellectual property rights to local business partners.

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Soon afterward, Lighthizer’s office began taking testimony from US companies, seeking verification that the Chinese government “uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in US companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies”, according to USTR documents.

The investigation could lead to unilateral US trade remedy actions, such as tariffs meant to compensate the US for losses American companies have sustained from Beijing’s trade regulations, or a dispute settlement process within the World Trade Organisation.

“The White House is right to focus on China’s industrial policies and their challenge to the global economy,” Donohue said in an exchange with the South China Morning Post.

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“This includes Chinese market access restrictions, subsidies, data and cyber policies, forced tech transfer, and IP theft.

“The status quo is not sustainable, but we need a smart approach,” he said. “We need to work with allies in Europe, Japan and elsewhere to forge a common response to China’s state capitalism.”

Under the terms of China’s entry to the WTO in 2001, Beijing was allowed to limit foreign ownership of companies in important industries including media, telecommunications, finance and vehicle 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 were not competitive internationally at the time. US companies and government officials largely approved of these stipulations to gain access to Chinese markets.

The growth of companies such as Huawei, now a global manufacturer of telecommunications networking equipment and a competitor to US companies such as Qualcomm and Cisco, underscores how those conditions have changed.

Cutler said “Lighthizer really has the president’s ear on trade”. The US trade representative is “someone who’s well known in the trade area. Knows trade, knows US law, and has worked in Congress”, she said.

“He’s very hard-line. He has very different views on trade than past Republican and Democratic administrations that I’ve worked for.”

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China’s trade practices “may inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services and innovation”, Lighthizer’s office said when it announced the investigation.

Section 301 investigations must be completed within a year.