The Trump administration will take steps Monday to launch an investigation into Chinese intellectual property violations that could result in severe trade penalties, a threat the United States could wield to pressure Beijing into improving its economic behavior and doing more to contain North Korea’s nuclear threat.
The president plans to sign an executive memorandum Monday afternoon directing his top trade negotiator to determine whether to investigate China for harming intellectual property, innovation and technology, senior administration officials said in a conference call Saturday morning.
The measure would seek to address what the U.S. business community has described as flagrant trade violations by China, which employs a variety of rules and practices to wall its market off from foreign competition and pressure U.S. companies to part with valuable product designs and trade secrets — or to steal them outright.
The investigation could take as long as a year, U.S. officials said. In the meantime, it may help to satisfy President Trump’s political promises to get tougher on countries that cheat the United States economically, following setbacks and delays on ambitious trade measures floated by the administration in past months.
It may also prove to be a source of leverage to push China to do more to help contain a rising security threat from North Korea, which counts Beijing as its only powerful ally.
Yet analysts said the measure could also backfire, resulting in more hostility and tension between the world’s two largest economies at a time when their cooperation is critical to a diplomatic resolution on North Korea.
“The [U.S.-China] relationship could spiral out of control, particularly if the movement on the trade front is combined with growing tensions over how to respond to North Korea,” said Scott Kennedy, a China expert at the Center for Strategic and International Studies.
International tensions have escalated as Trump and North Korean President Kim Jung Un traded threats of nuclear war in recent days. Trump tweeted Friday that military solutions are “locked and loaded, should North Korea act unwisely.”
In a call Friday, Trump and Chinese President Xi Jinping agreed that North Korea must stop its “provocative and escalatory behavior” and reaffirmed their commitment to denuclearizing the Korean Peninsula, the White House said.
On Saturday, administration officials said the new trade measure was “totally unrelated” to events with North Korea. They added that the trade measure would be carried out under the rules of international law and would not trigger greater conflict with China. But trade and national security experts widely noted that the trade announcement appeared to have been delayed until after China joined the United States in voting for sanction against North Korea at a United Nations Security Council session on Aug. 5.
When asked about the delay in the call on Saturday, the officials did not address the question directly. They said that U.S. companies had long suffered because of Chinese intellectual property violations, and that they expected Congress and the business community to support the measure.
“If Americans continue to have their best technology and intellectual property stolen, or forcibly transferred offshore, the United States will find it difficult to maintain its current technology leadership position and to remain one of the world’s most innovative economies. This is why the president has chosen to act now and to act boldly,” one administration official said.
“The Chinese government has always set great store by [intellectual property] protection and made achievements that are for all to see. Any trade measures to be taken by WTO members must conform to WTO rules…. The Chinese side opposes unilateral actions and trade protectionism in any form,” a Chinese Embassy spokesperson said in an emailed response.
Michael Wessel, a commissioner on the U.S.-China Economic and Security Review Commission, called the measure “a critical action, and long overdue.” “China’s been engaged in the theft and forced transfer of U.S. technologies and intellectual property for years. Those activities haven’t abated; they’ve accelerated as China seeks to become self-sufficient in new technologies and dominate world markets,” he said.
If the investigation finds that China is harming U.S. companies, the Trump administration could respond by imposing tariffs, negotiating an agreement with China, or other measures, the officials said.
The administration is likely eager to make progress on trade, one of Trump’s biggest campaign issues, after a recent series of legislative setbacks, trade experts said. While Trump officially withdrew the United States from the Trans-Pacific Partnership, an Obama-era trade deal, and will begin talks next week to renegotiate the North American Free Trade Agreement, other planned trade measures have been slow to materialize.
The results of three separate investigations into trade deficits and the national security threats posed by imports of steel and aluminum, initially expected by the end of June, have yet to appear. Meanwhile, 100 days of trade talks with the Chinese carried out in past months resulted in a few trade gains but not the ambitious changes the administration had hoped for.
Trade experts and business leaders said the new investigation into intellectual property could be a sign that the trade agenda is shifting into the hands of United States Trade Representative Robert E. Lighthizer, a respected negotiator who helped implement some of the most protectionist trade policies of recent decades during the Reagan administration.
Like the president, Lighthizer has criticized multilateral venues like the World Trade Organization for failing to provide adequate tools to address China’s economic violations. Instead, he is leading the administration is dusting off a variety of powerful and unilateral measures under U.S. trade law, many of which the United States stopped using after the creation of the WTO, which has its own mechanisms to settle trade disputes.
In the conference call, officials did not rule out working with the WTO or other countries to penalize Chinese intellectual property violations, saying that the portions of U.S. trade law they are relying on, Sections 301 and 302 of the 1974 trade law, allow them to take a broad range of actions.
The United States has previously complained at the WTO about Chinese trade policies, including its “Made in China 2025” initiative, which seeks to have Chinese-made materials account for 70 percent of manufacturing inputs within the next eight years. That initiative sets forth a long-term plan for China’s dominance in a wide variety of high-tech industries, including electric vehicles, advanced medial products and robotics.
Meanwhile, China has continued to maintain barriers that prevent U.S. companies from accessing its market, while adding new requirements for U.S. companies to share technology with the Chinese state, like a recent cybersecurity law.
The U.S. business community, which traditionally lobbied U.S. administrations to take a softer approach toward Beijing to protect access to a profitable market, has shifted toward a tougher stance on China in response.
Kennedy of CSIS says business leaders express a range of opinions, depending on how much they discrimination they face in China and how key Chinese profits are to their business. “I’ve heard folks say, ‘It’s not going well, but a trade war would not be the best thing for us, dialogue is the better path.’ And there are others who say, ‘Bring it on,’” he said.