Meanwhile, the Chinese are using national security to defend a sweeping cybersecurity law that U.S. companies operating in China see as one of their biggest challenges. The law, which came into effect on June 1, requires companies to store their data within China’s borders and share program source code with the government — provisions that U.S. companies fear will expose them to intellectual property theft.
As U.S. and Chinese officials were attempting to hammer out trade agreements on Wednesday -- talks that ultimately sputtered after the Chinese refused a key U.S. demand -- President Trump spoke at a nearby event for American-made products and promised to “crack down on foreign countries that cheat.”
“They take our intellectual property like we are a bunch of babies, but no longer,” the president said.
Trade experts describe invoking national security concerns as the “nuclear option” of trade, because if countries can break the rules for national security reasons, the international trading system could crumble. The World Trade Organization doesn’t give a lot of guidance on the issue, instead leaving it up to countries to manage their own national security. With the world’s two largest economies and trading partners turning to national security rationales, more countries could easily follow suit.
For China, using national security as a justification for economic action is almost a pastime. The country uses the rationale to protect industries ranging from the media to power generation from foreign competition, and to put all brands of critics in jail.
But for the United States, it is a recent trend. The law under which the Trump administration is investigating steel imports has only been used twice to sanction a foreign industry for compromising national security. Both of those cases predate the creation of the WTO.
In the past WTO members have not done much to challenge countries that claim national security exemptions to trade rules. But if more countries use national security as a reason to restrict trade, some of these efforts will be challenged in WTO trade cases that will hammer out where the international organization really thinks national security begins and ends.
That could either result in the WTO interfering in what countries consider to be their national security — which would likely provoke ire from members of the Trump administration who already believe the WTO infringes on U.S. sovereignty. Or countries could learn that they can get away with just about any trade behavior without fear of WTO retribution if they just cite national security concerns.
“It’s not that we’re going to make things worse in China. It’s other countries that are the issue here,” said Derek Scissors, a resident scholar at the American Enterprise Institute.
Although the U.S. steel industry might gain some concessions from the Trump administration's current investigation, Scissors says the bigger issue is whether other countries will follow our example in using national security as a reason to restrict imports of U.S. products, like agricultural goods or airplanes. “As a practical matter, we have much more to lose than we have to gain,” he says.
The Trump administration is hoping to announce progress today with the Chinese in negotiating access for American companies in a range of industries, including in financial services and agriculture. But lurking in the background, China’s cybersecurity law may be the single biggest issue for the U.S. business community in China.
Jeremie Waterman, president of the China Center at the U.S. Chamber of Commerce, said that on the issues of digital trade and information technology, there’s a sense that “the environment is continuing to deteriorate. China is erecting more, not fewer barriers to foreign countries, imposing more restrictions on cross border data and requiring more localization of data.”
The United States clearly wants concessions on steel. But pursuing them could erode America's ability to combat the cybersecurity law, trade experts say.
“If the U.S. actually does impose trade barriers under this Section 232 law, that really, really weakens their argument against China, where they would want to challenge China for doing the exact same thing,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.
As of late afternoon Wednesday, the administration had yet to issue a press release about the talks. Press conferences that were scheduled to cap off the event Wednesday afternoon were canceled by both the Chinese and Americans.