President Trump signed an executive memorandum Monday afternoon that will likely trigger an investigation into China’s alleged theft of U.S. intellectual property, a measure that could eventually result in a wide range of penalties as the administration seeks a new way to deal with what it calls Chinese violations of the rules of international trade.
“The theft of intellectual property by foreign countries costs our nation millions of jobs and billions and billions of dollars each and every year,” Trump said, as he signed the memo surrounded by trade advisers and company executives. “For too long, this wealth has been drained from our country while Washington has done nothing... But Washington will turn a blind eye no longer.”
Officials said the memorandum would direct their top trade negotiator, U.S. Trade Representative Robert E. Lighthizer, to determine whether to launch an investigation. The inquiry would give the president broad authority to retaliate if it finds that China is compromising U.S. intellectual property.
But senior White House officials said in a call with reporters Saturday that the investigation could take up to a year to conclude and that it was premature to say whether it would result in tariffs against China, a negotiated settlement or another outcome.
Despite the uncertainties, company executives and politicians widely greeted the investigation as an effort to address a problem that has bedeviled U.S. companies for decades: how to access the Chinese market without ceding their intellectual property to Chinese companies that might use it against them in the future.
It’s an issue that has persistently troubled U.S. high technology industries of all kinds -- with companies disputing treatment in fields ranging from nuclear power to automobiles to telecom.
U.S. businesses have been hesitant to speak out about the issue for fear of drawing reprisal from the Chinese, negative press coverage or cyber security attacks. But privately, many American business leaders express frustration with a Chinese system that coerces them into transferring valuable U.S. intellectual property to Chinese companies, or allows it to be stolen outright.
China's Ministry of Commerce on Tuesday morning voiced "grave concern" over Trump's move to initiate an investigation into allegations that China has been "practicing intellectual infringement." The ministry stated that China will not sit on its hands "if the U.S.'s action inflicts damages on the bilateral trading relationships."
China has long required U.S. firms in many industries to form joint ventures with Chinese partners and manufacture some goods inside the country. Although the system forces U.S. companies to transfer some of their valuable know-how to Chinese partners that could become competitors in the future, U.S. companies including Microsoft and General Motors have made such deals to gain access to China’s valuable market of nearly 1.4 billion people and a booming middle class.
Under a new Chinese cybersecurity law, technology firms including Amazon.com and Apple are required to store users’ data within Chinese borders and turn over source code and encryption software to the government, potentially giving the Chinese government a back door into private data and proprietary technologies. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.)
U.S. companies also complain that China’s enforcement of intellectual property violations remains lax and that theft of trade secrets through malware, phishing and cybermercenaries is rampant. Roughly 70 percent of software in use in China is pirated, though this figure is down from recent years, according to the Software Alliance, a trade group.
Meanwhile, Chinese companies have been pouring billions of dollars of investments into cutting-edge defense and technology firms around the world, including in Silicon Valley. The country has launched an initiative, called “Made in China 2025,” which seeks to propel its companies to dominate high-tech industries including robotics, aerospace equipment, new energy vehicles and biopharmaceuticals in the next eight years.
While U.S. industry remains the most technologically advanced in the world, China is rapidly catching up. Some, such as Randolph Kahn, a consultant and adjunct professor at Washington University School of Law, say this could be detrimental for the U.S. economy. A 2016 report by the U.S. Department of Commerce found that intellectual property accounted for nearly 40 percent of the U.S. economy in 2014.
“To the extent that we’re not able to protect that, you’re sacrificing millions or tens of millions of U.S. jobs, and U.S. companies should care a great deal about that,” Kahn said.
In an emailed response early Sunday morning, the Chinese government denied the allegations and implied it might challenge a U.S. action in the World Trade Organization. “We want to emphasize that 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,” a press office spokesman wrote.
The administration's investigation, which is being carried out under a legal statute known as Section 301 of the Trade Act of 1974, is likely to have broad support across political parties. On Aug. 2, Sen. Ron Wyden (D-Ore.) sent a letter to Lighthizer urging the U.S. trade representative to investigative forced technology transfer policies and take action to stop them.
But some Democrats criticized the measure for not going far enough. “President Trump’s pattern continues: Tough talk on China, but weaker action than anyone could ever imagine. To make an announcement that they’re going to decide whether to have an investigation on China’s well-documented theft of our intellectual property is another signal to China that it is O.K. to keep stealing,” Sen. Charles E. Schumer (D.-N.Y.) said in a statement Saturday.
A White House official said the measure had the support of Silicon Valley and areas damaged by trade under past administrations, such as the Rust Belt. “A lot gets said about the internal divisions in the White House on trade and economic policy, but this is an issue that has total unanimity inside the White House, in terms of this being something we want to address,” said the official, who spoke on the condition of anonymity to discuss the White House's internal affairs.
Jamil Jaffer, the founder of the National Security Institute at George Mason University Law School and a visiting fellow at the Hoover Institution, said the announcement was an important step toward fighting the “serious economic threat” of cyber theft and forced technology transfer.
“The reality is that U.S. government has long known about these aggressive Chinese efforts but until today has been reticent to consider serious trade measures,” Jaffer said.
While the Obama administration also worked to combat Chinese cybercrime, the Trump administration appears to be trying to take a markedly different tack.
On his first Monday in office, Trump pulled the United States out of the Trans-Pacific Partnership, a 12-country trade deal that the Obama administration saw as its key method of pressuring China on trade. The deal, which did not include China, had strict rules for intellectual property and it would have required Beijing to change certain laws and practices to join the pact.
The Trump administration, in contrast, has shown a preference for using unilateral measures, like the Section 301 investigation, which allow the United States to act without other countries or the World Trade Organization. Trump, Lighthizer and others in the administration have said that existing international trade rules under the WTO haven’t been sufficient in policing these actions from China.
Section 301 was often used during the Reagan administration, when Lighthizer served as deputy U.S. trade representative, said Chad Bown, a trade expert at the Peterson Institute. But other countries criticized such measures for making the United States the “police, prosecutor, judge and jury,” he said.
Measures such as Section 301 have been used sparingly since 1995, when the United States joined the WTO and promised to settle its trade disputes through the international organization, Bown said.
In a call Saturday, senior White House officials did not specify whether the administration's actions would be taken under WTO rules or potentially violate them.
The officials also said that the trade action had no connection with the rising security threat from North Korea, which last week threatened a strike on the U.S. territory of Guam.
Yet analysts said the threat of trade action could potentially be a source of leverage over China, North Korea’s only major ally. Trump has repeatedly said that the United States would consider extending better trade terms to China in return for help on North Korea.
The Chinese say their ability to influence Pyongyang's erratic government is limited. But while some in the Chinese government view North Korea as a dangerous distraction from Beijing's bigger role of seeking global leadership, many also see the country as an important geostrategic buffer between China and the U.S.-allied South Korea.
Ashley Parker in Washington and Simon Denyer in Beijing contributed to this report.
Correction: A previous version of this article incorrectly identified North Korea as being allied with the United States.