- Lu Kang
On Monday, President Donald Trump signed a measure to begin exploring an investigation into China’s theft of US intellectual property (IP). In the international business community, it’s no secret that in China there is little respect for trade secrets.
But the way the Trump administration is handling the issue ignores a clear warning that the Chinese government gave to the US in January. It’s using Section 301 of the US Trade Act of 1974, a law that hasn’t been used in decades and would allow Trump to put a tariff on Chinese goods without congressional approval.
In an interview with Prospect.org, Trump adviser Steve Bannon seemed gleeful about the grave implications of Section 301. He confirmed reports that at least some in the administration had planned to skip the exploratory process for the investigation and proceed more aggressively, but the conflict with North Korea slowed down the process.
“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we’re five years away, I think, ten years at the most, of hitting an inflection point from which we’ll never be able to recover.”
What this tells us is that Trump doesn’t care about the red lines that China set down at the beginning of his administration. That will have consequences.
In a rare interview with NBC in January, Chinese foreign ministry spokesman Lu Kang said in no uncertain terms that the Trump administration should continue to use the World Trade Organization to settle trade disputes.
“China and the US are already members of the WTO, so within the WTO framework there are already rules governing these disputes,” he said. “And I don’t want to specify here, but it’s not very difficult for any people to get a conclusion of what kind of reaction might be from the Chinese side [if Trump decides to put up tariffs against Chinese goods unilaterally]. That said, I want to reiterate that we don’t want to see this kind of scenario that will do harm on both sides.”
In other words: Work through the WTO, or we’ll act against the US economy. Of course, Bannon and officials who think like him within the administration, like National Trade Council head Peter Navarro, have no respect for the WTO.
You can see where we have a problem here.
What’s yours is mine
None of this is to say that something shouldn’t be done about China’s IP theft.
“They’re going to be mad, but I think at the same time they know the game that they’re playing and they’re going to be mad about being caught more than anything else,” said Brian O’Shaughnessy, an IP attorney at Dinsmore & Shohl LLP and president and chair of the Board of the Licensing Executives Society, an organization for IP professionals. “There’s no question they’re manipulating the IP system.”
O’Shaughnessy says that US companies find that when they go to China there is only the veneer of respect for IP. In reality there is no right to privacy, especially when it comes to technology, and part of that is cultural difference. Many in China see it as the government’s duty to patrol the internet.
Of course, at the same time, this is also because in China “technological dominance, they understand, is dominance.”
So yes, this expert agrees this is a problem. But other experts – the trade experts – believe that using Section 301 is not a solution.
“The law hasn’t been used in 50 years and there’s a good reason for that,” economist Chad Brown of the Peterson Institute for International Economics told Business Insider on a phone call. “We built a brand new trading system so we didn’t have to use this law.”
That system is adjudication through the WTO.
What’s ours is the world’s
And that brings us back to NBC’s interview. I can’t stress how rare it is for a Chinese official to be as candid as Lu was here.
“We are not prejudging anything, but I can tell you that while we have to prepare for the good to protect our national or our legit national interests … we always try our best for the good,” he said.
- Institute of International Finance
The “good” would be continuing the deep trading relationships between China and the US. Over the past decade, China’s imports from the US have grown twice as fast as its exports to the US and three times as fast as China’s total exports, according to a recent paper from the Institute of International Finance.
So if things get bad it really matters to the US, and especially to Trump’s own voting base.
More from the report:
China last year imported 62% of American soybeans, 14% of its cotton, 17% of auto, 15% of semiconductor, and 25% of Boeing passenger planes.
China is the largest market for US soybeans and airplanes and the second-largest market for auto, cotton, and semiconductor products.
And so here we are, defying a warning from a key trading partner to follow the rules of an organization the US helped to found. We wrote the rules of global trading, and now we want to pretend they don’t exist.
I’ll leave you with a word from Lu.
“Worldwide, people were interested in his slogan … ‘America First.’ My personal opinion, it’s fair for President Trump to place the American national interest at the top of his agenda,” he said. “All the state leaders should put the interest of their people, their public at the top of the agenda. But the problem is that today’s world is quite interdependent, countries are quite interconnected. So while trying to pursue the interest in your country you’ll have to keep in mind the implications worldwide, and these kind of implications might come back to the policy issues at your own home.”
- Deutsche Bank