Unilateral probe of China's trade could hurt both Washington, Beijing
U.S. Trade Representative (USTR) Robert Lighthizer on Friday formally launched a Section 301 investigation into alleged intellectual property practices by China under a rarely used 1974 trade law, triggering concerns that Washington may unilaterally impose restrictions that would eventually hurt both countries.
“The investigation will seek to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce,” the USTR’s Office said in a statement.
The move comes after U.S. President Donald Trump on Monday signed an executive memorandum directing Lighthizer to consider the possible initiation of an investigation, signaling his administration’s tough trade stance against China.
Section 301, once heavily used in the 1980s and the early 1990s, allows the U.S. president to unilaterally impose tariffs or other trade restrictions on foreign countries. But the United States has rarely used the outdated trade tool since the World Trade Organization came into being in 1995.
“The 301 toolkit was retired for good reason. Bringing it back in 2017 is likely to be more deeply problematic to more firms in more places than many might expect,” said Deborah Elms, founder and executive director of the Asian Trade Centre based in Singapore.
“It became no longer necessary really for the United States that they have to use that law, because now we have an effective dispute settlement system under the WTO,” Chad Bown, a trade expert and senior fellow at the Washington D.C.-based Peterson Institute for International Economics (PIIE), told Xinhua in a recent interview.
Meanwhile, the global trading community had become increasingly concerned about the use of Section 301 as the U.S. government “acts as police force, prosecutor, jury and judge” in the process, Bown argued. He recommended Washington and Beijing resolve trade disputes through the WTO.
If Lighthizer did decide to go ahead with the Section 301 investigation, the United States would first consult with China and the investigation process could take as long as a year, senior administration officials told reporters last week.
Jeffrey Schott, another trade expert at the PIIE, told Xinhua that the purpose of the investigation is “to find out what the facts are and to use the process of investigation to expand bilateral consultations with China” so that there is a better understanding of each country’s practices.
Schott didn’t see “any immediate restrictions” being imposed on China by the United States as the USTR has to do “a lot more study” on this case.
“Whether there are restrictions or not will depend on how the study proceeds and how the bilateral consultations between the United States and China unfold over the next few months,” he said.
China has urged the United States to objectively evaluate China’s progress in protection of intellectual property rights (IPR) and resolve differences with China through dialogue and consultation.
“The United States should treasure the current sound Sino-U.S. economic and trade ties and cooperation momentum. Any U.S. trade protectionism move will surely damage bilateral ties and the interests of companies from both countries,” China’s Ministry of Commerce said in a statement on Tuesday.
Lighthizer, former deputy USTR in the Reagan administration, may wish to relive the trade battle against Japan in the 1980s. However, the world has tremendously changed in the past three decades and the China-U.S. economic and trade relationship is more important than ever.
Trade and investment between China and the U.S. supports about 2.6 million American jobs, according to the U.S.-China Business Council.
“The Chinese market matters very much to the U.S. administration, much more than the Japanese market matters to the U.S.,” Yorizumi Watanabe, a professor at Faculty of Policy Management of Keio University in Tokyo, told Xinhua.
“If they (the Trump administration) become very naughty and nasty against Chinese exports, then Chinese authorities would easily imagine similar sorts of restrictions (against U.S. exports), so this is kind of tit-for-tat situation,” he said.
He hoped the Trump administration would be “extremely careful” about imposing new import restrictions against China.
If the U.S. side fails to respect basic facts and multilateral trade rules, and takes measures that harm bilateral economic and trade relations, “China will definitely not sit by, but take all appropriate measures to resolutely safeguard its legitimate rights and interests,” China’s Ministry of Commerce said.
Given China’s role in current global supply chains, “a trade war between U.S. and China will hurt not only Chinese manufacturers, but also upstream suppliers and downstream distributors such as U.S. retailers,” the Institute of International Finance (IIF), a global association with around 500 major financial institutions, warned in a recent report.
Asked about the trade investigation, the International Monetary Fund (IMF) on Tuesday reiterated its support for an open trading and investment system and the importance of working within the multilateral framework to resolve differences.
“We believe that the multilateral trading system can be an important source of economic prosperity for all countries concerned,” said Markus Rodlauer, deputy director in the IMF’s Asia and Pacific Department.