Trump orders review of China’s practices regarding intellectual property; Beijing warns it “will not sit idle”

Trump returned to Washington to sign the order authorizing Trade Representative Robert Lighthizer to explore whether to undertake a Section 301 investigation.

Trump orders review of China’s practices regarding intellectual property; Beijing warns it “will not sit idle”

President Donald Trump has asked his country’s top trade official to review China’s practices regarding intellectual property. The move was incremental, but could eventually lead to the US imposing trade sanctions.

Trump defies trade war warning from businesses and ordered investigation into whether China is stealing American intellectual property

President Trump returned to Washington Monday and authorized an inquiry into whether to probe China's alleged threat of American intellectual property
The president called it a 'very big move' as he instructed the U.S. trade representative to investigate
The announcement comes at an awkward time as Trump needs China's help in dealing with an ever more threatening North Korea

President Trump on Monday authorized an inquiry into whether to investigate China's alleged theft of American intellectual property, declaring it 'a very big move' while the country's largest business lobby group urged the two countries to resolve differences.

Trump broke from his 17-day vacation in New Jersey to return to Washington and sign a memorandum that instructs U.S. Trade Representative Robert Lighthizer to look into whether to investigate China's trade policies on intellectual property, which the White House says are harming U.S. businesses and jobs.

The inquiry, which U.S. administration officials say will take up to a year to complete, is likely to escalate tensions with Beijing at a time when Washington has asked for its help on North Korea.

On Monday, President Trump signed a memorandum instructing the U.S. trade representative to look into whether China should be investigated for intellectual property theft

President Trump (center) was flanked by U.S. Trade Representative Robert Lighthizer (right) and Treasury Secretary Steven Mnuchin (left) during the brief White House ceremony

'Ambassador Lighthizer, you are empowered to consider all available options at your disposal,' Trump told reporters, flanked by Lighthizer and members of his economic team, including Treasury Secretary Steven Mnuchin.

'It's a very big move,' he added.

Analysts said the action was aimed at pressuring Beijing into a negotiated settlement to revise its practices.

China's policy of forcing foreign companies to turn over technology to Chinese joint venture partners and failure to crack down on intellectual property theft have been longstanding problems for several U.S. administrations.

The U.S. Chamber of Commerce, the largest business lobbying group in Washington, said U.S. companies must get equal access to the Chinese market, but said the two countries should be able to work out the issues.

'If the U.S.-China relationship is to deliver mutually beneficial growth, U.S. firms must enjoy the same broad, secure access to the Chinese market that Chinese firms already enjoy to the United States,' Myron Brilliant, the chamber's executive vice president and head of international affairs, said in a statement.

'Equally important, China must end forced technology transfer and protect foreign-owned intellectual property rights within China,' he said, 'We urge the two governments to work together to resolve these concerns.'

In a statement later, Lighthizer said the investigation would be a top priority for his office.

Although Trump constantly criticized China's trade practices on the campaign trail, his administration has not taken direct action against Beijing.

It declined to name China a currency manipulator and has delayed broader national security probes into imports of foreign steel and aluminum that could indirectly affect China.

In an editorial on Monday, the state-run newspaper China Daily said the investigation will 'poison' relations and warned the Trump administration not to make a rash decision it could regret.

The investigation could take up to a year, according to administration officials, opening the door to a settlement before a possible investigation is launched.

Matthew Goodman, a senior adviser for Asian economics at the Washington-based Center for Strategic and International Studies, said Beijing would likely resist negotiating under the threat of trade sanctions but could be amenable to a backdoor deal.

'I'm sure they will formally reject this if an investigation is launched and there is an implication this is going to require negotiation to resolve it,' Goodman said. 'But will they quietly be willing to talk about some of the underlying concerns?'

Jonathan Fenby, an analyst at the TS Lombard consultancy, said China was not interested in a short-term trade fix with the United States and will resist 'attempts to tie it down.'

Trump had been expected to seek a so-called Section 301 investigation earlier this month, but an announcement was postponed as the White House pressured for China's cooperation on North Korea.

Section 301 of the Trade Act of 1974, a popular trade tool in the 1980s that has been rarely used in the past decade, allows the president to unilaterally impose tariffs or other trade restrictions to protect U.S. industries from 'unfair trade practices' of foreign countries.

Mr Trump is trying to balance working with China on relations with North Korea, with his “America-first” trade views. Beijing warned that it “will not sit idle” if the probe leads to sanctions.

Mr Trump returned to Washington to sign the order, which authorises US Trade Representative Robert Lighthizer to explore whether to undertake a deeper Section 301 investigation.

If such a probe occurs and finds against China, the president could unilaterally impose tariffs, sanctions or other trade restrictions to protect US industries. The initial review is expected to take months.

Donald Trump has long railed against the massive US trade deficit with China. The total trade relationship was worth US$ 648bn last year, but trade was heavily skewed in China’s favour with the US amassing a nearly US$310bn deficit last year.

Some of that deficit, the argument goes, is because Chinese firms are copying US products and ideas and either selling them back to the US at a lower price or squeezing US imports out of the Chinese market.

Concern over counterfeit goods and online piracy also pre-date the Trump administration. US firms are especially upset about rules that require local partnerships or disclosure of intellectual property to enter the Chinese market, which they say facilitates transfer of their ideas.

The Commission on the Theft of American Intellectual Property estimates that the annual cost to the US economy from counterfeit goods, pirated software and theft of trade secrets is between US$ 225bn and US$ 600bn.

The commission says that China is the world’s principal intellectual property infringer and that it accounts for 87% of counterfeit items coming into the US.

In November 2015, the Office of the Director of National Intelligence put the cost of economic espionage through hacking at US$ 400bn a year. The European Union, Japan, Germany and Canada have all expressed concern over China’s behaviour on intellectual property theft.

In response to the move China’s commerce ministry issued a statement voicing “serious concern” and warning this would “definitely harm bilateral trade relations”.

“If the US side take actions that impair the mutual trade relations, disregarding the facts and disrespecting multilateral trade rules, China will not sit idle,” the statement said on Tuesday. Official media in China have criticised the measure too.

A Xinhua News Agency commentary labelled the move “outdated” and said it would hurt both countries. In an editorial, the official China Daily urged the Trump administration to pursue a different path.