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November, 2017

Assessing the impact of the Section 301 investigation on US-China trade

Original article: Foreign Policy Journal

Some analysts believe that the U.S.'s probe of China's alleged IP abuses under Section 301 of the Trade Act of 1974 will damage the bilateral trade relationship. It is not the probe itself so much as Washington's unilateral action that Beijing chafes at, they say. This line of reasoning holds that Beijing's reaction would have been more muted had the U.S. chosen to take action against China through the World Trade Organization (WTO). 


From Washington's standpoint, the primary issue is forced technology transfers, which typically involve a U.S. company handing over valuable IP to a Chinese partner in exchange for access to the massive PRC market. For Chinese firms doing business in America, there are no such pre-conditions for market access. 


Before the launch of the probe, U.S. firms had worked stealthily through business organizations such as the American Chamber of Commerce in China and the U.S.-China Business Council to voice their concerns about IP issues. Speaking openly could be detrimental to their business interests in China, companies say. 


"What we’re concerned about is if we don’t get this...reciprocal agreement from our Chinese friends, that the U.S. will take measures that are trade limiting,” AmCham China chairman William Zarit told The Sacramento Bee in a recent interview. 

Analysis:

U.S. President Donald Trump and Chinese President Xi Jinping had a cordial meeting in Beijing last week, which saw $US250 billion in trade deals inked. In public, Trump told Xi that he did not blame China for "unfair trade deals," choosing instead to fault his predecessors in the White House. "After all, who can blame a country for being able to take advantage of another country for the benefit of its citizens?" Trump said. 


In a Nov. 10 column, Bloomberg View criticized Trump for not addressing China's alleged abuse of American intellectual property. American firms received "little support from their own president on issues that could determine their ability to compete - even survive - in China," Bloomberg said. 


Even the most adroit pundits struggle to explain Trump's behavior. TIPG doesn't think it's as complicated as all that: Trump responds well to flattery. To that end, the Chinese feted him well - including the first banquet for a head of state in the Great Hall of the People since 1949. In high spirits, the U.S. commander-in-chief would be unlikely to deride his hosts. 


Bloomberg rightfully points out that better IP protection in China could assuage the concerns of foreign firms, persuading them to import advanced technology into China. That could act as a catalyst for domestic innovation, which will be integral to China's push to modernize its economy.  


Meanwhile, the genial atmosphere of Trump's recent China visit does not negate the ongoing 301 investigation of China's alleged unfair trade practices. In a recent article published in The Hill, Brookings Institute scholar David Dollar says that "the investigation is likely to document a range of unacceptable practices including cyber theft and forced technology transfer." 


"Crunch time in the relationship will come six months or so down the road — the trade imbalance is likely to be widening and the administration, with the 301 investigation in hand, will have to decide if it wants to respond with some significant protectionist measures," Dollar adds. 

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