Trump Administration Goes After China Over Intellectual Property, Advanced Technology

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President Trump signs an executive memorandum that addresses China’s alleged theft of U.S. intellectual property. Surrounded by trade advisers and company executives, Trump said: “The theft of intellectual property by foreign countries costs our nation millions of jobs and billions and billions of dollars each and every year. . . . But Washington will turn a blind eye no longer.” MUST CREDIT: Washington Post photo by Ricky Carioti

President Trump signed an executive memorandum Monday afternoon that will likely trigger an investigation into China’s 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.

“It’s a very big move,” Trump said, as he signed the memo surrounded by trade advisers and company executives. “This is just the beginning, I want to tell you that. This is just the beginning.”

Officials said the memorandum would direct their top trade negotiator, U.S. Trade Representative Robert 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 some other kind of outcome.

Despite the uncertainties, company executives and politicians widely greeted the investigation as an early effort to deal with 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.

A White House official said the measure had the support both of Silicon Valley and areas that had been damaged by trade under past administrations, like 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 insisted on anonymity to discuss the White House’s internal affairs.

U.S. businesses have been hesitant to speak out about the issue for fear of drawing reprisal from the Chinese, negative press coverage or cybersecurity 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.

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 spokesperson wrote.

U.S. companies have complained for years about an operating environment in China in which both official law and rampant illegal practices compromise American intellectual property.

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 ranging from Microsoft to 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 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 backdoor into private data and proprietary technologies.

U.S. companies also complain that China’s enforcement of intellectual property violations remains lax and theft of trade secrets through malware and cyber mercenaries 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 investment into cutting-edge defense and technology firms in Silicon Valley. China has launched an initiative to comprehensively upgrade its high-tech industries, 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, like Randolph Kahn, a consultant and adjunct professor at Washington University School of Law, argue that 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,” said Kahn.

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 USTR 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. Chuck Schumer, D.-N.Y., said in a statement Saturday.

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.

Trump, Lighthizer and others in the administration have argued that existing international trade rules under the World Trade Organization haven’t been sufficient in policing these actions from China. In contrast, they are turning to measures like the Section 301 investigation, which allow the United States to act unilaterally.

Section 301 was often used during the Reagan administration, when Lighthizer served as deputy United States 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,” Bown said.

Measures such as 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, said Bown.

In a background call on 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 threatened a strike last week on the U.S. territory of Guam.

Yet analysts said the threat of trade action could potentially be a source of leverage over China, which is North Korea’s only major ally. Trump has repeatedly said that the U.S. would consider extending better trade terms to China in return for help on North Korea.

The Chinese claim that 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 North Korea.

(c) 2017, The Washington Post · Ana Swanson

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