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Nov 21, 2018 | 21:25 GMT

4 mins read

China, U.S.: What an Updated Section 301 Report Means for Trump's Trade War

(Stratfor)
The Big Picture

The United States' economic grievances are central to Washington's great power rivalry with Beijing. The United States and China are cautiously exploring a potential tariffs truce, but the gulf between U.S. demands for Chinese economic structural reform and Beijing's own strategic imperatives remains too wide to reconcile through negotiations, suggesting that a further escalation is just around the corner.

What Happened

The White House's economic battle with Beijing shows no signs of slowing down. On Nov. 20, U.S. Trade Representative Robert Lighthizer released an update to the U.S. report on Chinese intellectual property violations ahead of a Dec. 1 meeting between U.S. President Donald Trump and Chinese President Xi Jinping in Buenos Aires. The report was part of the trade representative's section 301 investigation into China's alleged trade infractions, which is the primary legal tool the White House has employed to hit Chinese goods with tariffs.

Why It Matters

The updated report gives the White House legal cover to impose additional tariffs on Chinese goods in the likely event that upcoming trade talks end in an impasse. Washington has already levied tariffs on numerous Chinese imports, but the White House has yet to make good on its threat to impose further measures on the remaining $267 billion worth of Chinese imports still free of tariffs. Moreover, the report's overall message — that China refuses to address U.S. concerns over intellectual property abuses and that Beijing is intensifying operations to steal trade secrets — provides insight into the U.S. delegation's likely talking points in the Dec. 1 meeting with China. Taken together, that does not bode well for a breakthrough.

Increasing Allegations

The report asserts that China has defiantly refused to address concerns from the United States, Australia, the European Union, Japan and South Korea over intellectual property abuses and economic espionage. In addition, the report picks apart several of the concessions China has offered in trying to reduce trade frictions. For example, while the U.S. trade representative acknowledges that China has somewhat liberalized its automotive, aircraft, shipbuilding and financial sectors, the trade representative regards these moves as highly incremental and limited to areas where Chinese companies already hold an advantage. In the White House's eyes, foreign companies involved in these joint ventures are still subject to discrimination and remain vulnerable to forced technology transfers.

Citing several private cybersecurity firm assessments, the report also asserts that China's cyberespionage tactics have become stealthier and more sophisticated. Beijing has begun using human assets to gain insider information from companies, particularly those involved in sectors where China is trying to catch up, such as aerospace and high technology. While the report acknowledges that Chinese investment in the United States has declined overall in 2017 and 2018 amid the rise in restrictions, it sounds the alarm over a sharp jump in Chinese venture capital investments, which reached a record high in 2018.

Dates to Watch

Dec. 1: U.S. President Donald Trump and Chinese President Xi Jinping will meet over dinner in Buenos Aires following the G-20 summit. U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He have been primarily responsible for hammering out the discussion's framework, while trade hawk Peter Navarro has been sidelined. Still, the relative influence of trade hawks and pragmatists in the White House has often shifted rapidly.

Dec. 19: A public review-and-comment period will end on U.S. legislation that would impose restrictions on U.S. technology exports to China with dual-use applications that could present a security risk. The 14 categories covered are quite broad, including artificial intelligence, robotics, biotechnology and advanced materials, as well as surveillance and microprocessor technologies. If the legislation passes, it would be highly disruptive for U.S. tech firms active in the Chinese market.

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