China–United States trade war

Since January 22, 2018, China and the United States have been engaged in a trade war involving the mutual placement of tariffs. US President Donald Trump had declared in his campaign to fix China's "longtime abuse of the broken international system and unfair practices". In April 2018, the United States filed a request for consultation to the World Trade Organization in regard to concerns that China was violating intellectual property rights.[3]

In adding various tariffs, the U.S. administration is relying partly on Section 301 of the Trade Act of 1974 to prevent what it calls unfair trade practices and theft of intellectual property.[4][5] This gives the president the authority to unilaterally impose fines or other penalties on a trading partner if it is deemed to be unfairly harming U.S. business interests, especially if it violated international trade agreements.[6]

The result is that the U.S. claims Chinese laws undermine intellectual property rights by forcing foreign companies to engage in joint ventures with Chinese companies, which then gives the Chinese companies access and permission to use, improve, copy or steal their technologies.[7][8][9] Trump also sees the technical industrial plan of Made in China 2025 as a threat to U.S. economy and national security, therefore imposed tariff on goods that are included in the plan,[10] and also urged China to stop the whole program.[11] However, China argues it has strengthened intellectual property right (IPR) protections and that the U.S. has ignored the effort; that the U.S. has ignored WTO rules and ignored the calls of its own industries to reduce tariffs. China firmly opposes these U.S. trade practices, believing they represent "unilateralism" and "protectionism".[12]

Background areas of disputes

Structure of China's political economy system

Under communist party directed planned economy, Chinese state-owned enterprises and state capitalism princelings gain the most benefits in most activities including the Belt and Road Initiative and Made in China 2025.[13][14][15][16][17] The U.S., Japan, Canada, Mexico, E.U. countries do not recognize China as a market economy, alleging market distortions.[18][19][20] Economist Irwin Stelzer states China's centrally directed economy with its goal to preserve communist party control of the politics and economy is relevant to U.S. trade policy.[21] Political scientist and former White House national security officer Aaron Friedberg has also said the communist party regime has expanded its use of state-directed, market-distorting, mercantilist policies, especially since 2008.[22] The 2018 Congressional hearing "U.S. Tools to Address Chinese Market Distortions" discussed how "the Party leads everything" doctrine makes China's economy hard for the trading rules to deal with and results in many U.S. businesses bowing to pressure even though their decisions may jeopardize the future of their companies and the U.S. economy as a whole.[23] The structural problem of the Chinese communist party's fundamental opposition to free-market capitalism and fair competition is claimed by US to be the root of U.S.-China economic tensions.[24][25]

The rapidly increasing U.S. trade imbalance with China

Former White House chief strategist Steve Bannon called China a totalitarian mercantilist regime in an economic war with the West[26][27] and Secretary of State Mike Pompeo said "the trade war by China against the United States has been going on for years."[28] The House Asia-Pacific subcommittee Democrat ranking member Brad Sherman, who in 2000 voted "No" on allowing China's entry to WTO as "in control and command economies like China, a telephone call in the middle of the night from a monopoly commissar is all that it takes to get a business to do something," said "China declared trade war on the U.S. 18 years ago.”[29][30] Director of the White House National Trade Council and Director of Trade and Industrial Policy Peter Navarro, a long-time Democrat, calls China a totalitarian regime and states that China's unfair trade policies are economic aggression and a direct result of its autocracy. He emphasizes that economic security is national security and discusses trade in a broader geopolitical arena.[31][32][33][34][35][36][37][38][39][excessive citations]

President Trump in his 2018 U.N. speech stated "China's market distortions and the way they deal cannot be tolerated," while also saying "socialism or communism... produces suffering, corruption... leads to expansion, incursion, and oppression. All nations of the world should resist socialism and the misery that it brings to everyone," which was seen as also targeting China.[40][41][42] The White House criticizes China's market-distorting policies within China and around the globe. The White House report, the USTR report, Vice President Mike Pence's landmark China-focused speech and Congressional report claims the forced installation of communist party committees and communist board members in all companies, state-owned, non-state-owned, and joint venture foreign companies, to implement its policies, influence and even form veto power in hiring, selecting leadership, and investment decision-making and can be inconsistent with market signals.[34][43][23] VP Pence blames "China has chosen economic aggression, which has in turn emboldened its growing military." President Trump's China issues adviser Michael Pillsbury says the administration's demands challenge all the core elements of China's economic system and its links to the constitution of the communist party.[44]

Accusation of Chinese theft of intellectual property, technology and trade secrets

U.S. Senator Mark Warner, the Vice Chair of the Senate Intelligence Committee, called Huawei a threat to U.S. national security.[45]
Deputy Attorney General Rod Rosenstein and FBI Director Chris Wray in 2018 announce charges against Chinese government hackers for economic aggression & espionage.[46][47][48][49][50]

Richard Trumka, president of the AFL-CIO, which represents over 12 million active and retired workers, said that China had stolen U.S. intellectual property and "bullied its way into acquiring critical U.S. advances in technology." He stated in March 2018 that "Tariffs aren't an end goal, but an important tool to end trade practices that kill American jobs and drive down American pay."[51]

Many countries and companies have accused Chinese spies and hackers of stealing technological and scientific secrets through the planting of software bugs and by infiltrating industries, institutions, and universities. China was also accused it benefited itself from stealing foreign designs, flouting of product copyrights and a two-speed patent system that discriminates against foreign firms with unreasonably longer times.[52][53][54][55][56][57][58][59][60][61][62] Chinese intelligence service was accused of assisting Chinese companies by stealing company secrets.[63][64]

US officials have accused Chinese spies and hackers of stealing sensitive and top US military technology including B-2 stealth bomber, C-17 transport aircraft, F-117 stealth attack aircraft, F-22 and F-35 stealth fighters, aircraft engine, military helicopter, unmanned aerial vehicle, unmanned underwater vehicle, destroyer, air-cushioned landing craft, submarine, missile, satellite, weapons system, robotics, artificial intelligence, semi-conductor, solid-state drive, cellular mobile communications technology, software among almost all types of armaments and advanced technology.[65][66][67][68][69][69][70][71][72][73][74][75][76][77][78][79][80][81][82][83][84]

National security experts in the US said Chinese hackers had consistently stolen trade secrets from U.S. defense contractors. This prompted former Director of the National Security Agency Keith B. Alexander who called Chinese cyber theft of intellectual property as "the greatest transfer of wealth in history." He states:[85][86]

Chinese spies have gone after private defense contractors and subcontractors, national laboratories, public research universities, think tanks and the American government itself. Chinese agents have gone after the United States’ most significant weapons, such as the F-35 Lightning, the Aegis Combat System and the Patriot missile system; illegally exported unmanned underwater vehicles and thermal-imaging cameras; and stolen documents related to the B-52 bomber, the Delta IV rocket, the F-15 fighter and even the Space Shuttle. President Trump’s action on Monday acknowledges the broad scope of the challenge.[85]

In August 2017, the US opened a formal investigation into attacks on the intellectual property of the U.S. and its allies,[87] which cost the U.S. alone an estimated $225–600 billion a year.[85][88]

In January 2019, U.S. Homeland Security Secretary Kirstjen Nielsen, Acting Attorney General Matthew Whitaker, Commerce Secretary Wilbur Ross, and FBI Director Christopher Wray announces 23 criminal charges (including financial fraud, money laundering, conspiracy to defraud the United States, theft of trade secret technology, provided bonus to workers who stole confidential information from companies around the world, wire fraud, obstruction of justice and sanctions violations) against China's Huawei and its CFO Wanzhou Meng.[89][90][91][92]

State media of PRC declared that the government's attitude toward the protection of intellectual property rights is clear and firm, and it has continuously strengthened protection at the legislative, law enforcement and judicial levels, and achieved remarkable results.[93]

Forced technology transfer from US companies in Chinese market

China requires technology transfer through foreign direct investment (FDI)[94] regime and required joint ventures in China, if they hope for entering Chinese market: In many cases, technology transfers are effectively required by China's foreign direct investment regime, which closes off important sectors of the economy to foreign firms. In order to gain access to these sectors, China forces foreign firms to enter into joint ventures with Chinese entities to whom they do not have any connection.[95][96]

A number of experts have focused on what they claim is China's "theft" of intellectual property, and that it forces U.S. firms that want to do business there into transferring its confidential technology and trade secrets before having access to their market. Although that kind of transfer is disallowed by the WTO, the negotiations are usually conducted in secret to avoid penalties.[97]

The Commission on the Theft of American Intellectual Property states “Just agreeing to manufacture in China opens yourself” to theft or forced technology transfer. It requires a U.S. response based on “strength and leverage.”[98]

In 2018 the American Chamber of Commerce in China learned that over half its members thought that "leakage of intellectual property" was an important concern when doing business there.[97] Similarly, the EU Chamber of Commerce has also complained that European companies wanting access to the Chinese market often had to agree to transfer vital technology.[99]

Former US Treasury Secretary for Clinton and economist Larry Summers said once, “China’s technological progress is coming from terrific entrepreneurs who are getting the benefit of huge government investment in basic science. It’s coming from an educational system that’s privileging excellence, concentrating on science and technology. That’s where their leadership in some technologies is coming from, not from taking a stake in some US company.”[100]

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