Trump Faults China’s Economic Policy as Threat to US Security

Trump Faults China's Economic Policy as Threat to US Security

The Trump administration accused China of hijacking intellectual property and pursuing industrial policies that threaten U.S. economic and national security in a scathing report released by the White House as trade tensions with Beijing escalate.

The report, posted late Tuesday in Washington, claims that China’s spectacular economic growth “has been achieved in significant part through aggressive acts, policies and practices that fall outside of global norms and rules.”

“Given the size of China’s economy and the extent of its market-distorting policies, China’s economic aggression now threatens not only the U.S. economy, but also the global economy as a whole,” according to the 35-page document.

The White House report is the latest salvo in the trade war between the world’s two largest economies. Its release came a day after President Donald Trump ordered U.S. trade officials to consider imposing tariffs on an additional $200 billion in Chinese imports — with another $200 billion to be added if Beijing retaliates.

On the other side of the Pacific, economists are starting to run the numbers on what kind of dent to growth such actions will have on China’s economy. Bloomberg Economics’ Tom Orlik and Fielding Chen write that the impact of decreased exports and lower manufacturing investment could add up to a 0.5 percent blow to gross domestic product.

A pull back in Chinese investment in the U.S. is already evident. Research from Rhodium Group LLC showed Chinese companies completed acquisitions and greenfield investments worth $1.8 billion in the first half, representing a drop of more than 90 percent from the same period in 2017 and the lowest level in seven years.

The trade skirmishes are not holding back the U.S. economy just yet, which is booming this quarter as tax cuts power consumers and businesses. Still, as risks to that outlook mount, economists are pointing to higher checkout prices on a range of tech, apparel and household goods for U.S. consumers should Trump follow through with his latest tariff threats.

Just last week, Trump unveiled plans to implement previously announced tariffs on $50 billion in primarily industrial goods. China has said it will match those levies in kind, and has already responded to earlier duties on metals imports.

The U.S. government has long complained that China obtains American intellectual property and technology through underhanded means, and the White House report restated many of those concerns, including about hacking, physical theft of trade secrets and evasion of export control laws.

The Chinese government says that it is working to improve intellectual property protection. Companies surveyed by the European Union Chamber of Commerce do see some improvement, though a slim majority say protection of intellectual property in China is still inadequate.

“Physical theft through economic espionage by company insiders or others who have trusted access to trade secrets and confidential business information provides China with a significant means to acquire U.S. technologies and intellectual property,” the White House report charges.

The report, titled “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World,” does not make any specific policy recommendations. Yet it codifies some of the administration’s arguments for a more aggressive stance toward China over trade.

Besides the volleys of tariffs on goods from China, the Trump administration is also considering measures that would restrict Chinese investment in sensitive American technology.

Ownership Restrictions

The report also accuses China of openly protecting domestic industries from competition and imports through tariffs, regulation and restrictions on foreign ownership. It also says China offers financial support to bolster its exports to foreign markets.

It adds that Chinese state-owned companies pose an additional threat to overseas firms, given their close ties to the Beijing government.

The government itself dominates many industries and plays an enormous role in investment decisions and strategy. For instance, the report says, until 2014, state-supported foreign investment funds was directed toward acquiring natural resources. Now, that focus has shifted to technology.

“China’s biggest sovereign wealth fund, the China Investment Corporation, has used a significant fraction of the $800 billion of assets under management for a venture fund focusing on Silicon Valley,” the report says.

The report was prepared by the White House Office of Trade and Manufacturing Policy, an entity led by Peter Navarro, who has emerged as a forceful advocate within the administration for an aggressive tariff policy toward China. As supporting evidence, it cites surveys by other government agencies and policy institutes as well as newspaper articles.

The U.S. imported $505 billion of goods from China last year and exported about $130 billion, leaving a 2017 trade deficit of $376 billion, according to U.S. government figures.

China, for its part, has vowed to retaliate “forcefully” against the latest proposed tariffs. Declines in Chinese stocks and the yuan came to a halt Wednesday as the government stepped up efforts to limit trade tension fallout.

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Author: HEDGE

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