The Trump administration said in a statement: “to protect national security, specifically intellectual property; the U.S. intends to implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.”
Many of those following this issue were caught taking a deep breath following what seemed like a deal had been struck last week. But this latest flip-flop could damage the credibility of the U.S. and President Trump. That’s not exactly a good thing right before entering a month of essential negotiations around both trade and denuclearizing North Korea.
Meanwhile, “the United States will continue to pursue litigation at the World Trade Organization (WTO) for violations of the Agreement on Trade-Related Aspects of Intellectual Property Rights based on China’s discriminatory practices for licensing intellectual property.” A case was filed regarding these violations in late March. In front of the WTO board, the Chinese have vehemently argued against these allegations.
An article in Reuters infers the Chinese were very much aware of the newly imposed tariffs:
“Chinese and U.S. envoys sparred at the World Trade Organization on Monday over U.S. President Donald Trump’s claims that China steals American ideas, the subject of two lawsuits and a White House plan to slap huge punitive tariffs on Chinese goods.”
Furthermore, the U.S. will take multiple steps against China’s “certain discriminatory and burdensome trade practices.” These steps include a 25 percent tariff on $50 billion in Chinese imports, many of which fall in the technology industry. Officials have long contended that China has engaged in theft of intellectual property and unfair practices such as forced technology transfers. Both issues would have been expected to be ironed out in the agreement which Secretary of the Treasury, Steven Mnuchin has been working on diligently. Last week he made rounds on several news programs appeared very confident and optimistic about the progress made with the trade deal.
According to the White House, the tariffs “will be implemented in accordance with Section 301 of the Trade Act of 1974 and will include products affiliated with the “Made in China 2025 Plan.” The strategy is a 2015 Beijing initiative promoting the country’s information technology, high-end machinery and robotics, aerospace, marine equipment and ships, advanced rail transport, new-energy vehicles, electric power, agricultural machinery, new materials and bio-medical sectors.
TRADE NEGOTIATIONS WILL CONTINUE
“The United States will continue efforts to protect domestic technology and intellectual property, stop noneconomic transfers of industrially significant technology and intellectual property to China, and enhance access to the Chinese market,” the White House also said.
Assessing these fines may be a calculated move by the Trump team or just an excellent head fake. Either way, we will know soon enough. The final list of covered imports subject to penalty will be announced by June 15 and imposed shortly thereafter. The proposed investment restrictions will be published by June 30 and take effect at a later date. Between now and then investors might want to buckle in because anything with a hint of trade war sends the stock market into a frenzy.