Trump goes it alone against China

This first appeared on RealClearPolicy on June 20, 2018.

 

President Trump’s foreign policy is shaped by one fundamental idea: America carries too great a burden in the international system. He’s criticized the United Nations, the International Monetary FundNATO, and many other international agreements on the grounds that the U.S. pays too many of the international system’s bills.

It’s ironic, then, that Trump chooses to go it alone in confronting China’s intellectual property violations. There is widespread recognition in the international community that IP theft is a problem. Yet, the decision to introduce new tariffs on over $30 billion of Chinese imports leaves the United States uniquely vulnerable to trade retaliation.

Why Raise Tariffs?

The recent investigations into China’s IP practices date back to August of 2017. Section 301 of the Trade Act of 1974 give U.S. authorities the ability to examine and respond to discriminatory trade policies abroad, including IP theft.

U.S. firms and trade lawyers allege that China fails to prevent illegal transfer of intellectual property. Similar concerns are nothing new for industries traditionally vulnerable to piracy, such as software and media. However, the recent complaint goes further. Focusing on the theft of trade secrets broadens the scope of the complaint to a wider variety of industries — for example, cars, consumer electronics, and steel.

It’s no coincidence that the price tag attached to IP theft is so high. Estimates place the losses from these violations between $225 and $600 billion a year. While these losses are hard to measure with precision, it’s a significant amount of money by any standard.

Hence, the White House’s response: increasing tariffs on more than 500 products with many more looming in the future.

Are Tariffs the Right Response?

At home, there is bipartisan support for the idea that IP theft is a pressing problem. It’s revealing that senior Democrats, who otherwise share very little common ground with Trump, praised the White House’s tough stance.

There is widespread agreement that the U.S. should protect its firms’ interests. The disagreement is over whether unilateral action is the best approach.

For one thing, there’s already a system in place to address alleged IP violations. The World Trade Organization includes lengthy provisions on trade-related intellectual property. These provisions are designed to ensure that members respect the rights of foreign firms. And, if abuses do occur, members are permitted to use the WTO’s dispute system to sue one another, as has happened 39 previous times.

Yet, Trump has shown little interest in utilizing international trade law. The U.S. filed suit against China in March of this year but that hasn’t stopped the president from moving forward with new tariffs. In fact, rather than leaning on international trade law, Trump has repeatedly undermined the WTO’s legal authority. Dating back to early in his term, Trump accused the WTO of treating the United States unfairly, stating that the U.S. would ignore adverse legal rulings.

Certainly, opinion is mixed regarding the WTO’s effectiveness. In January, the Office of the U.S. Trade Representative issued a report on how agreeing to China’s accession was, in a word, a mistake. However, by casting doubt on the WTO, Trump has closed off a mutually accepted, legal mechanism for protecting U.S. interests. Not least, operating outside of the system increases the threat of trade retaliation.

Beijing’s response has been swift and definitive. In the immediate aftermath of Trump’s announcement, China carried through on its promise to retaliate by raising duties on automotive and agricultural products. While Chinese officials still insist they wish to avoid a trade war, they have also shown a willingness to “fight back.” This is precisely why Trump’s trade policies continue to splinter the Republican Party. Kevin Brady (R-TX) replied to the announcement by noting that the tariffs will miss their target and “will instead hurt American manufacturers, farmers, workers, and consumers.”

It’s an unnecessary risk to take. The White House seems to overlook the fact that the United State isn’t alone in suffering from IP violations. European Union officials, for example, have stated that intellectual property theft “is a particular problem in China.” And Canada’s Trade Commissioner Service provides advice on protecting rights when doing business in China, identifying it as one of the “principal difficulties” of doing business.

Given widespread recognition of the problem, there is an opportunity to build a coalition of markets with shared interests in more robust IP protections. The more forceful response would be to harness other countries’ support. Instead, Trump alienated major powers at the recent G7 meeting with additional accusations of trade abuses.

Moving Forward

Recent developments show how much can change in just a few weeks. Last month, the Trump lauded a new deal with China to reduce America’s trade deficit and avoid a looming trade war. All that seems a long way off now.

As tensions continue to escalate, the U.S. finds itself increasingly isolated. It’s a curious strategy from a White House preoccupied by the idea that the U.S. is the world’s “piggy bank.” If Trump is ever going to choose a more cooperative approach, now is the time.