The Trump Administration recently proposed a host of economic sanctions on China under Section 301 of U.S. trade law, including 25 percent taxes on imports of aerospace products, information and communication technology goods, and machinery used by U.S. manufacturers. The proposals also include restrictions on investment involving “sensitive” technologies. The sanctions are allegedly intended to change China’s economic policies and promote “fairness.” They will do neither.
The U.S. sanctions are supposed to address problems like “forced technology transfer,” “forced joint ventures,” and “forced licensing” provisions imposed by China on U.S. companies.
These problems are real, but there is nothing “forced” about them. U.S. companies that don’t want to comply with demands to transfer their technology in order to manufacture in China can simply choose to produce in places like Baltimore instead of Beijing. A company choosing to transfer tech in order to do business in China is making a voluntary business decision.
The ironic thing about the Trump Administration’s Section 301 demands is that, if successful, they would actually encourage a dramatic shift in manufacturing to China. If U.S. companies knew they could produce in China without having to worry about losing their intellectual property, relocating manufacturing operations to mainland China would suddenly become much more profitable.
Although the Trump Administration’s Section 301 case seems to be designed to make China a more attractive place to do business, in reality there is little chance China will make anything more than cosmetic changes in response to U.S. demands. Significantly altering its policies in response to U.S. economic threats would open China to escalating demands in the future. That’s one reason U.S. demands may actually discourage China from making meaningful economic reforms that would be in the country’s self-interest. The most likely reaction is not change, but retaliation. In this case, China has already proposed to respond by restricting U.S. exports of 128 products ranging from pork to wine.
Proposed new U.S. restrictions on Chinese investment in the United States could also be problematic. They are not just restrictions on China, but on Americans. There’s not much more American than the right to own and sell your property.
According to data from the China Global Investment Tracker, 87 percent of Chinese investment in the United States since 2005 has been in non-tech sectors like real estate and tourism. Any limits on Americans’ property rights should be carefully targeted to apply to legitimate national security threats, not routine business transactions.
The Section 301 trade and investment restrictions were partly motivated by concern about policies that “contribute to our trade deficit with China.” Setting aside the questionable merits of focusing on bilateral trade deficits as a policy goal, President Trump already has it in his power to slash the U.S.-China trade deficit overnight. He just needs to direct the Bureau of Economic Analysis to classify sales of Treasury bonds to China as exports.
Weaponizing U.S. consumers in a new trade war on China is misguided. Control of individuals’ trade and investment decisions by the central government is a trait of communist governments like China’s, not market-oriented governments like America’s. The Trump administration’s unilateral trade actions may not make China more like the United States, but they will make the United States more like China. In that respect, Americans have already lost.