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Actually, it’s neither. While it is hard to call a memo that merely mandates an investigation of whether to investigate Chinese unfair trade practices a “historic document” (as administration officials repeatedly have done in background briefings), it is also true that it does signal that the Trump administration may finally move beyond the la-la land euphoria coming out of the Trump-Xi Jinping Mar A-Lago summit. Tentative applause, however, comes with substantial questions and doubts concerning timing, substance, and execution of future US actions against Chinese high-tech mercantilism.
What specifically is the focus of the proposed investigations? First, the memo targets the broadscale theft of US intellectual property, amounting to hundreds of billions of dollars. Second, the administration also condemned the forced (“coercive”) transfer of technology as a condition of operating in a country. It also takes direct aim at Beijing, stating that Chinese laws and regulations for high-tech sectors “undermine American manufacturing, services, and innovation.” The president underscored the sense of urgency when he complained that “our foolish past leaders have allowed (China) to make hundreds of billions of a year in trade . . . we can no longer allow this to continue.”
In this relatively short blog space, here are brief comments outlining my reservations.
Questions on timing
Given the president’s vow, the big question is why serious action was potentially put off for months. While US Trade Representative Robert Lighthizer was quick off the mark to make the preliminary determination, administration officials stated that the official investigation itself could last for up to an additional year. This gives a signal of non-seriousness to Beijing and opens the administration to scorn — as it got from Democratic Minority Leader Chuck Schumer (D-NY), who charged that merely announcing you are still deciding “whether to investigate China’s well-documented theft of our intellectual property is another signal to China to keep on stealing.” Partisan shot or not, Schumer has a point.
It is understandable that the administration would not want to anger China in the midst of the crisis with North Korea or before a presidential trip to Beijing in the fall. But while diplomacy and security can trump economics in the short term, the grave challenges presented by China’s blatant high-tech mercantilism are already wreaking destructive consequences. That is why last week I strongly supported the argument made by the Council on Foreign Relations’ Jennifer Harris that a new China strategy “should be a priority on its own and not a ploy to compel Chinese cooperation against North Korea.”
Intellectual property and forced tech transfer
Both areas are candidates for top-priority action that also present challenging obstacles to execution. On intellectual property (IP), the administration’s investigatory palm off to the United States Trade Representative (USTR) seems inadequate. Determining IP theft and then tracing and identifying its competitive utilization — particularly in the high-tech patent and copyright areas — will take deep digging and analysis. While there is much hand-wringing over the loss of billions of dollars from IP theft, no one has undertaken the task of pinpointing specific examples of purloined technology or software. This will take a “whole of government” strategy that brings in (depending on the particular circumstances) the expertise of the FBI, the US Patent Office, the International Trade Commission, and possibly the Federal Trade Commission. Allegations without facts will undermine the administration’s ultimate move to retaliation.
Further, confusion still obtains as to just what IP theft will be targeted. (Former) Admiral Dennis Blair, who chaired a widely touted IP commission report, and former National Security Agency Director Keith Alexander recently penned an op-ed in which they included theft of defense technology in their list of culpable offenses. Their examples included US weapons systems and technology — F-15 and F-35 designs and the Aegis Combat System — but they failed to acknowledge that military espionage and IP theft is practiced by many nations, including the US.
The more relevant targets include Chinese economic cyber espionage, where Chinese officials or their private partners steal technology and pass it on to Chinese companies. At an Obama-Xi summit in 2015, the US extracted a pledge from China not to purloin trade secrets and pass them along. Obama’s national security team monitored Chinese economic cyber action closely thereafter, and hopefully the Trump administration has kept up this high level of scrutiny.
Regarding forced technology transfer, there are also difficult challenges. First, there is the threshold issue: Will US high-tech multinationals come forward as examples — guinea pigs — for US government actions? Press reports have given evidence that US technology companies, despite their legitimate complaints against Chinese anticompetitive practices, are wary of drastic countermoves by the Trump administration. And some companies, despairing of support from Washington, have already reached accommodation with Chinese authorities: Qualcomm is partnering with a Chinese company to produce server chips; Intel and IBM have licensed chip technology to a Chinese company with ties to the military; and both Microsoft and Amazon have Chinese partners in the cloud computing field.
To conclude, here are several observations and recommendations:
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