By Bob Davis
WASHINGTON -- The White House is preparing to crack down on what
it says are improper Chinese trade practices by making it
significantly more difficult for Chinese firms to acquire advanced
U.S. technology or invest in American companies, individuals
involved in the planning said.
The administration plans to release on Thursday a package of
proposed punitive measures aimed at China that include tariffs on
imports worth at least $30 billion.
But the tariffs won't be imposed immediately. Rather, U.S.
industry will be given an opportunity to comment on which products
should be subject to the duties. As part of the package, the White
House will announce possible investment restrictions by Chinese
firms in the U.S. and will direct the Treasury Department to
outline rules governing investment from China.
Final details of the plan, including the amount of imports to be
hit by tariffs, remain in flux, those involved with the discussions
said. While the rough amount and rationale for the tariffs are
expected to be disclosed on Thursday, the final decisions will come
once U.S. industry has had its say, they said.
A White House spokeswoman declined to comment.
The effort stems from a monthslong investigation by the
administration into Chinese intellectual property practices that
found the damage to U.S. companies from forced technology transfer
is $30 billion annually.
The administration has warned Beijing that it risked tariffs if
it didn't significantly liberalize its market and eliminate
practices that disadvantage foreign firms.
While the administration's plans to put tariffs on China have
received most of the attention, the administration is considering
other significant penalties, especially those aimed at state-owned
Chinese firms. It plans to argue that Chinese state-owned firms buy
U.S. technology not for commercial purposes, but to apply for
military use and otherwise gain an edge in the race for global
technological dominance.
The administration believes that Beijing, in requiring U.S.
companies to form joint ventures to do business in China, then
pressures them to transfer important technology to their Chinese
partners. The U.S. also contends Beijing improperly subsidizes
Chinese companies looking to overtake U.S. rivals in such advanced
technologies as semiconductors, artificial intelligence and
robotics.
Chinese officials have said that they are improving their
protection of intellectual property and liberalizing their economy.
They also complain that the U.S. hasn't given them a specific list
of demands that they need to meet to head off tariffs.
The country's responses to challenges from President Donald
Trump loomed large as China's leaders closed out an annual
political gathering on Tuesday.
Premier Li Keqiang, the titular No. 2 leader, struck a
conciliatory tone on trade with the U.S. At a news briefing in
Beijing's Great Hall of the People, Mr. Li said "there are no
winners" in a trade war between the world's two largest economies,
and appealed for calm.
People involved in the planning say the Trump administration is
looking at making reciprocity the core of U.S. investment relations
with China, meaning that the U.S. would impose restrictions on
Chinese investment similar to those that U.S. firms face in China.
That could mean that the U.S. would insist on Chinese firms to form
joint ventures before doing business in the U.S., unless China
dropped those restrictions.
The U.S. has already made it more difficult for Chinese
companies to invest in the U.S. by blocking Chinese bids to
purchase U.S. semiconductor firms. That is done by an interagency
review of foreign acquisitions by the Committee on Foreign
Investment in the U.S. Congress is looking to broaden CFIUS reviews
of acquisitions so they include joint ventures too.
The expansion would include reviews of technology transfers to
foreigners and could apply to joint ventures both outside and
within the U.S. But CFIUS looks solely at national security
concerns. The administration wants to address economic harm as
well, according to these people.
Any imposition of tariffs, without going first to the World
Trade Organization, is sure to prompt a chorus of criticism not
just from Beijing but from U.S. industry, which has opposed tariffs
as counterproductive. The WTO adjudicates trade cases and has the
power to authorize tariffs in cases where a losing party doesn't
change its practices. The administration is also considering
bringing a case against Chinese trade practices that are covered by
the WTO.
Oregon Sen. Ron Wyden, the senior Democrat on the Senate Finance
Committee, said he opposes the broad imposition of tariffs.
"American producers who haven't gotten a fair shake in the past
aren't going to get that back by just have tariffs slapped on
imports indiscriminately," he said.
Tariffs are bound to cause China to retaliate, said Clement
Leung, Hong Kong's representative in the U.S. Chinese officials
"cannot show any weakness" at a time when the country's leader, Xi
Jinping, has just been confirmed for his second term, Mr. Leung
said. Hong Kong, a trading center that operates somewhat
independently from the rest of China, would be hurt by limits on
trade.
Whatever the political blowback, Harvard law professor Mark Wu,
a trade expert, says that the White House has authority to impose
tariffs under section 301 of the Trade Act of 1974.
"In situations where the U.S. Trade Representative deems unfair
trade practices to fall outside the scope of a WTO-covered
agreement, then the statute permits the executive branch to take
action directly without first seeking recourse through WTO dispute
settlement" procedures, he said.
Frustration with Chinese trade practices has been building among
both the governments and private sectors of the U.S., Japan and
Europe. One reason the U.S. is considering a separate WTO case is
to try to recruit allies to pressure China. But any move to impose
tariffs could allow Beijing to portray itself as a victim.
Coalition-building has become more complicated in the wake of a
separate U.S. action to levy tariffs on steel and aluminum imports
from allied nations.
For instance, finance ministers and central bankers from the
Group of 20 countries, meeting in Buenos Aires on Tuesday, failed
to reach any new agreement on shared principles when it comes to
trade policies, as the split between the U.S. and other major
economies deepened over the U.S.'s tariff policies.
The administration is considering recommendations from two other
reports that would impose draconian investment restrictions on
China. The U.S.-China Economic and Security Review Commission, a
Congressional panel that takes a hard line on China, last year
urged the administration to prohibit "the acquisition of U.S.
assets by Chinese state-owned or state-controlled entities,
including sovereign wealth funds."
A report for the Pentagon by its Defense Innovation Unit
Experimental, which examines technology issues, has recommended
that the Pentagon pursue a policy of "deterring Chinese technology
transfer" by broadening CFIUS's mandate and strengthening export
controls on technology to China.
China Investment Corp, Chinese sovereign-wealth fund which could
get hit by sanctions, is putting together a fund targeting as much
as $5 billion with Goldman Sachs Group Inc., aimed at investing in
U.S. manufacturing and other sectors. CIC hopes the fund would pass
muster with U.S. regulators, say those people familiar with the
plans.
It is unclear how far the administration will go in pursuing
these ideas. Blocking the acquisition of all purchases by Chinese
state firms, for instance, would mean that Chinese state-owned
airlines couldn't buy Boeing jets. Toughening export controls on,
say, semiconductor production machinery could cede the market to
European vendors.
The administration's actions on China come on the heels of plans
to levy tariffs on steel and aluminum imports. Japan, Korea and the
European Union are scrambling to get exemptions from those levies,
which are set to go into effect on Friday.
--William Mauldin contributed to this article.
(END) Dow Jones Newswires
March 20, 2018 20:59 ET (00:59 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.