U.S.–China Week: Trump’s tech and IP trade investigation, Bannon out after China interview, North Korea (2017.08.21)

Welcome to Issue 109 of U.S.–China Week. As always: Please encourage friends and colleagues to subscribe to U.S.–China Week. Here is the web version of this issue, ideal for sharing on social media, and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

TRADE + INVESTMENT
Trump administration opens ‘Section 301’ investigation into China’s technology transfer, IP, innovation policies

Within a week after President Donald Trump ordered a review of whether to investigate Chinese trade and investment practices under Section 301 of the 1974 Trade Act, U.S. Trade Representative Robert Lighthizer announced that the review was followed by a decision to open an investigation. The 10-page official documenton the initiation of the investigation defines its scope as “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are actionable” and announced a comment period lasting through Sept. 28 and a public hearing Oct. 10. In announcing an investigation, USTR directly called out: “China’s ‘Made in China 2025’ industrial plan,” “joint venture requirements,” “vague and unwritten rules,” “unfair[]” reported government instructions or support for strategic investments or acquisitions, and other grievances.

Former Congressman and WTO judge James Bacchus wrote in a WSJ op-ed: “Before taking unilateral action in violation of international law, the Trump administration should bring cases against China at the [WTO]. It stands a good chance of winning precedent-setting judgments, which the WTO would enforce through economic sanctions. … Some in the Trump administration evidently assume that protectionist Chinese actions aren’t covered by WTO rules, but a lot of them are. …If the U.S. insists on acting unilaterally under the Trade Act, the Chinese are correct that this would break WTO rules. … Before the U.S. damages the trading system by acting unilaterally, White House lawyers should read the fine print of the rule book.” China’s government reacted in a predictably negative way, with a Ministry of Commerce statement promising to “resolutely defend China’s lawful interests” (Xinhua Chinese).

ANALYSIS: The framing for the USTR investigation, which clearly was decided well before Trump’s order to consider investigating, leaves the U.S. government with a wide range of potential choices. In essence, the Trump administration has just threatened to take unspecified actions against Chinese practices—actions that are unilateral, use the president’s discretion, and may substitute for measures that could be taken at the WTO. Still, there appears to be a political consensus that WTO tools alone are not commensurate with the economic challenge from China’s allegedly unfair competitive practices. Even WTO champions recognize the need to update the international trade regime—though their preferred course for doing so was frustrated with the abandoning of the Trans-Pacific Partnership.

Though the investigation resonates with some of Trump’s political rhetoric about unfair competition from China, it notably does not target industries closely connected with factory, mining, or mill jobs. (See next item for a suggestion that those actions could be next.) One question is how this move interacts with a broad, bipartisan consensus that more “reciprocity” is called for in China trade and investment relations. Is a 301 investigation a reciprocal move reflecting Chinese practices that also lay outside the WTO framework, or might it turn out to be one move in a tit-for-tat downward spiral with unknown limits? In both a reciprocity model and tit-for-tat interactions, the result of the two sides’ moves will depend on how their leverage lines up with their objectives.

THE PRESIDENT’S MEN
Trump adviser Bannon leaves White House after remarkable China-focused phone call to liberal magazine

Steve Bannon—one of the most darkly controversial figures in Trump’s orbit who is famous for provocative media strategy, economic populism, and at minimum a symbiosis with white nationalism—was reportedly forced out of his position as chief White House strategist. Though Bannon’s exit coincided with immense blowback from the president’s own failure to clearly condemn white nationalists and others on the radical right, it is likely (perhaps also) related to Bannon’s phone call to American Prospect cofounder Robert Kuttner in which he undermined the administration’s position on North Korea and outlined his vision of China policy. Though some suspect Bannon thought he was off the record, Kuttner reported the conversation, saying “the question of whether the phone call was on or off the record never came up.”

“We’re at economic war with China,” Bannon said, according to the report. He argued for stronger measures against China economically and against withholding pressure on China in hopes of greater cooperation on the North Korean nuclear and missile program. The quote that most obviously broke with administration policy was: “There’s no military solution [to North Korea’s nuclear threats], forget it. Until somebody solves the part of the equation that shows me that ten million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about, there’s no military solution here, they got us.” Kuttner reported that Bannon’s plan to “be maniacally focused on [the economic war with China]” included a 301 investigation on technology transfer, followed by further 301 actions on steel and aluminum dumping. Bannon said other members of the administration were “wetting themselves” over the 301 investigation. Not only were other officials unhappy, he claimed, but he said he was changing Asia officials at the Pentagon and was ousting Acting Assistant Secretary of State for East Asian and Pacific Affairs Susan Thornton, a diplomat who has been acting in that position since her Obama-era predecessor under whom she worked departed.

ANALYSIS: The big question for U.S.–China relations is what Bannon’s departure means for U.S. policy toward Asia. Josh Rogin stated well a common view that the part of the administration that wants to act strongly against China on economic issues has lost a high-level champion in the White House, and that more cautious remaining figures could gain strength. An FT report argued the opposite side. While terms like “economic war” might lose currency among White House decision makers, it will be hard to tell what difference Bannon’s departure really makes, and the answer may hinge on whether his professed influence was really ever so great. Even an influential adviser would have trouble assembling on their own the type of action Bannon claimed as his own agenda. Bannon’s voice is surely unusually loud, but it may well have been more a reflection than a driver of the administrations tendencies.

KOREAN PENINSULA
Top U.S. general in China for mil-mil cooperation; U.S.-South Korea war games; Tweaking China’s “freeze-for-freeze”

  • Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford reportedly met with People’s Liberation Army officers at the Northern Theater Command in Liaoning near the border with North Korea on a trip that also included stops in Japan and South Korea.
  • A 10-day U.S.–South Korean “computer simulated” joint exercise began Monday.
  • A provocative idea from my Yale colleague Rob Williams, who argues at Lawfare that the U.S. government should take China’s support for a “freeze-for-freeze” deal seriously, but not without adjustment. In the conventional form of the deal, “North Korea would suspend its nuclear and missile testing in return for a suspension of U.S.-South Korean joint military exercises.” Instead, the U.S. government might consider a “freeze-plus-pressure” maneuver in which the United States and South Korea would promise not to hold the next scheduled joint exercises if both North Korean adherence to a freeze and measurably stronger Chinese pressure start now.

#USChinaWeek1967
‘Romney Bids U.S. Encourage China: Calls for Flexible Position on Her U.N. Admission’

“ANN ARBOR, Mich., Aug. 18[, 1967] — Gov. George Romney told the International Congress of Orientalists tonight that ‘it would be in the common interest for mainland China to enter into the community of nations and accept the responsibilities which that entails.’ In a speech at The University of Michigan, he said that ‘the possibility of such a change may appear remote, but we should spare no reasonable effort to encourage it. Mr. Romney recommended the following courses of action: ‘Unyielding support for continued United Nations membership for Nationalist China’; ‘Strong international encouragement’ for Communist China to end her isolation; ‘Clear recognition that Communist China must accept the responsibilities of membership in a spirit consistent with the principles of the Charter before admission.'”

(Source: The New York TimesThis entry is part of an ongoing feature of U.S.–China Week that follows U.S.–China relations as they developed in another era of change and uncertainty, 50 years ago.)

ABOUT U.S.–CHINA WEEK

U.S.–China Week is a weekly news and analysis brief that covers important developments in U.S.–China relations and features especially insightful or influential new policy analysis.

Graham Webster is a senior research scholar, lecturer, and senior fellow of the Paul Tsai China Center at Yale Law School, where he specializes in U.S.–China diplomatic, security, and economic relations through research and Track II dialogues. He is also a fellow for China and East Asia with the EastWest Institute. His website is gwbstr.com.

Disclaimer: Opinions expressed here are my own (and I reserve the right to change my mind).

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