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US Probe Raises More Talk of Trade War With China

FILE - This combination of file photos shows U.S. President Donald Trump, March 28, 2017, in Washington (left), and Chinese President Xi Jinping, Feb. 22, 2017, in Beijing.

President Donald Trump’s recent decision to launch an investigation into concerns about market access in China and the theft of American intellectual property, either through hacking or opaque policies and regulations that force companies to hand over trade secrets, has Beijing warning of a possible trade war.

Others, however, say it is about time China got a wakeup call.

For years, intellectual property theft and policies regarding market access in China have been a point of concern, not only for the United States, but for other foreign companies investing there.

“It’s clear that in many areas Chinese policy is violating the spirit if not the letter of the WTO ... and the Chinese government doesn’t show any signs of backing down or changing their behavior,” says Robert Atkinson, president of the Washington D.C.-based Information Technology and Innovation Foundation. “This is hurting not only American companies and the American economy, but it is hurting the global economy as well because when you do that (engage in theft or force the hand over of it) there is less innovation.”

Trump administration officials estimate theft of intellectual property could be as much as $600 billion. But when you take Europe and other countries into account, the losses are even bigger, Atkinson added.

And while it is still too early to tell how the investigation will play out, the announcement has Beijing on edge. Chinese State media has warned of a possible trade war the investigation could trigger, and Chinese authorities have pledged to take all “appropriate measures” to protect its rights and interests if needed.

On Tuesday, a statement from China’s Commerce Ministry called the move to launch a Section 301 investigation “irresponsible,” arguing it sends the wrong signal to the world. Beijing also predicted the move would be widely condemned.

"The United States' disregard of World Trade Organization rules and use of domestic law to initiate a trade investigation against China is irresponsible, and its criticism of China is not objective,” said a statement from an unnamed ministry spokesman posted online.

FILE - The entrance of the World Trade Organization (WTO) headquarter in Geneva, Switzerland.
FILE - The entrance of the World Trade Organization (WTO) headquarter in Geneva, Switzerland.

Prior to the establishment of the WTO, the United States used Section 301 of the Trade Act of 1974 to help open foreign markets. Such investigations were used frequently against Japan in the 1980s, but since the establishment of the WTO it has largely been set aside. The United States has launched investigations since then, but has not used the powers it gives the president to unilaterally impose tariffs or other restrictions to protect American companies.

How President Trump will use the results of the investigation is unclear. While most, including China, have focused on the possibility that he could ignore the WTO, that is not his only choice.

The investigation could also be used as leverage in negotiations or the United States could join with other like-minded countries in trying to address China’s market restrictions, analysts say.

Liao Qun, chief economist at China CITIC Bank International said while it will take a while to see the results of the investigation and the impact it might have on U.S.-bound Chinese exports, he thinks the push could eventually fail.

“This (the use of Section 301) is something that is controversial, even in the United States, and the Trump administration is facing many challenges,” Liao said. “Many of his policies have been blocked or overturned.”

Liao added that if the United States does take action, it is likely to trigger a trade war.

But that is something that began a long time ago, some analysts argue.

“There is a trade war going on right now and the Chinese are fighting it and we’re losing. This notion that there is not a trade war (is false), said Robert Atkinson. "There is a trade war and a trade war has been going on essentially since China joined the World Trade Organization.”

Beijing appears to already have taken some steps to limit the potential impact of any action the United States could take.

This year, China’s State Council has twice announced new measures to reduce access restrictions for foreign investments. It's most recent announcement calls for draft road maps and timetables.

Recently, China announced new reductions in its list of areas where investment is banned. That list has been getting shorter, but many barriers remain.

FILE - MasterCard and VISA credit cards are seen in this illustrative photograph taken in Hong Kong, Dec. 8, 2010.
FILE - MasterCard and VISA credit cards are seen in this illustrative photograph taken in Hong Kong, Dec. 8, 2010.

China’s recent approval of market access for Visa and Mastercard is one good example of just how difficult the Chinese market is to crack, said Christopher Balding, an associate professor at Peking University’s HSBC Business School.

“As part of the WTO agreement, they (Visa & Mastercard) were supposed to be let into the Chinese market,” he said. “The WTO agreement was in 2000 and they are still trying to get into the Chinese market.”

As for the investigation, a public hearing is scheduled for October and the investigation could take months before any official response is announced.