One overarching theme of the Trump administration’s trade policy has been their constant mixing of rationales for various trade restrictions. With the Section 301 investigation and resulting tariffs on Chinese imports, the U.S. Trade Representative has been trying to argue that the process is driven by China’s unfair treatment of U.S. intellectual property and also by China’s unfair use of industrial policy to compete with U.S. manufacturers.
The final list of tariff lines subject to a 25% duty increase starting July 6 is directly focused on addressing the industrial policy complaint, and I think it’s important that we not misconstrue it as an attempt to counteract or prevent China’s IP-related transgressions.
In announcing the final list of tariffs last Friday, USTR put both rationales side by side:
“We must take strong defensive actions to protect America’s leadership in technology and innovation against the unprecedented threat posed by China’s theft of our intellectual property, the forced transfer of American technology, and its cyber attacks on our computer networks,” said Ambassador Robert Lighthizer. “China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies like ‘Made in China 2025.’ Technology and innovation are America’s greatest economic assets and President Trump rightfully recognizes that if we want our country to have a prosperous future, we must take a stand now to uphold fair trade and protect American competitiveness.”
The stolen technology rationale has to be included in any official announcement, because it forms the entire legal basis for taking action under Section 301. That law empowers USTR to determine whether “an act, policy, or practice of a foreign country is unreasonable or discriminatory” and to then to impose trade restrictions in order “to obtain the elimination of that act, policy, or practice.” The Section 301 investigation was about China’s IP and investment policies, so that’s what the tariffs are for. But the announcement also explicitly states that the products on the list were chosen because of their connection to Chinese industrial policy:
The list of products issued today covers 1,102 separate U.S. tariff lines valued at approximately $50 billion in 2018 trade values. This list was compiled based on extensive interagency analysis and a thorough examination of comments and testimony from interested parties. It generally focuses on products from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles. The list does not include goods commonly purchased by American consumers such as cellular telephones or televisions.
At least one Congressional supporter of the tariffs mixed up the technology and industrial policy issues and tied the list of the products to “made from technology stolen from U.S. companies.”
I’ll admit that I haven’t done the research necessary to say this with absolute certainty, but it’s very difficult to imagine that state-sponsored industrial espionage had any role at all in the production of “most” of the 1102 products on the list.
In fact, there many products on the list that rely on decidedly old technologies—things like tires, engines, water heaters, scales, winches, bulldozers, buckets, plows, milking machines, printing presses, concrete mixers, glass-making machines, ball bearings, sprockets, flywheels, boat propellers, electric motors, soldering irons, television cameras, radio receivers, traffic lights, electrical fuses, arc lamps, flight data recorders, rail locomotives, automobiles, motorcycles, helicopters, airplanes, boats, mirrors, microscopes, lasers, survey equipment, X-ray machines, pacemakers, oscilloscopes, and thermostats.
The products on the list do, however, cover many of the major industry groups involved in the Made in China 2025 plan, including telecommunications, aerospace, maritime, rail, industrial agriculture, advanced manufacturing, and medical devices.
The Trump administration’s tariffs on Chinese imports are as much about technology policy as their steel tariffs are about national security. That is, not at all.
Instead, Trump is using China’s technology transfer requirements and vague accusations of cyber-espionage as an excuse to pursue its broader goal of employing tariffs to “rebalance” U.S.–China trade.
This is a truly unfortunate situation. While the administration may be hoping to impede China’s development of capital-intensive industries that can compete with American firms, the more likely consequence of the tariffs will be to reduce American industries’ ability to benefit from China’s development.