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Trump administration to act against alleged China trade violations

President Trump with President Xi Jinping of China at Mar-a-Lago in Palm Beach, Fla., in April. Photo: The New York Times

The Trump administration is preparing a broad move against China over trade, according to people with knowledge of its plans, amid growing worries in the United States over a Chinese government-led effort to make the country a global leader in microchips, electric cars and other crucial technologies of the future.

The move, which could come in the next several days, signals a shift by the administration away from its emphasis on greater cooperation between Washington and Beijing, in part because administration officials have become frustrated by China's reluctance to confront North Korea over its nuclear and ballistic missile programs.

The trade case will focus on alleged Chinese violations of American intellectual property, according to three people with a detailed knowledge of the administration's plans. The people spoke on condition of anonymity because the deliberations are not yet public.

China's policy to become a leading manufacturer by 2025 in the fields of driverless cars, medical devices, semiconductors, artificial intelligence, robotics and many other technologies has caught the attention of Trump administration officials. The policy, known as Made in China 2025, sets goals for China to be a global leader in ten fields of industry with the help of massive infusions of state money and the protection of those industries from American competitors.

At the same time, the Chinese government has demanded that American companies cut the licensing fees that they charge for key patents, and has insisted that companies set up joint ventures to do business in China.

US and other Western governments and business groups accuse Beijing of unfairly nurturing Chinese competitors — in such fields as medical equipment, renewable energy and electric cars — by requiring foreign firms to hand over proprietary technologies in exchange for being allowed to operate in China.

American companies have long complained that Chinese competitors steal their technology and use it to compete against them. Being forced to hand over technology to gain access to the Chinese market adds to the risk.

China's Ministry of Commerce did not immediately respond to a faxed request for comment.

The Wall Street Journal and New York Times also reported that US trade officials are discussing ways to counter piracy of copyrights and patents and other intellectual property in China.

US Commerce Secretary Wilbur Ross, in a commentary in Tuesday's Wall Street Journal, outlined a slew of grievances against both China and the European Union that he said contributed to the global US trade deficit in goods of $725.5 billion in 2016.

"Both China and Europe also bankroll their exports through grants, low-cost loans, energy subsidies, special value-added tax refunds and below-market real estate sales, among other means," Ross wrote.

Under the process that the Trump administration plans to set in motion, the office of the US Trade Representative will start an investigation into China's trade practice. Following an investigation, which could be completed in as little as a few months, the US could impose steep tariffs on imports, rescind licenses or take other measures in response to other countries' burdensome or unfair restrictions on American commerce. The process is known as a Section 301 investigation, citing a section of the 1974 Trade Act.

The Chinese Embassy in Washington said in a statement to Reuters that China "opposes unilateral actions and trade protectionism in any form."

The US president has long railed against Chinese trade practices.

"Predatory trade practices, product dumping, currency manipulation and intellectual property theft have taken millions of jobs and trillions in wealth from our country," he said on the campaign trail last year, warning that if China did not stop its "illegal activities, including its theft of American trade secrets and intellectual property, I will apply countervailing duties until China ceases and desists."

He said enforcing intellectual property rules alone would add millions of new American jobs each year.

The Trump policy of cooperation began to founder after a crucial meeting in Washington on July 19 between top American and top Chinese officials, Trump administration officials and trade policy advisers said. That meeting, the so-called Comprehensive Economic Dialogue talks overseen by the Treasury and the Commerce Departments, had been aimed at producing a series of trade deals that could be portrayed as an "early harvest" in the three months following President Trump's summit with President Xi Jinping of China last spring at Mar-a-Lago.

The two sides were unable to agree on any deals that went significantly beyond what China had previously promised the Obama administration. Both sides ended up abruptly canceling the news conferences they had previously scheduled to discuss what were supposed to have been their accomplishments.

On Wednesday, three top Democratic senators, in a rare show of bipartisanship, urged President Trump to stand up to China.

Senate Democratic leader Chuck Schumer pressed the Republican president to skip the investigation and go straight to trade action against China.

"We should certainly go after them," said Schumer in a statement. Senators Ron Wyden of Oregon and Sherrod Brown of Ohio also urged Trump to rein in China.

Leverage for negotiations

Section 301 investigations have not led to trade sanctions since the WTO was launched in 1995. In the 1980s, Section 301 tariffs were levied against Japanese motorcycles, steel and other products.

"This could merely be leverage for bilateral negotiations," James Bacchus, a former WTO chief judge and USTR official, said of a China intellectual property probe.

Some trade lawyers said that WTO does not have jurisdiction over investment rules such as China's requirements that foreign companies transfer technology to their joint venture partners, allowing sanctions to proceed outside the WTO's dispute settlement system.

But Bacchus argued the US has an obligation to turn first to the Geneva-based institution to resolve trade disputes, adding: "There is an obligation in WTO to enforce intellectual property rights that is not fully explored."

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