♠ Posted by Emmanuel in Litigation,Trade
at 3/23/2018 12:15:00 PM
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| Watch out: blowback may be severe. |
That Trump is improvising on trade policy with less-than-comprehensive details from his economic ministers is obvious. My favorite current example is that there isn't even clarity on whether the forthcoming tariffs on Chinese-made goods supposedly taking advantage of intellectual property [IP] violations are worth $50 or $60 billion dollars. Trump likes to style himself as a dealmaker, and so something in that range would be his "opening gambit." This, however, introduces a lot of market uncertainty as to who might be able to wangle "special deals" to limit the harshness of trade penalties.
What we haven then is the fog of trade war in the era of Trump. A reason why I haven't written more about these assorted China-bashing penalties is that, well, many of the details are still up in the air. From what we know so far largely based on (limited) information provided by the USTR, the intellectual property offensive has three parts to it:
I. The unilateral component - applying tariffs on IP-related Chinese exports makes use of the United States "Section 301" concerning sanctioning unfair trade practices by other nations. The reason most are unfamiliar with it is that the law was more widely used during the 1980s before there was a WTO to adjudicate such matters--when current US Trade Representative Robert Lighthizer was busy trying to bash the Japanese (not the Chinese) during the Reagan (not the Trump) administration. The whiff of antiquity about its current use is that it hasn't really been deployed all that much since, well, Trump made the old trade warrior Robert Lighthizer his point man after a hiatus of nearly four decades.
Usually, an order of the cease-and-desist variety (here of allegedly unfair trade practices) clearly states which behaviors must be halted immediately. Unfortunately for the Chinese, the grand signing ceremony was all show; Lighthizer has yet to unveil what exactly it is that will be targeted:
The President has instructed the Trade Representative to publish a proposed list of products and any tariff increases within 15 days of today’s announcement. After a period of notice and comment, the Trade Representative will publish a final list of products and tariff increases.So in response to $50-60 billion worth of Chinese goods to be penalized, the PRC has only identified $3B worth of American exports to China to retaliate against. It's early days still, and China cannot be expected to calibrate its response when these American unilateral actions are under a cloud. Alike the tariffs on steel and aluminum, these are eminently questionable from the standpoint of WTO legality. Speaking of which there is also...
II. The multilateral (WTO) component - for a guy criticizing the WTO for allowing unfair practices of American to persist for so long, it's interesting that Trump and his administration are nonetheless attempting to bring a case against China regarding IP. Just today, the United States filed a case there:
"China appears to be breaking WTO rules by denying foreign patent holders, including U.S. companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends," the U.S. Trade Representative's office said in a statement.Parts I and II are inconsistent in the sense that I undermines the whole WTO system by suggesting might makes right: because the US is such a powerful country economically, it can pretty do what it pleases unilaterally. Yet, in the same breath, II wants to use the very same WTO it undermines by taking such courses of action to pursue IP remedies. What will it be? China will certainly be looking at making its own WTO case against forthcoming tariffs on its goods in I. Maybe the real question in the meantime is whether the WTO still matters by then while the US alternately seeks to undermine and uphold it.
"China also appears to be breaking WTO rules by imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology," it said. Such policies interfered with foreign technology holders' ability to set market-based terms in licensing and other technology-related contracts, it said.
III. The investment component - as many have noticed, preventing further Chinese investment in US firms to presumably stop the PRC from gaining more American technology is rather redundant. Since the Committee of Foreign Investment in the United States (CFIUS) has dissuaded Chinese firms for a long time from buying American technology companies on "national security" grounds, what's different here? This from the Obama era circa 2015:
For more than a decade, China has complained about what it maintains has been a pattern of erratic and politicized treatment of Chinese investors when they attempt to acquire US companies. The Chinese want the Committee on Foreign Investment in the United States (CFIUS) to be more open and transparent in its rulings and to not discriminate against Chinese firms. The United States is not likely to accede to these demands in any formal or legal manner.How much more PRC "technology-" or "security-"related investment in the US is there to stop when almost all of it is stopped while subject to CFIUS scrutiny? See the egregious example of Jack Ma's Ant Financial being stopped from buying money transfer service MoneyGram or even (Singapore-based) Broadcom's proposed merger with (US-based) Qualcomm. Broadcom is not even PRC-based, but they made it sound like another unwanted Chinese intrusion in the technology space.
BOTTOM LINE: In a sensible world, the Chinese would accede to American wishes to not so explicitly make technology transfer provisions for foreign companies wishing to enter the Chinese market. In exchange, the free-spending Americans would acknowledge that such profligacy inevitably means foreigners would come to own more and more of its largest debtor's (US) properties. In the real world, though, we get few of these things and a trade war in which many details are...covered in fog as mutual grievances fester. Stay tuned as we navigate this opacity.
And no, I don't believe anyone "wins" a trade war.
