BEIJING, China – America and China are headed for another showdown as the U.S. Trade Representative (USTR) Robert Lighthizer formally initiated an investigation into China’s intellectual property practices under Section 301 of the Trade Act of 1974.
The USTR’s Office said in a statement, “The investigation will seek to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”
Fighting back, on Saturday, the Chinese Ministry of Commerce warned the United States, saying that “Beijing will take all appropriate measures to safeguard its legitimate rights and interests.”
The ministry has warned that if the U.S. side fails to respect basic facts and multilateral trade rules, and takes measures that harm bilateral economic and trade relations, “China will definitely not sit by, but take all appropriate measures to resolutely safeguard its legitimate rights and interests.”
The country’s Global Times quoted China’s Ministry of Commerce as saying in its statement, “The United States should treasure the current sound Sino-U.S. economic and trade ties and cooperation momentum. Any U.S. trade protectionism move will surely damage bilateral ties and the interests of companies from both countries.”
Reports explained that the Section 301 allows the U.S. president to unilaterally impose tariffs or other trade restrictions against foreign countries.
The section that was heavily used in the 1980s and the early 1990s has the potential to damage U.S.-China ties, officials pointed out.
Since the WTO was established in 1995, the U.S. has rarely used the trade tool.
China, on Saturday, also urged the U.S. to objectively evaluate China’s progress in protection of intellectual property rights (IPR) and resolve the differences with China through dialogue and consultation.
On Monday, U.S. President Donald Trump signed an executive memorandum directing Lighthizer to consider the possible initiation of an investigation.
Lighthizer posted a statement on his official website that said, “On Monday, President Trump instructed me to look into Chinese laws, policies, and practices which may be harming American intellectual property rights, innovation, or technology development. After consulting with stakeholders and other government agencies, I have determined that these critical issues merit a thorough investigation. I notified the President that today I am beginning an investigation under Section 301 of the Trade Act of 1974.”
According to Chad Bown, a senior fellow at the Washington-D.C. based Peterson Institute for International Economics (PIIE), “It became no longer necessary really for the United States that they have to use that law, because now we have an effective dispute settlement system under the WTO.”
Bown, who previously worked as a senior economist in the White House Council of Economic Advisers and the World Bank pointed out that “the legal timeline of the process under Section 301” doesn’t work well with the rules of the WTO.
Meanwhile, Xinhua quoted Jeffrey Schott, another trade expert and senior fellow at the PIIE as saying that the purpose of the investigation is “to find out what the facts are and to use the process of investigation to expand bilateral consultations with China” so that there is a better understanding of each country’s practices.
However, the move is likely to spark a trade war with Beijing as it views the use of Section 301 as an act of aggression.
China’s Foreign Ministry spokesperson Hua Chunying insisted that “Section 301 has been denounced by other nations for its unilateralism since it came out.”
She added, “The U.S. has made promises to the international society, noting that it will execute the section in a way that accords with WTO rules. The U.S. should keep its promises and not become a destructive force that undermines multilateral rules. There is no winner in a trade war. We hope the relevant people can refrain from dealing with a problem in the 21st century with a zero-sum mentality from the 19th or the 20th century.”
Trump has meanwhile emphasized that “Washington will turn a blind eye no longer” to Beijing’s “theft” of U.S. industrial secrets.
A recent report of the U.S.-based Institute of International Finance suggested recently, “A trade war between U.S. and China will hurt not only Chinese manufacturers, but also upstream suppliers and downstream distributors such as U.S. retailers. Per China’s Ministry of Commerce, the final U.S. retail price of imported Chinese goods can be several times of their imports prices.”
Experts are warning that if China decides to retaliate against the U.S., the price of American goods will most likely increase and markets that were once open to the U.S. may begin to close their doors.