Americans to be first casualties of Trump's looming trade war

The U.S. and China stand on the brink of a trade war. If the swelling drumbeat of trade war can be paused, we would do well to ask ourselves why we are here. Here’s a quick recap of where things stand:

  • Beginning Friday, the United States will impose 25 percent tariffs on $34 billion of products imported from China. China has threatened to respond in kind — imposing identical, concurrent tariffs on an equivalent value of U.S. exports to China.
  • The U.S. is preparing similar tariffs on another $16 billion of products imported from China, which China has also promised to reciprocate.
  • The U.S. has considered new restrictions on Chinese investment in the United States and on technology exports to China. 
  • Chinese President Xi Jinping has personally warned the CEOs of 20 top U.S. companies that China is prepared to retaliate against their firms with increased inspections, administrative burdens, supplier restrictions, public boycotts, etc.
  • President TrumpDonald John TrumpHouse Republican threatens to push for Rosenstein impeachment unless he testifies Judge suggests Trump’s tweet about Stormy Daniels was ‘hyperbole’ not defamation Rosenstein faces Trump showdown MORE has threatened an additional 10 percent duty on as much as $400 billion of additional Chinese products.
  • Why is the United States preparing to fire the opening shot in a trade war when U.S. companies and workers will be among the first economic casualties? 
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The official U.S. position is that the threatened tariffs and investment restrictions are a justified countermeasure to many years of unfair trade by China. In that sense, these aren’t the opening shots in a trade war, but a long-overdue leveling of the playing field. 

 

In March, the United States Trade Representative (USTR) issued a thoroughly documented report pursuant to an investigation under Section 301 of the Trade Act of 1974 on China’s acts, policies and practices related to the theft of U.S. intellectual property and technology. 

This report cites state-sponsored cyber theft, Chinese acquisitions of sensitive and strategically important U.S. technology companies and restrictions on non-Chinese investment in China, to forcibly transfer technology into Chinese hands. These are serious and credible allegations.

But the justifications for taking action against China include less serious allegations as well. The White House Office of Trade and Manufacturing Policy issued a second report in June aiming to bolster the justification for economic hostility toward China. 

This second report reiterates the conclusions of the USTR’s report, along with some astonishing additional allegations:

  • Chinese firms hire talented non-Chinese (and Chinese!) workers, using generous pay and benefits packages. The report cites “free housing, insurance, family settlement funds, research funding, prestigious appointments and government awards” as the types of incentives, in addition to top compensation, used to recruit academic and industry talent. China is also known to recruit Chinese expats with an “appeal to national pride.”
  • China learns from open source science and technology information. The report acknowledges that “many other countries and the citizens of countries leverage open sources to advance technology,” but notes that China has been very diligent and methodical in doing so, leading to significant learning.
  • Chinese students attend U.S. universities; learn a lot. All Chinese university and college students are cited as a threat, regardless of discipline, as they now make up one-third of foreign students studying in the United States. Of particular concern are students studying science, technology, engineering and mathematics, which China may “manipulate or pressure” to learn about important topics, even if they are “unwitting or unwilling” to be information collectors. 

If America succumbs to a trade war with China, American workers, consumers and businesses will pay the cost.  Before we end up with that bill, Americans have a right to understand who is leading us down this path, and why. 

The means by which the U.S. is engaging in this trade confrontation have already been widely questioned. The world’s most technologically advanced military superpower does not need 18th century remedies (like import tariffs) to combat 21st century threats (like state-sponsored cyber theft). 

But the allegations set out in this new report also raise serious questions about the legitimacy of this trade confrontation. These allegations are cited as evidence of China’s “economic aggression” and presented as a justification for current U.S. trade policy on China, though they are actually no threat at all. 

The fact that China learns from open-source information or that Chinese companies recruit Chinese expats with competitive pay isn’t even noteworthy, much less a compelling rationale for assessing new taxes on U.S. consumers and businesses.

If the U.S. does not distinguish between legitimate grievances and immaterial accusations, a successful resolution to this conflict with China will prove elusive. Given the costs and risks at issue here, that is not a luxury we can afford. 

John Foote is an international trade attorney with the law firm Baker McKenzie in Washington, D.C. Views expressed are his own.