The End of Complacency

President Trump Readies Sweeping Tariffs and Investment Restrictions on China
By ANA SWANSON

A factory for the smartphone maker Oppo in Dongguan, China. The tariffs could extend to more mundane products, including consumer electronics, apparel and even shoes. 

WASHINGTON — The dust has yet to settle on President Trump’s decision to impose sweeping tariffs on steel and aluminum imports, but the White House is preparing another major trade measure, this time aimed squarely at China.
Mr. Trump and his top trade advisers are readying a raft of actions to penalize China’s theft of American intellectual property, including tariffs on at least $30 billion of annual Chinese imports, people familiar with the discussions said.
The measures, which could be announced as early as next week, may also include investment restrictions, caps on visas for Chinese researchers and challenges to China’s predatory trade practices at the World Trade Organization. 

Those familiar with the planning cautioned that the timing could be delayed, and that such measures are likely to be introduced in stages.
The rapid pace of White House trade measures is no accident and comes at the president’s request. 

At a White House meeting last week, Robert Lighthizer, the United States trade representative, presented Mr. Trump with a plan to target $30 billion a year in Chinese imports.
That amount is equal to the cost that Mr. Lighthizer’s office estimates Chinese policies aimed at acquiring American technology impose on American companies annually. 

In August, Mr. Lighthizer officially began an investigation into those practices, which include digital warfare as well as requiring companies to hand over trade secrets and form joint ventures with Chinese partners to gain access to certain markets.

Mr. Trump — surrounded by his commerce secretary, Wilbur Ross, his trade adviser Peter Navarro and others — asked for a figure beyond $30 billion and for the plan to be officially announced in the coming weeks, according to two people familiar with the exchange.
The administration is devising the measure to broadly counter a Chinese strategy known as the Made in China 2025 plan. 

China introduced a comprehensive initiative in 2015 to upgrade Chinese industry over the next decade and dominate sectors of the future, including advanced information technology, new energy vehicles and aerospace equipment.
Unlike the steel and aluminum measure, which divided the president’s advisers and his own party, the idea of targeting China has broad support among officials who believe China is cheating in global trade.
Gary D. Cohn, a top economic adviser who resigned over the steel and aluminum tariffs, had approved of action against China, the people familiar with the discussions said. 

Orrin G. Hatch, the chairman of the powerful Senate Finance Committee, and Senator Marco Rubio of Florida, Republicans who criticized those tariffs, have also endorsed a tough approach toward China.
Congress is also weighing legislation that would strengthen national security checks on Chinese investment. 

In a House hearing on Thursday, Heath P. Tarbert, an assistant secretary of the Treasury Department, said the current system for assessing investment is riddled with loopholes that allowed Chinese companies to evade such checks.
Concern over China’s practices picked up speed at the end of the Obama administration and has only increased since. 

Last year, a technology-focused unit in the Defense Department issued a report arguing that rising Chinese investment in Silicon Valley was giving China unprecedented access to the military technologies of the future, and increasing Chinese ownership of supply chains that service the United States military.
In recent months, China’s political apparatus has exerted even greater control over the nation’s economy. 

Business leaders and politicians of both parties now widely say that Washington’s past strategy of offering Beijing economic incentives to liberalize its market has failed. 

On Sunday, China officially ended term limits on the presidency, clearing the way for its dictator to stay in power indefinitely.
Administration officials say that past failure to rein in China warrants a much tougher approach. 

Mr. Trump took one step toward this in his national security strategy, which identified China as an economic aggressor. 

When a top Chinese economic envoy visited in late February, the administration asked China to shave $100 billion off its $375.2 billion trade surplus with the United States, two people close to the talks said. 

And while the steel and aluminum tariffs will hit many countries, they are primarily aimed at combating overcapacity in Chinese metals, including those that are routed through other nations.
The next step, advisers say, is to more aggressively focus on trade with China.
The United States is expected to impose tariffs on Chinese imports of high-technology goods specified in the Made in China 2025 plan, including semiconductors and new energy vehicles. 

But they could go beyond that to target more mundane products, including consumer electronics, apparel and even shoes. 

The breadth of the tariffs remains a contentious topic in the business sector and the White House, with some industries fretting about retaliation and increased costs to American companies and consumers.
Thomas J. Donohue, the president of the U.S. Chamber of Commerce, said on Wednesday that while the administration was right to focus on China’s unfair trade practices, his group strongly disagreed with sweeping tariffs.

Although there is wide support for taking action against unfair trade practices by China, business groups and economists still say the tariffs could easily provoke a backlash.

“They know our system inside out,” said Jim McGregor, the chairman of the greater China region for APCO Worldwide. 

He added, referring to the House speaker and the Senate majority leader: “They know what companies are important to Paul Ryan. They know what companies are important to Mitch McConnell. They know which trade associations and political groups have a big voice in Washington.”
Scott Kennedy, a China expert at the Center for Strategic and International Studies, said that while China deserved a tough response, he feared the consequences of the administration’s actions had not been well considered. 

“You really have to be smart,” he said. 

“The Chinese aren’t just going to fold over on this.”
Mr. Kennedy compared China to a bully that had stolen America’s lunch money. 

"You want to teach them a lesson,” he said. 

“But it’s not as simple as going up in the playground and punching them on the nose.”

U.S. Won’t Grant China Market Economy Status, Senior Administration Official Says

China’s failure to allow market-driven economy have fueled trade tensions
By IAN TALLEY

Containers are unloaded from a cargo ship at a port in Rizhao in China's Shandong province. A senior U.S. officials said Friday that the U.S. administration won’t grant China the official market economy status. 

WASHINGTON—The Obama administration has decided it won’t grant China the official market-economy status Beijing doesn't deserve, a move sure to raise tension, as China pushes the U.S. and other countries to ratchet down import tariffs.
China contends Washington and other members of the World Trade Organization should grant it market-economy status on Sunday, the 15th-anniversary of its WTO accession, under the terms of its joining the group.
But the Obama administration disagrees. 

“The U.S. is not changing China’s status as a non-market-economy,” a senior U.S. administration official said in an interview. 

“China’s protocol of accession to the WTO doesn't require the U.S. or any other WTO member to automatically grant China market-economy status after December 11 2016.”
Market-economy status can dramatically lower tariffs WTO members can apply in cases charging another country with violating trade terms.
The incoming Donald Trump White House isn’t likely to reverse the Obama administration’s decision, given the president and his transition team have said they plan to place higher tariffs on Chinese imports, blaming Beijing for many of the American economy’s ailments.
Mr. Trump, at a rally in Iowa on Thursday, said: “China is not a market economy.” 

He cited dumping of artificially low-price goods on the U.S. market and theft of intellectual property by Chinese companies. 

“They haven’t played by the rules, and they know it’s time that they’re going to start,” he said.
Meanwhile, the Obama administration says China must formally file a case challenging U.S. treatment, something Beijing has yet to do.
Even though the senior Obama administration official said the U.S. would have to decide on the merits of a challenge, the person signaled Washington wouldn’t likely change its outlook. 

“If China wants to benefit from treatment as a market-economy country, it must change its own practices to let the market play a decisive role in the economy,” the official said.
Tension between the U.S. and China has been elevated in recent years over a host strategic and economic issues. 

The Obama administration has filed scores of anti-dumping and counter-valuing duties on Chinese imports, from shrimp to steel to solar cells. 

“Maintaining China’s status as a nonmarket economy is yet another step in the Obama administration’s vigorous enforcement of trade laws against China and holding China to its WTO commitments,” the senior official said.
But since Mr. Trump has put China in his trade-policy crosshairs, those strains are expected to intensify.
Although China’s leadership has said in recent years that it plans to make its economy more market-driven, U.S. officials and companies complain Beijing has made things more difficult.
China’s state-owned enterprises are still deeply integrated in nearly every aspect of the country’s economy and international acquisitions. 

U.S. companies complain government subsidies give Chinese firms an unfair advantage. 

That behavior by the Chinese has led to one of the biggest trade frictions in recent years: China’s huge excess steel production capacity that is pushing down prices globally.
Officials in Washington are also frustrated about the lack of access for U.S. investment in China. “China’s failure to take action and in some ways becoming even less open, has given rise to increased trade frictions and has led to global firms to question their ability to succeed in that market,” the official said.

How a Trump or Clinton presidency could hurt China's economy

By Holly Ellyatt

Whether Democrat presidential candidate Hillary Clinton or her Republican rival, Donald Trump, wins the U.S. election next month, the next inhabitant of the White House's approach to China is likely to take a more realistic view towards the world's second largest economy, analysts believe.
"Relative to Barack Obama, both Donald Trump and Hillary Clinton have a more practical view on a wide range of China issues," analysts Kevin Lai and Olivia Xia from Daiwa Capital Markets said in a note Thursday.
"Clinton is considered a China hawk, especially on a range of issues outside of trade," the analysts noted. 

"On U.S.-China trade, she is also more confrontational than Obama but comparatively more moderate than Trump."
With just over a month to go till American voters go to the polls, the race to the White House is too close to call.
Trump has a large and loyal following and his populist views have chimed among disaffected U.S. voters but he is seen as a renegade. 

Clinton, meanwhile, has suffered from a lack of personal popularity although she is seen as far more experienced and as having "sounder" government policies.

Daiwa's analysts said that either way, the U.S. government's attitude towards China was going to change.
"The U.S. government under Obama and Bush has tried to make things work with China… (but) we believe debate over currency manipulation, loss of American jobs, intellectual property rights theft and an uneven playing field will continue to attract intense discussion inside and outside Washington. Whoever wins the election will come under greater pressure to address these issues more convincingly."

But Daiwa's analysts said that whoever becomes president, the U.S.' attitude towards superpower China -- arguably its biggest economic and political rival – is likely to change, especially if import tariffs are raised. 

They warned that this could be to China's economic detriment, potentially causing a decline in the country's gross domestic product of up to 1.75 percent.
"Even if Clinton wins, we do not think it will be just another status-quo extension (of the current trade policy towards China). From a scale of 1 to 10, Obama being 1 and Trump 10, we would rate Clinton, and her views on U.S.-China trade policy as a 4."
Trump has pledged to impose a 45 percent tariff on imports from China if he wins the election, a move that Daiwa said would be "profound," although the analysts noted that even Clinton was likely to be tough when it comes to trade issues with China.
"The impact of a 45 percent tariff, as suggested by Trump, would be profound. China would likely retaliate by levying similar tariffs on the U.S. But U.S. exports to China are about a quarter of the size of China's exports to the U.S., while the U.S. economy is almost twice as large as China's. The damage on the U.S. would be far less," they noted, adding that Clinton was unlikely to pursue such a policy.
"We cannot rule out the possibility of similar countervailing measures under a Clinton presidency. But a 30-45 percent tariff is highly unlikely and a watered-down version would be more realistic, in our view, if Clinton toughens her stance on China."
Daiwa noted that even if import tariffs were raised to 15 percent from the current rate of 4.2 percent, the impact on China's economy "would be significant."
"We expect exports from China to the U.S. to decline by 31 percent (and) China's gross domestic product (GDP) could see an initial 0.95 percent decline and a 1.75 percent loss over time," Lai and Xia noted.