U.S. President Donald Trump this week decided to launch an investigation into Chinese practices on intellectual property. The move angered Beijing, which said the trade probe would violate international rules. The World Trade Organization (WTO) has for the past few decades been the supreme arbiter of trade disputes between countries, as opposed to what’s called “Section 301.”
Trump signed an executive memorandum on Tuesday which would allow U.S. Trade Representative Robert Lighthizer to initiate a unilateral Section 301 investigation, if an initial probe finds China is engaging in unfair trade practices – a claim Beijing denies.
This all comes at a time when the U.S. is looking to China to help reign in North Korea and its nuclear weapons program.
The Cipher Brief’s Kaitlin Lavinder asked Ambassador Richard Boucher, a former Assistant Secretary of State for South and Central Asia, about the trade probe and the real motivations behind it.
The Cipher Brief: What exactly is the Section 301 investigation that the U.S. is launching against China? How significant is an investigation like this?
Ambassador Richard Boucher: Section 301 allows the Administration – the President and the U.S. Trade Representative – to investigate unfair trade practices overseas that keep the U.S. from exporting, selling into foreign markets. It allows them not only to investigate but to apply punitive actions. It’s actually a tool of the 1970s and 1980s; it has hardly been used in the last 20 years. It really was for the days before we had a thorough multilateral set of rules that we were able to put in place with the World Trade Organization. It was used particularly against Japan in the 1980s when we were fighting all these trade fights over bilateral deficits, and we had things like voluntary restraint agreements.
This is partly a sign of going back to that period – when it was pre-WTO rules, which now cover intellectual property, and trade and services. Secondly, it was pre-values based. It was really a set of rules for a different world when bilateral trade deficits were accurate measures of something. Now, they’re just reflections of how value chains work. The world has changed.
TCB: Is this more a symbolic move by the Trump Administration as opposed to a concrete move that could in some way procure more benefits for the U.S., instead of the WTO?
Boucher: It’s not symbolic. It’s just the wrong tool for the job. It’s more likely than not to set off a trade war if we actually start applying these measures. If we start restricting Chinese products into the U.S., they’re going to cut off airplanes, soybeans, auto exports, and a number of other products where China’s the biggest or second biggest foreign buyer. This is the way you start a tit-for-tat trade war. That’s what we did in the 70s and 80s with these things.
What we have now is the WTO rules which China is a part of and bound by. We have a multilateral way of enforcing those rules where the other party can’t retaliate tit-for-tat and where we can enlist others in our cause, particularly the Europeans and Japanese who are affected by the same Chinese practices. I’m not against aggressive enforcement of international rules, but turning this into a bilateral poking match is not going to get us anywhere or solve any problems.
TCB: In a recent article in the America Prospect, Trump advisor Steve Bannon talks about a massive trade war with China.
Boucher: He’s living in the past. China engages in a lot of unfair practices; none of us who know China would doubt that. The question is what to do about it, and holding them to account under an international set of rules with the support of allies is a lot better than starting a trade war.
TCB: I’m still trying to understand what the motivation is then. Are you saying this is a misguided strategy by some people in the Administration who don’t have experience in international dealings like this?
Boucher: A lot of people in the Administration do have experience. USTR Robert Lighthizer was actually the USTR when we used this more actively. But they’re living in the past; they’re not living in the modern world of production through value chains, where people are making products together, where trade numbers don’t accurately reflect the flow of goods, and where the people who make the money are the people who, like us, create the value chains. We have a vested interest in that set of rules, and we should be aggressively enforcing those rules. Bannon is using an outdated concept of world trade and how to enforce it.
TCB: In that article, Bannon suggested the Section 301 investigation was put on hold because of the recent rhetoric between the U.S. and North Korea, but it will be re-enacted in the next few weeks. Can you explain logistically what that means? And talk a little about why North Korea plays into this economic relationship between the U.S. and China.
Boucher: First of all, I can’t explain what Steve Bannon means. I don’t think anyone can. The fact is this is self-initiated by the executive branch, so it can proceed as fast or slowly as they like. Maybe they conceive of it as a threat more than an actuality, but they’re heading down the wrong road.
I actually object pretty strongly to the idea that we would slow down trade enforcement for the sake of cooperation on North Korea. The fundamental issues are the same – does an international set of rules apply? If we’re trying to enlist the Chinese as a partner in enforcing the rules about North Korea’s nuclear and missile programs, I don’t think we should be shy ourselves about enforcing WTO rules on trade and intellectual property practices. It’s a mistake to imply that if you cooperate on this, we’ll sacrifice American technology and jobs. Supposedly, that’s the exact opposite of what the Administration intends.
We’ve had periods in the past when we were able to enforce trade rules with China and yet also cooperate on other issues. The Chinese have to understand the U.S. is going to stand for the international rules whether they be about nukes or intellectual property.
TCB: Do you think the idea the Chinese would cooperate more on North Korea – and by cooperate I mean getting North Korea to tamper down their nuclear program and eventually eradicate it—is complete fantasy? People like former Director of National Intelligence Jim Clapper say that all the time, that we need to realize that we are going to have a nuclear North Korea.
Boucher: There is a lot that China will do, but it will go only as far as its interests dictate, and we are not in a position to change those interests. China’s interest in not having a nuclear capable North Korea as a neighbor is strong, but it doesn’t override an interest in not having an unstable Korean peninsula, or a U.S. dominated Korean peninsula. So, China will cooperate to a great extent, but they are not going to do everything we tell them to do, because their bottom line interest is not the same as ours, and we have to take that into account. We shouldn’t think we can override it by being noisy or loud or aggressive on bilateral trade issues.
TCB: Do you have any final thoughts on this topic?
Boucher: There’s one more thought about aggressive enforcement of international rules and how active diplomatic strategy go together. Part of the international rules question is not just enforcing the existing ones, but writing new sets of rules and making us be authors of the new sets of rules. With the Trans-Pacific Partnership on trade, TPP, we had a chance to set the new standards for international protections of intellectual property, and then to gradually move China into those standards. It gave us not only direction in enforcing current rules, but a direction to push China to do more as time goes on. But by abandoning TPP, we lost out on setting the new set of rules on intellectual property. It’s really another step in the same wrong direction as the Section 301 investigation.
Kaitlin Lavinder is a reporter at The Cipher Brief. Follow her on Twitter @KaitLavinder.