U.S. tech focus suggests risk of broader confrontation

Updated 2018-03-30 13:41:01 China Daily

Last week's U.S. trade and investment measures targeting China focused on technology. China will respond, but we expect it to remain relatively restrained, and-barring major escalation-the macroeconomic damage in 2018-19 should remain manageable.

However, the technology focus of the U.S. measures suggests the risk of a broader economic and technological confrontation.

Planned U.S. tariffs and investment restrictions are meant to hit China in response to what the United States sees as unfair technology and intellectual property practices. The U.S. aims to impose tariffs on billion worth of Chinese exports to the U.S., with a focus on the advanced sectors that China has previously identified as ones in which it wants to become a global leader.

In response to earlier U.S. tariffs on metals, China plans to impose tariffs on billion of U.S. exports to China, targeting agricultural and food products, while calls for further measures in response to the most recent U.S. moves have proliferated. However, Beijing also continues to call for dialogue.

On March 22, U.S. President Donald Trump ordered the United States Trade Representative Robert Lighthizer to prepare concrete action targeting China, including raising trade tariffs. This follows a Section 301 investigation by the Office of the USTR into policies and practices pursued by China that it claims constitute intellectual property theft and forced technology transfer. Trump also ordered the Treasury Secretary to explore restrictions on Chinese investment in the U.S.

The USTR declared in a fact sheet that he will propose additional 25 percent tariffs on Chinese exports with annual value "commensurate with the harm caused to the U.S. economy", referring to an estimate of that harm of "at least billion per year". The USTR also launched a dispute at the WTO "to address China's discriminatory technology practices".

Lighthizer told the Senate Finance Committee that the industries he "will recommend for tariffs are mainly those that China has identified in its Made in China 2025 plan as areas in which it wants to become a global leader: new advanced information technology; automated machine tools and robotics; aerospace and aeronautics equipment; maritime equipment and high-tech shipping; new-energy vehicles and equipment; modern rail transport equipment; agricultural equipment; new materials, biopharma and advanced medical products".

A few hours after the U.S. announcement, China's Commerce Ministry said it plans to impose tariffs on about billion worth of U.S. exports. This was in response to the earlier U.S. plans to impose tariffs on steel and aluminum, from which, by now, many other steel-exporting countries have obtained exemptions. China's tariffs include a 25 percent one on U.S. pork imports and recycled aluminum, and 15 percent tariffs on U.S. steel pipes, fruit and wine. China will also pursue legal action against the U.S. at the WTO, while also calling for dialogue to resolve the dispute.

The amount of Chinese exports that the U.S. aims to impose additional tariffs on would equate to about 10 percent of China's total exports to the U.S., which is nearly 2.2 percent of China's total exports, or 0.4 percent of GDP. The tariff rate of 25 percent is as we assumed before.

The relatively modest scale is because, the large share of U.S. imports from China that is U.S.-branded and/or features the significant involvement of U.S. companies in the supply chain constrains the range of existing Chinese exports to the U.S. at risk of major U.S. trade restrictions. The Chinese exports most at risk of protectionist measures by the U.S. are those that compete with U.S.-based production and are produced via Chinese or Asian supply chains with little involvement of U.S. firms.

Indeed, the USTR is targeting the advanced sectors that China-using homegrown technology-aims to become a global leader in, rather than the large amounts of often U.S.-branded information technology, consumer electronics and telecom products that China exports to the U.S. Lighthizer noted that the list does not include consumer items "that should not be on there".

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