Will Washington unleash a trade war against China? President Donald Trump recently signed an executive order that triggers an extensive Section 301 investigation of intellectual property (IP) issues between China and the U.S.
The Section 301 process goes back to 1974, when the U.S. was having trade issues with several countries. It is a unilateral process undertaken internally by the U.S. Government's executive branch and can result in a variety of punishments which impact trade relations.
U.S. Trade Representative Robert Lighthizer will conduct the investigation. The process is rarely used anymore because the various mechanisms of the World Trade Organization (WTO) have all but superseded it. The last major Section 301 investigation was 15 years ago. But undoubtedly, the White House sees this as a means of putting pressure on China.
Although Washington's invoking of Section 301 is permitted by the WTO, the harsh move is generally regarded as flying in the face of multilateralism in trade affairs.
Irresponsible China bashing is routine for both political parties in the United States. During election campaigns, the rhetoric inevitably heats up. So candidate Donald Trump's campaign was laced with fiery rhetoric about U.S.-China trade relations.
Accusations against China included "currency manipulation," "IP theft," and "unbalanced trade." The charges were whipped up by a few hardline Trump advisors such as the recently ousted populist-nationalist Steve Bannon and the thinly credentialed economist Peter Navarro.
Professor Navarro, in particular, is obsessed by the so-called "China Threat." Rather than producing serious scholarly studies for peer-reviewed academic journals, he has produced propagandistic pot boiler books and breathless videos denouncing China.
Somewhere along the line Bannon picked up the "Clash of Civilizations" theory and incorporated Navarro's anti-China hysteria. Between the two, and with a few other similarly obsessed advisors, Trump's ear was bent.
Trump could not deliver on his campaign promise to hammer China over "currency manipulation." This is because the IMF and leading economists recognize that China does not engage in this practice nowadays. Both the Secretary of the Treasury, Steve Mnuchin, and the Secretary of Commerce, Wilbur Ross, have acknowledged this, and Trump became silent on the issue.
So that left the IP issue as a target for China bashing. Thus we have the invocation of Section 301.
The Section 301 process is complex, and in the past it has taken many months to complete a review. This means that Trump's move to get the process going may not result in a finished review for perhaps a year. The process, however, can be accelerated.
But during the period of the Section 301 process there is, of course, time for dialogue and negotiations. All is not necessarily lost, because there is time for diplomacy. So Washington and Beijing must find ways to solve any problems through responsible and orderly discussion.
Proper management of differences and issues is essential to a constructive and stable China-U.S. relationship. Unfortunately, there are those in Washington, like Navarro and other special interests, who wish to disrupt China-U.S. relations based on various geopolitical notions. Trade issues offer a convenient pretext for increasing tensions and for disrupting relations.
Realistically speaking, U.S. investment in manufacturing in China has seen its day, according to U.S. business people familiar with this issue. They say that rising wages, restrictions, and regulations make the China market less appealing and viable for their companies.
Financial services such as banking and insurance see China as a good market still. But penetration of the Chinese banking sector by foreign interests is a sensitive matter given China's historical experience over the last two centuries.
On the other hand, the U.S. has sensitivities about Chinese investments which are considered to have national security implications.
Given the significant difficulties in China-U.S. economic relations, it is clear that some thought must be given to the role of trade. For some, the idea has been that trade forms the core basis of relations between the two countries. But this may not be a sufficient basis.
Theories that trading nations do not engage in conflict with one another have been put forward. But the reality is that history does not indicate this. The nations of Europe had vigorous trade with each other on the eve of World War I. Going back further, history shows many conflicts between various empires over trade and markets.
World War II finally pushed the international community to consider the global economy and the means to promote stability and sustainability. The International Monetary Fund, the World Bank, and the WTO are results of this multilateral cooperation.
Today, Washington must put aside irresponsible confrontation. Only through serious and constructive diplomacy can the problems of peace and development be solved. Washington must reject sanctions and coercion and embrace dialogue and negotiation.
Copyedited by Bryan Michael Galvan
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