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We’re getting poor China choices from President Trump and his possible 2020 opponents. The President’s menu has one item on it — tariffs. His opponents are critical but themselves offer only platitudes. In fact, there are many available actions which are more focused and, often, stronger than tariffs. But the Trump administration has neglected them, even when directed by Congress.
The first policy step is determining why America should respond to Chinese behavior. Intellectual property (IP) coercion and theft is fairly identified by the administration as problem 1. However, there are at least three other major problems.
Staying with economics, China’s centrally-controlled state-owned enterprises are very large and never allowed to fail due to commercial competition — the ultimate subsidy. It is thus impossible for the US to achieve balanced market access, much less free trade. The advantages provided to these companies may justify retaliation.
Elsewhere, Chinese firms are required by the Communist Party to participate in human rights violations, from forcing ethnic Uighurs into camps to gathering personal data through extensive surveillance. They also join actions which threaten US national security, such as island-building in contested waters or selling dual-use equipment to American adversaries.
The ensuing questions are — who, and how much? Which Chinese entities benefit most from coerced IP transfers, are used frequently in human rights violations, and so on? Is the damage done one-time or protracted, minor or severe?
These can only be answered if the administration and Congress agree to spend time and money to gather necessary information, on an ongoing basis. Without this, American policy will inevitably miss its targets.
The next part is trickier. The US must not be distracted by individual cases or companies. Chinese enterprises are not accidental recipients of protection from competition, nor incidental participants in aggressive foreign policy. These activities are orchestrated by the state. Targeting a single firm is at best just a warning shot, at worst a complete waste of time.
Beijing can at will erase sanctioned entities and reassemble them in a different guise. If one company is forced to stop harming American interests, another can immediately substitute. The US should always hold parent companies responsible and treat state-owned enterprises in the same sector as related parties.
The last step is what, exactly, to do. There are too many options to cover here and the table below is hardly exhaustive. Implemented and proposed US steps to date are highlighted on the left, paired with reasons for action and featured agencies. Restrictions can, of course, extend to outright bans.
Many Ways to Respond
President Trump’s China tariffs fall in row 1, column 1, plus a bit in column 4. ZTE briefly faced a denial order that fit in row 2, column 4 but the President rescinded it. Its sister Huawei now sees inclusion on the “Entities List,” which bans supply from the US but can be circumvented through overseas subsidiaries.
Senator Rubio has initiated bipartisan steps fitting row 3 — a bill motivated by anti-competitive behavior permitted for Chinese firms listed in the US and a letter concerning portfolio investment into China that also cites columns 3 and 4 as motivation. These are welcome expansions of the policy menu.
Row 4 is discouraging. It is embodied in the export control section of Foreign Investment Risk Reduction Modernization Act, which passed House (400-2) and Senate overwhelmingly, becoming law August 13, 2018. Implementing regulations are still absent, so Chinese entities continue to threaten national security and coerce IP transfer without facing restrictions mandated by Congress.
Row 5 is untapped, which is strange with regard to at least column 1. The US has cited annual Chinese IP coercion and theft as running in the hundreds of billions of dollars yet has made no attempt to recover any of it. That may be too much to ask, given how limited President Trump’s China policy has been.
There are many available actions regarding China which are more focused and, often, stronger than tariffs. But both the Trump administration and his 2020 opponents have neglected them, even when directed by Congress.
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