Editorial Board

Trump's New China-Trade Mistake

He has a point on intellectual property. But his solution is misguided.

Maybe rethink this one.

Photographer: Patrik Stollarz/AFP

You may have a sense of deja vu. Once again, Donald Trump's administration is stirring up a trade dispute with China. Once again, it's doing so ineptly and without any obvious objectives.

This time, the dispute concerns intellectual property, in particular China's practice of asking U.S. companies to transfer technologies as a condition of doing business there. Trump has directed the U.S. Trade Representative to consider investigating the matter under Section 301 of the 1974 Trade Act. If such a probe went forward, and turned up evidence of unfair practices, Trump would have a free hand to impose sanctions and other remedies.  

In fairness, the administration has identified a real problem. In addition to IP transfers, a recent report from the USTR noted, China continues to tolerate online piracy, counterfeiting, patent infringement, bad-faith trademark registration and other unfair conduct. By one estimate, such practices cost the U.S. as much as $600 billion a year.

But this probe is an awful way to address the problem.

For starters, it won't work. Section 301 has been historically ineffective at achieving U.S. negotiating goals, while consistently infuriating trading partners. One legal expert called it "probably the most criticized piece of U.S. foreign trade legislation since the Hawley-Smoot Tariff Act." Invoking it wouldn't do much to change China's behavior. But it could very well undermine the global system of trade.

It would also lead to retaliation. China has already threatened to impede U.S. soybean imports, which totaled some $14 billion last year. It could also target cars, aircraft and other products, while generally making life difficult for American companies doing business there. Such a dispute would needlessly raise prices, reduce growth, harm exporters and jeopardize American jobs.

Trump's timing, meanwhile, is unfortunate. The two countries have lately made real progress toward liberalizing trade. China recently backed new sanctions on North Korea, and its help will probably become more important in the days ahead. With the Communist Party gearing up for its 19th National Congress, these are especially sensitive times. The last thing either country needs is an open-ended trade war.

But the most important reason not to go this route is that the World Trade Organization exists precisely to resolve such disputes. The U.S. fought for years to establish a trusted global arbiter to enforce the norms of free markets and fair trade, and the world has greatly benefited. More to the point, so has America: A recent Bloomberg analysis found that the U.S. has prevailed in 86 percent of the cases it has brought at the WTO. Trump's predecessor lodged 16 trade-enforcement challenges against China without losing a single one.

If the administration hopes to change China's behavior, it would be well within its rights to bring a formal intellectual-property case at the WTO, ideally with the support of allies. If it wants to undermine the global system of dispute resolution, antagonize trading partners, and destabilize world affairs for no reason at all, it should keep doing what it's doing.

    --Editors: Timothy Lavin, Clive Crook.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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