Editorial Board

A New Front in Trump's Trade War

Taking unilateral action against China's "unfair" IP practices would backfire on America.

Whose technology?

Photograph: STR/AFP/Getty Images

President Donald Trump's approach to trade mainly offends allies for no reason, counters imaginary threats, and undermines deals that benefit the U.S. At the same time, his administration is also addressing a legitimate trade dispute: China's alleged theft of intellectual property and forced technology transfers. True to form, the president appears to favor a response that would make the problem worse.

Bloomberg reports that the White House is considering imposing tariffs on a broad range of consumer goods to punish China for its IP practices. The measures follow an investigation launched by the U.S. Trade Representative under Section 301 of the U.S. Trade Act of 1974, which allows for the unilateral imposition of duties in retaliation for unfair trade practices.

In this case, the U.S. alleges -- with reason -- that China has been stealing U.S. trade secrets, forcing American companies to hand over proprietary technology as a condition of doing business on the mainland, and providing state support for Chinese firms to acquire critical technology abroad. A consensus is growing that these policies, designed to establish China as a dominant player in key technologies of the future, from semiconductors to electric cars, threaten to erode America's technological edge, both commercial and military.

Yet unilateral blanket tariffs of the sort the administration is considering are the wrong answer. In the first instance, they'd hurt U.S. consumers and producers even if they didn't provoke retaliation (which they probably would). They'd undermine the World Trade Organization's dispute-resolution system, perhaps fatally. And they'd shift attention from China's alleged wrongdoing to Trump's rogue actions, allowing China to play the injured innocent.

It's very much in the U.S.'s larger interests to address this issue cautiously, and according to the rules. Granted, one can question the WTO's effectiveness in resolving disputes of this kind: The process moves slowly. On the other hand, it works. The U.S. has won the great majority of the cases it's taken there.

The complaint against China's practices would be stronger if it was coordinated with other governments. Japan and the European Union share U.S. concerns and would be willing to cooperate. As recently as last month, this seemed to be the strategy. The blunderbuss approach that the administration now seems to favor will make working with partners more difficult -- especially if other U.S. measures (such as the tariffs Trump is about to impose on steel and aluminum) bend or break the rules and damage European and Japanese firms.

In addition, this isn't just a matter of protecting narrow commercial interests. Japan and Europe (not to mention other democracies in South and Southeast Asia) share broader U.S. concerns about China's rise as a strategic rival. This national-security challenge also requires a coordinated response.

Congress is considering changes to the Committee on Foreign Investment in the United States (CFIUS), the body charged with examining foreign takeovers of sensitive U.S. companies. Some of these changes make sense: CFIUS needs to be modernized. But the committee's interventions aren't going to make much difference if China can simply procure the technology it needs from Europe (which has only just begun to consider a similar framework for screening investments) or Japan.

If the Trump administration wants to act on its own, there's plenty it can do that would be productive. The biggest threats to U.S. prosperity and security arise from its own neglect, not Chinese subterfuge. The government should do more to support research and development and STEM education. It should invest more in infrastructure. It should adopt immigration policies to attract and retain the world's smartest workers. China would present a less-imposing challenge if America had its own house in order.

Beyond that, the U.S. needs to take the lead, once more, in global economic statecraft. Champion the rules-based order that has served the country and the world so well. Strengthen the WTO, don't subvert it. Affirm the North American Free Trade Agreement. And rejoin the Trans-Pacific Partnership. Those steps would do a lot more to advance security in every sense than punitive tariffs on Chinese-made toys.

    --Editors: Nisid Hajari, Clive Crook

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

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