Trump's tariff war does not play on America's great forces

The recent volatility of US stock markets has been attributed to speculation about new restrictions on foreign investment in the United States. The Trump administration has sent mixed signals on the issue, but is likely to move away from what is still a relatively open foreign investment policy

The administration has envisaged d & # 39; To invoke the International Economic Powers Act to impose global restrictions on foreign investment. in sensitive sectors of the US economy. The US Congress also plans to expand the scope and powers of the US Foreign Investment Committee (CFIUS), a body similar to the Australian Investment Investment Board (19659004). in US companies to support the initiative "Made in China 2025" Beijing. China aims to become a world leader in key technologies, including robotics and artificial intelligence, many of which have civilian and military applications.

The United States correctly regards China as a mercantilist approach to economic development.

The United States' concern about the systematic theft of foreign technology by China is legitimate, but an increased restriction of foreign investment may not be the right way to tackle the problem. There are other more targeted policy instruments that can be used.

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The United States has an export control regime that regulates the export of sensitive technologies already under development in Congress.

The United States Can Initiate Other Disputes with the WTO The United States could also adopt targeted sanctions against Chinese companies that engage in the theft of intellectual property and seize Chinese imports.

By contrast, limiting Chinese investment in the United States could backfire by encouraging China to redouble efforts on its local innovation strategy. The recent US sanctions against ZTE have already pushed China further down this path. If Chinese capital stays at home, it is more likely to finance Chinese innovation to the detriment of the United States and other US allied economies.

Failure to take advantage of Chinese investment could hinder the development of national capabilities important to national security, especially as China bridges the technological gap with the United States . To the extent that China becomes a leader in key technologies through local innovation, excluding Chinese investments could yield more technology leadership.

This suggests a delicate balance between the rejection of specific transactions that may pose risks to national security. of Chinese investment. A general ban on investment in entire sectors is unlikely to find that balance.

Ideas want to be free and new technologies will eventually spread across international borders. This is especially for the better. It is unrealistic to expect the future economy of the world to become a lagging technology forever.

This is not to say that the United States can not maintain its technological leadership. Theft and autarky are a poor base on which to look for technological and economic progress. The main advantage of the United States over China is not specific innovations that will be appropriate by foreigners, legally or illegally, but the institutional framework that supports their creation. This framework encompbades the opening of capital markets, the rule of law, and intellectual, political and cultural freedom.

China relies on the appropriation of foreign technology to demonstrate that it fights for the competitiveness of institutions and a culture conducive to innovation and progress. The history of state-run economic development is tainted with costly failures and Made in China 2025 could well join them.

While many in the Trump administration see the failure of China to play fully according to the rules and international standards. China's selective accession to these rules and standards is also a strategic weakness.

This explains why China does not have allies outside of North Korea, a country that is more of a problem to manage than a strategic badet. The United States, on the other hand, enjoys a network of economic and security relations with countries such as Australia that increase their strategic weight, although this is an badet that the current administration seems determined to ignore.

The Chinese political and economic system is fragile and precarious. The same forces that spread technological innovation also promote ideas and aspirations that threaten the Chinese Communist Party's dominance

The United States should continue to play its trump cards, including open capital markets. Comprehensive restrictions on foreign investment can hinder both the United States and China

Stephen Kirchner is Program Director, Trade and Investment, United States Studies Center at the # 39, University of Sydney