Trump prepares to slap China with investment restrictions, export controls

Second round of President Donald Trump's trade The attacks on Beijing are expected by the end of the week, when the Treasury Department will introduce new restrictions on Chinese investment in the United States and technologies that can be sold to China.

After an internal debate, the administration seems to have opted for more aggressive restrictions advocated by US Trade Representative Robert Lighthizer and White House trade advisor Peter Navarro, on a more conservative approach advocated by the Treasury Secretary Steven Mnuchin. I said.

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Like the tariffs that Trump has imposed on 50 billion dollars of Chinese imports – and those that he threatens to impose 400 billion more if Beijing retaliates – the new investment restrictions and the Export controls aim to put pressure on China to stop unfair trade practices. & # 39; technological leadership. Trump should invoke its emergency powers to protect national and economic security to put restrictions in place.

But the administration is already being repulsed by bureaucrats who think it would be a misuse of the export control system and by companies who fear that the approach will further disadvantage US companies that are trying to avoid it. enter the Chinese market.

Lighthizer said Investment restrictions and export controls will cover the same high-tech sectors that China hopes to develop as part of its massive subsidy program Made in China 2025.

The following is an exhaustive list of industries in which the United States currently operates, including information technology, robotics, aerospace and aeronautics, marine engineering, and shipbuilding. high-tech, advanced railway equipment, energy-efficient vehicles and biomedicine and medical devices, agricultural machinery and equipment and "new materials" that create the possibility of many new innovative products.

Lighthizer, in an interview on Fox Business News earlier this month, said that the administration would use "a broader definition of national security" to justify investment restrictions and controls at the company. Export that currently uses US law.

Many in the business and trade world recognize that the United States must exert more pressure on China to stop the theft of US intellectual property and impose technology transfer. But they are frustrated that Trump has decided to act unilaterally and alienated allies such as the European Union, Canada and Japan, instead of seeking their help.

"Our allies would be delighted to work with us in the search for a structural change in Chinese trade and investment policies that have a negative effect on their businesses." Unfortunately, this does not seem to be a clear priority of the states. United States, "said Dan Price, a former George W. Bush White House official at Rock Creek Global Advisors.

Currently, the United States has one of the most open investment environments in the world, including for China. However, agreements that could potentially pose a threat to US national security are examined by an inter-agency group led by the Treasury Department known as the US Foreign Investment Committee.

Lighthizer and Navarro essentially want to create two separate investment regimes in the United States – one for China and one for all others – to prevent China from taking technology controls away from the US, sources said. private sector. But critics are worried that this will only push Beijing to rely more on "native innovation" policies that favor technologies developed by national champions and disadvantage foreign companies in the Chinese market.

"There will be a Chinese standard for their 1.4 billion people and there will be a US standard for our 300 and a few million people," said Bruce Andrews, a former deputy secretary of commerce at a table round last week. "Then we will compete around the world for the rest of the population to try to get them to buy in one of these two [standards] because Chinese companies and technologies will not be able to enter the United States and we will not be able to access their market. This is not a good recipe … for the best results. "

At the same time, the Senate recently passed a bill to give the CFIUS more powers to stop incoming investments that could transfer sensitive technologies to China or other potentially conflicting countries.

This bill, known as Law 2098 (115) on the modernization of foreign investment risk review, would also give to US export control agencies, such as the Ministries of Commerce, of the State and Defense, the development of a new list of technologies. export the controls. These can range from licensing requirements for certain technologies to outright prohibition.

The Treasury Department argued during the debate on the administration "that we should simply use the text of the Senate and apply it to China," said Derek Scissors, China specialist at the 39, American Enterprise Institute. But the problem with this approach, according to Lighthizer and Navarro, "is that the Senate bill does not specify how we will tighten export controls," added Scissors.

Lighthizer and Navarro have therefore pushed for a broader definition of national security that would allow the administration to restrict exports of "breakthrough technologies, emerging technologies, no matter what you call them" that have not yet proved their commercial value a technological advantage if it were to acquire them, said Scissors.

The National Security Council of the White House has spearheaded efforts to list "industrially important" technologies targeting elements of the Made in China 2025 initiative to strengthen controls at the national level. export, according to three private sources familiar with the plans.

The export checklist should be released on Friday. It is unlikely that there is a specific proposal for the implementation of these restrictions in the current export control system, as this may require the adoption of new regulations, the sources said.

White House Conservatives like Navarro and National Security Advisor John Bolton may struggle to meet their targets of punishing China through the export control system, which aims to restrict exports that could compromise security American national.

"Navarros, Bolton, etc … do not understand the export control system, and they understand things as if they are difficult," said a senior export control official. "I'm not sure what they will be able to achieve and how they will get there."

The White House already He was rebuffed last month when he asked the Commerce Department's Bureau of Industry and Security to develop a list of technologies on which the United States would apply new restrictions to l & # 39; export. BIS oversees the export control system for goods that have both civilian and military uses.

BIS staff asked how the export control system put in place to protect national security could justify export restrictions to prevent China from gaining an economic advantage in a specific sector. declared a private sector source.

"The standard being developed was not a national security standard," the source said. "It was: We want it to be a lever in our 301 [trade] an action to get the Chinese to comply with our demands. "

The export control system operated by the US Department of Commerce requires US companies to obtain licenses to export certain types of goods to certain foreign countries, including China. The ministry maintains a list of these items, known as the Commerce Checklist, which are subject to export restrictions. There are also rules in place that already exclude China, such as the refusal to grant export licenses for products that could be used to improve the Chinese army.

However, future export controls may be more important than investment restrictions. This is because China – despite all the worries – is a relatively small investor in the United States, and CFIUS already prevents it from being able to invest in the most sensitive sectors. militarily of the economy, said Scissors.

The Rhodium group, which specializes in monitoring Chinese investments, estimates that Chinese companies have made total investments of about $ 140 billion in the United States in 2017. The official figures of the US government are even lower. The Commerce Department placed Chinese investment in the United States at $ 27.5 billion in 2016, out of a total of $ 3.7 trillion in foreign investment, two thirds of which came from Europe. .

However, some fear that the message sent by the Trump administration targeting China for new investment restrictions and export controls could make it difficult for both countries to negotiate the end of the increasing commercial frictions.

"If the US government plans to put them in place for the long term, I think we have a lot of trouble getting an agreement with the Chinese because I think they will see the need for reciprocity," said Andrews. .