Parsing China’s Bogus Response to the Latest Round of U.S. Tariffs

July 13, 2018

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China’s Ministry of Commerce (MOFCOM) issued a statement on July 12 regarding President Trump’s latest announcement of tariffs on Chinese goods. In parsing the statement, it is important to understand that China is engaged in a massive global effort to gain the moral high ground by painting the United States as an unfair protectionist and China as a paragon of free-trade virtue.

Make no mistake: China’s statement belongs in the fiction section. Here’s a quick analysis of key excerpts, shown in italics:

[Regarding the] slander of the US against China about gaining extra advantage through unfair trade practice is a distortion of facts and hence is groundless. For the purpose of meeting its political need at home and containing China, the US side produced a whole set of policy logics that distorted the truth of China-US economic and trade relations.

The success of the Chinese economy has never been a success of practicing mercantilism outside China or the success of practicing the so-called state capitalism.

  • Then China must not consider it to be mercantilism when it buys up U.S. technology companies using money from the Chinese government so it can afford to pay a premium over market prices in order to acquire U.S. technology.

The US, due to its cold-war mentality, imposes restrictions on the export of hi-tech products which it has comparative advantage.

  • The Chinese government has long used this as an excuse, Effectively saying, “Sell us your most valuable defense technologies so we can ramp up our military, and then your trade deficit will be lower.” The reality is that the Chinese government practices import-substitution and works to limit U.S. imports, including semiconductors.

The Chinese government already put in place a full-fledged legal system to protect intellectual property rights, allowed judicial system to play a leading role in IPR protection, and promoted the establishment of IPR courts and dedicated IPR tribunals.

  • Is this why the Chinese courts found U.S. company Qualcomm to be in violation of antitrust rules, even though no other nation in the world did, and not only made it pay an exorbitant fine but also forced it to license its technology to Chinese companies at a discount? Is this why IP Commission report on “The Theft of U.S. Intellectual Property” found that Chinese IP theft cost the U.S. economy $600 billion annually?

[Regarding the] so-call “forced technology transfer”. The Chinese government did not make this kind of request to foreign companies, and cooperation between Chinese and foreign companies in technology and other economic and trade field is contract behavior purely based on voluntary principle.

  • Is this why a survey of companies conducted by the EU found that only 12 percent of respondents would have chosen their current Chinese joint venture structure in the absence of Chinese JV requirements? Is it why leading academic researchers beg to differ? As Prud’homme writes, “Foreign firms are allowed some flexibility to decide whether or not they want to comply with China’s FTT [forced technology transfer] policies. Yet all are accompanied by consequences for noncompliance.” And as Hout and Ghemawat note, “Executives working for multinational companies in China privately acknowledge that making official complaints or filing lawsuits usually does little good” when complaingin about forced technology transfer.

[Regarding] “Made in China 2025” and other industrial policies. Under market economy conditions, these policies implemented by the Chinese government are guiding documents in nature, and are open to all foreign-funded companies.

  • The hundreds of billions of dollars in subsidies that are given to Chinese companies under “2025” but are not available to U.S. companies are not “guiding documents.”

United States claims that it has “patiently urged China” and that China ignored the US request, but the truth is that trade differences have always been an important issue to China, who has been promoting the resolution of differences through dialogue and consultations with maximum sincerity and patience.

  • As USTR has documented, the U.S. government has raised these issues with the Chinese government in formal dialogues for over a decade and the Chinse government has played “rope-a-dope”—stalling for time, waiting for the next dialogue, and kicking the can down the road.

In facing repeated threats of a trade war by the US, the Chinese government repeatedly stated its principle position of “not wanting a trade war, not being afraid of one, and having to fight one when necessary”. The Chinese side insisted on not firing the first shot, and was forced into taking reciprocal countermeasures after the U.S. first started the trade war.

  • China has not only fired the first shot, but the first thousand shots, with its two decade-long embrace of unfair mercantilist tactics. China started this war. The Trump administration has only responded.

No matter how things change outside, the government of China will stay determined to let the market play a decisive role in resource allocation, protect property rights and intellectual property rights, give play to the major role of entrepreneurs, encourage competition and oppose monopoly, continue with opening up, create an attractive business climate, provide solid support for economic globalization, safeguard international trade and economic system, and grow and prosper with all countries in the world that seek progress.

  • Saying it is so doesn’t make it so. As ITIF has documented, China has kept almost none of the promises it made when it said it would join the WTO.

The bottom line analysis of China’s recent statement is that part of this trade war, which China launched two decades ago, will be won or lost in the court of global opinion. The media, policymakers and citizens around the world should not fall for the Chinese spin that it is the victim. Its violations of the letter and spirt of WTO’s rules are clear for all to see. If China does not act more like a legitimate WTO member, then the integrity of the global trading system will suffer the consequences.