US, EU, Japan Must Strengthen Trilateral Effort to Confront China’s Mercantilist Trade Practices, Leading Think Tank Advises

WASHINGTON—Against the backdrop of a pending “phase one” trade deal between the United States and China that will focus on farm, energy, and manufactured goods, the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and tech policy, today released a new report calling on the United States, the European Union, and Japan to band together in strong trilateral partnership to pressure China into rolling back the mercantilist trade practices it uses to grow advanced, innovation-driven industries.

Given China’s “Made in China 2025” industrial development strategy and panoply of other distortive trade and economic policies, the report argues that without aggressive, coordinated action, leading economies in Europe, Asia, and North America are likely to face a crushing wave of unfair competition—and have fewer jobs as a result—in industries as diverse as aerospace, automobiles, biopharmaceuticals, chemicals, electronics, digital media, Internet services, machine tools, semiconductors, and others.

“China has progressed enough economically and technologically that it no longer fears bilateral pressure against its mercantilist trade violations, but it sees collective action as a real deterrent,” said ITIF’s associate director for trade policy, Nigel Cory, who co-authored the report with ITIF President Robert D. Atkinson. “Neither the United States nor the European Union nor Japan can make China change its ways alone, but together, through a stronger trilateral agenda, they can.”

An existing framework for U.S.-EU-Japanese cooperation—the Trilateral Meeting of Trade Ministers—has shown early progress in five initial meetings since it was established in December 2017. ITIF’s new report outlines a series of guiding principles and policies that the parties should champion as part of a stronger, broader, and more proactive agenda:

• Recognize that addressing Chinese innovation mercantilism is a strategic imperative, and that a stronger trilateral framework is the best vehicle for pressuring China to change course. To that end, the parties should remove all recent bilateral, non-WTO trade measures against each other and instead focus on China.
• Recognize that a rules-based framework has to be at the heart of the response. The goal in pushing back against China is not to punish it, but to rebuild a clear, enforceable, rules-based trading system.
• Make a collective, good-faith, and sustained effort to work through the WTO—to the fullest extent possible, given its shortcomings—to combat China’s innovation mercantilism.
• Cooperate on developing defensive mechanisms such as foreign investment screening and export controls to address China’s predatory, nonmarket-driven trade and economic activities.
• More consistently and forcibly respond to cases wherein China enacts new barriers to trade, especially those related to advanced-technology sectors.
• Negotiate common rules and principles around data flows, privacy, and digital trade. Developing core tenets for open and rules-based global data governance is too important to leave for WTO ecommerce negotiations.
• Finalize and enact new, stronger trade rules to prohibit forced technology transfers and market-distorting subsidies.
• Ensure international technical standards for artificial intelligence, robotics, self-driving vehicles, the Internet of Things, and other new and emerging technologies reflect WTO rules and continue to be set in open, industry-led, consensus-based standards-setting bodies.
• Cut back scientific cooperation related to Chinese innovation mercantilism and military objectives.

“China used to focus on low-cost, labor-intensive manufacturing, but now it’s doubling down on its mercantilist formula in an attempt to dominate a wide array of advanced industries,” said Atkinson. “The impact of this ‘innovation mercantilism 2.0’ will be more profound than past phases, because once a nation or region loses an advanced industry to China, it will be virtually impossible to resurrect.”

Read the report.