Trump Orders Probe of China’s Theft of Intellectual Property

Sanctions could be imposed if Beijing violated 1974 trade act

U.S. President Donald Trump listens to a reporter's question after signing a memorandum on addressing China's laws, policies, practices, and actions

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In a major slap at China, President Trump on Monday ordered an investigation into Chinese theft of American intellectual property.

"We're going to be fulfilling another campaign promise by taking firm steps to ensure that we protect the intellectual property of American companies and, very importantly, of American workers," Trump said in signing a memorandum for U.S. Trade Representative (USTR) Robert Lighthizer.

The directive will set the stage for an investigation into trade practices that require U.S. companies operating in China to provide intellectual property to the Chinese government.

If a formal investigation is launched, it could take several years and potentially result in the imposition of economic sanctions on China.

The president's action on predatory Chinese trade practices follows the failure by Beijing to rein in its communist ally North Korea.

In July, Trump tweeted, "I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk."

"We will no longer allow this to continue," he tweeted. "China could easily solve this problem!"

Trump on Monday said the theft of intellectual property costs millions of U.S. jobs and "billions and billions of dollars" every year.

"For too long, this wealth has been drained from our country while Washington has done nothing," he said. "They have never done anything about it. But Washington will turn a blind eye no longer."

The memorandum calls on the USTR office to probe China's policies, practices, and action regarding forced transfers of American technology and the theft of American intellectual property.

The inquiry could result in a formal 301 investigation, so called after Section 301 of the 1974 Trade Act.

The law gives the president broad power, including retaliation, to punish foreign governments that violate international trade agreements or used unreasonable and discriminatory practices that restrict U.S. commerce.

The USTR must seek to negotiate a settlement with the foreign nation in the form of compensation or elimination of the trade barrier.

"We will stand up to any country that unlawfully forces American companies to transfer their valuable technology as a condition of market access," Trump said. "We will combat the counterfeiting and piracy that destroys American jobs, we will enforce the rules of fair and reciprocal trade that form the foundation of responsible commerce, and we will protect forgotten Americans who have been left behind by a global trade system that has failed to look—and I mean look—out for their interests. They have not been looking out at all."

Trump said Lighthizer was empowered to consider all available options in dealing with the problem.

"We will safeguard the copyrights, patents, trademarks, trade secrets, and other intellectual property that is so vital to our security and to our prosperity," the president said.

Trump then added: "And this is just the beginning. I want to tell you that. This is just the beginning."

Trump's action against China was originally intended to be announced in a speech Aug. 4 but was put off until after the United Nations Security Council resolution, which China supported, condemning North Korea's nuclear and missile programs.

Sources close to the White House said the president's action was debated among senior advisers and that several pro-business aides opposed the trade investigation.

American firms in China have long complained that China requires all U.S. companies operating in the country to provide valuable information that is often then provided to Chinese competitors.

According to business people working in China, many of the Chinese regulations are selectively enforced and used to coerce companies into cooperating with Chinese firms.

Chinese intelligence services also employ hackers who have exploited the Chinese telecommunications system to steal technology in cyber attacks.

Also, a recent Chinese cyber security law requires American technology companies to keep user data inside China and to provide source code and encryption software to the government.

China denied engaging in illicit trade practices and warned there would be no winners in a trade war.

China's Ministry of Commerce said in a statement Tuesday the government is "seriously concerned" by the trade investigation. The ministry promised to respond to U.S. protectionism by adopting "all appropriate measures to vigorously defend the lawful rights and interest of China."

Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing Monday that criticism of China for intelligence property theft is the result of efforts by "certain people in the U.S."

"China has highly valued the protection of [intellectual property rights]," she said.

The Information Technology and Innovation Foundation, a science and technology think tank, praised the president's action.

Robert D. Atkinson, the foundation's president, said Chinese trade practices subvert global trade rules and harm the U.S. economy.

"Simply put, China is an innovation mercantilist," he said. "It tries to gain advantage in strategically important industries by using dubious policies and practices such as coercing competitors into handing over proprietary technologies and intellectual property."

Atkinson criticized the U.S. government for not doing more to help American businesses in China. "The U.S. response has been to engage in a seemingly endless cycle of ministerial dialogues that mostly have succeeded in eliciting empty promises that China will change its behavior," he said.

American Enterprise Institute expert Derek Scissors said a 301 investigation would be an important first step in countering predatory Chinese economic policies.

"The coercive transfer and theft of intellectual property may be the single biggest economic harm China inflicts on the U.S.," Scissors said. "Beijing's policy has been clear and sustained: acquire others' innovation by all means available."

China conducts intellectual property theft through a combination of legal purchase, coerced transfer of intellectual property, and outright theft, he added.

"Since coercion and theft have nothing to do with free trade, American retaliation would not be a violation of free trade," he said.

"China has attacked our innovators for 15 years and we've done nothing," Scissors said. "The problem cannot now be solved in two years. We're only at the stage of gathering facts, which will take time. But at least we're starting."

Former National Security Agency Director Keith Alexander noted that five years ago he declared that the theft of American intellectual property was the greatest transfer of wealth in history.

"I believe that statement is even more true today," Alexander said. "Protecting American innovators is essential to the United States’ economic and national security. This presidential action is an important step towards stopping the theft and forced transfers of American intellectual property, and I support the president in his actions today."

Michael Pillsbury, director of the Center on Chinese Strategy at The Hudson Institute, also supported the action.

"China's attack on U.S. intellectual property is a national security challenge of the first order, as well as a persistent check on our economic growth," Pillsbury said. "By taking bold and decisive action to protect our intellectual property, President Trump is showing the world that the United States will stand up decisively for our national interests and put America First."

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