The China–United States trade war is an ongoing economic conflict between the world’s two largest national economies, China and the United States. President Donald Trump in 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are “unfair trade practices”. Among those trade practices and their effects are the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China.
Since the 1980s, Trump advocated tariffs to reduce the U.S. trade deficit and promote domestic manufacturing, saying the country was being “ripped off” by its trading partners; imposing tariffs became a major plank of his presidential campaign. Although some economists and politicians argue that the United States’ persistent trade deficit is problematic, many economists argue that it is not a problem, and few advocate tariffs as a solution.
In supporting tariffs as president, he said that China was costing the American economy hundreds of billions of dollars a year because of unfair trade practices. After imposing tariffs, he denied entering into a trade war, claiming the “trade war was lost many years ago by the foolish, or incompetent, people who represented the U.S.” He said that the U.S. has a trade deficit of $500 billion a year, with intellectual property (IP) theft costing an additional $300 billion. “We cannot let this continue,” he said. Former White House Counsel, Jim Schultz, said that “through multiple presidential administrations — Clinton, Bush and Obama — the United States has naively looked the other way while China cheated its way to an unfair advantage in the international trade market.”
Among the unfair trade practices asserted by the Trump administration is the theft of U.S. intellectual property (IP). James Andrew Lewis, senior vice president at the Center for Strategic and International Studies, claims that IP has been taken through espionage, theft and forced technology transfers due to mandatory joint ventures. Estimated cost to the U.S. from IP theft is between $225 billion and $600 billion annually.
Technology is considered the most important part of the U.S. economy. According to U.S. Trade Representative Robert E. Lighthizer, China maintains a policy of “forced technology transfer,” along with practicing “state capitalism,” including buying U.S. technology companies and using cybertheft to gain technology. As a result, officials in the Trump administration were, by early 2018, taking steps to prevent Chinese state-controlled companies from buying American technology companies and were trying to stop American companies from handing over their key technologies to China as a cost of entering their market. According to political analyst Josh Rogin: “There was a belief that China would develop a private economy that would prove compatible with the WTO system. Chinese leadership has made a political decision to do the opposite. So now we have to respond.”
Lighthizer said that the value of the tariffs imposed was based on U.S. estimates of the actual economic damage caused by alleged theft of intellectual property and foreign-ownership restrictions that require foreign companies to transfer technology. Such forced Joint ventures give Chinese companies illicit access to American technology.
In its ongoing trade war with the US, China’s Communist Party has issued a directive seeking the mass replacement of all foreign computer equipment in government offices and public institutions within three years, in an attempt to increase its reliance on domestic technology amid the current US sanctions. Orders from the ruling party were reportedly disseminated earlier this year and recently brought to light in a report by the Financial Times.
Among several developments in the US-China trade war has been the latter’s push to make itself technologically independent of the US semiconductor industry. A major step in this direction is an order passed by the Chinese Communist Party, to push the government and public institutions to replace foreign-made computer equipment with local products.
Given its impact on US companies that have ongoing businesses with the Chinese government, such as Dell, HP, and Microsoft, the directive was meant to be implemented in secrecy, until details around its existence leaked to the Financial Times.
Although the policy documents remain confidential, employees from two cybersecurity firms, on the basis of anonymity, confirmed the new directive the FT after becoming aware of it through government clients.
According to the publication, the directive came directly from the Chinese Communist Party’s Central Office earlier this year and will result in an estimated 20 to 30 million pieces of hardware that will need to be replaced over the course of three years.
China internally refers to the policy as “3-5-2” which is indicative of the pace at which replacements will be carried out. By the end of next year, 30 percent of foreign-made equipment in official use will be substituted with locally manufactured products from companies like Huawei and ZTE, among others. The plan will target another 50 percent of the equipment in 2021, and the remaining 20 percent will be replaced in 2022.
For now, this directive does not apply to privately-owned Chinese companies. It will also be challenging for government agencies to implement this change, considering that a majority of them use Lenovo PCs, which are powered by US-made hardware (Intel) and software (MS Windows).