Professional Interpretation

Abstract: the US and China are on the verge of a trade war, now that Trump’s administration has move forward to tariffs, China is about to retaliate, and president Trump is ready to retaliate in even bigger fashion. He said that trade war is easy to win. How will that effect china’s economy? Beijing DOCVIT law firm will interpret it from the section 301 viewpoint.

I. background: main aspects of China economy

Before we go through the section 301 section discussion, it is necessary to take a brief review of China economy in recent years and try to figure out the deep motivation behind trade war.  

a. Less dependence on export to the U.S

The big theme of China economy is the rebalancing of economy away from its old smokes decades when it has raise. The traditional focus on the last three or four decades of export ends and toward the consumers and towards to services. Since 2015 service have become for more than 50% of output, which is a big milestone. On the other hand, the consumer side is getting stronger and stronger as a domestic pump for growth. There is a real shift that continuingly to slowly push turn away old dependence on exporting cheap goods.

b. Made in China 2025

Inspired by Germany’s “Industry 4.0” plan for intelligent manufacturing industries, the blueprint for “Made in China 2025,” according to the Center for Strategic and International Studies, is “far broader.” The plan seeks to raise the domestic content of core components and materials to 40% by 2020 and 70% by 2025. In other words, “Made in China 2025” is a roadmap for China to encourage indigenous innovation in cutting-edge industries. As we mentioned above, there has been this a steady shift toward services toward consumer to show that economy is not just that massive “made in China”, that why the government is pushing the “made in China 2025” which is an evolution on made in China and focus on more high technology.  

Nowadays, “made in china 2025” has become probably one of the most underappreciate governmental goals and it is a really ambitious target to really dominate a number of high tech sector. One of the example came out last year was the “new high speed rail” the FuXing, which means rejuvenation, were made by 100% domestic technology.

c. Balance between state owned and private sector.

This is a really combination of hands on in some ways and hands off in other ways. On one hand, the control has been tightening over the state owned. There is two different things going on there, there been more state control over the state owned enterprises and also an effort to trying to make them leaner and more nimble to get away from the old bloated and debt written enterprises that used to be in the past. On the other hand, there are also a really high level focus on really putting more support into startups and innovative companies that will rise to become the next Alibaba or Tencent and really push these economy forward. To sum up, there is both an encouragement of government to have more control and also to support the new engine that exceeds the self needs in future.

d. Demographics

One theme that was always coming up is that the work force start to shrink, meaning the working age population is actually starting to get smaller. This is in fact a big worry for policy makers. One of the big milestone is that repealing of the one child rule. When the one child rule is first eliminate, there was a pop of birth rate, but then the following years, that kind of settle back break down to 700 million a year. by 2030, the predictions shows there going to be more people who are 65 or older than those who are 14 or younger, so that is a potential headache for policy maker to address and it doesn’t argue well for the long term growth trends.

II. The legal basis for Upping the Trade War-section 301

a. How section 301 ignites the trade war.

Section 301 investigations determine whether a foreign nation is engaging in unfair trade practices that are unreasonable or discriminatory and if those practices burden or restrict U.S. commerce.

The United States announced new tariffs on over 1,300 imports from China, valued at more than $46 billion, in response to a Section 301 investigation into unfair Chinese trade practices. By targeting the tariffs to specific products highly reliant on intellectual property (IP), the Trump Administration is attempting to provide protections for the most sensitive U.S. industries vulnerable to IP theft and forced technology transfer.

The Trump Administration launched this particular investigation on the basis of IP theft and forced technology transfer, a practice that requires U.S. companies to share intellectual property with companies in China in order to gain market access and launch joint ventures. Section 301 investigations are comparatively rare; the vast majority of tariffs applied by the United States are a result of anti-dumping and countervailing (AD/CV) duty investigations initiated at the request of U.S. industry. Unlike most AD/CV duty investigations, the federal government self-initiated this Section 301 investigation at the request of President Trump.

President Trump asserted that “China has implemented laws, policies, and practices and has taken actions related to intellectual property, innovation, and technology that may encourage or require the transfer of American technology and intellectual property to enterprises in China or that may otherwise negatively affect American economic interests” and that these actions “may inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services, and innovation.”

Surprising no one, the 301 investigation found that “the acts, policies, and practices of the Chinese government related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”

b. What Trump Government tries to do?

What Trump and his administration are aiming to achieve is to terminate the progress of “Made in China 2025” and eventually, to delay the development of China’s high-tech industries, including artificial intelligence, robotics and quantum computing, self-driving vehicles, automated machine tooling, and advanced medical devices.

c. How would China Respond?

One of the clear things China government said there is they are prepared to suffer the consequences that they are not going to be pushed around and making concessions that they are not prepared to make or they don’t believe it should. China is ready to take the pain for a while and the system there is a unique one that positions them to be able to do that without worries about political blowback. So that’s a real clear signal from the government that they are ready to take on this this battle and they didn’t want it and didn’t ask it.

Furthermore, a trade war would be an opportunity for China to prove its economic strength, but before waging one, the Chinese government should pay attention to the critical period that China’s economy is entering. It is going through a transition period (driven by the change of demographics) from a market dominated by labor-intensive industries to an inward, quality-focused economy. At the 2018 Boao Forum for Asia, President Xi Jinping promised to open China’s door wider to foreign investors. He also said that China “will make an effort to provide a good business environment to compete, and not just use the old tricks of lower taxes, cheap land and subsidies.” This could be the driving force for China to further open up its market, as the U.S. desires, but it could also backfire on the United States. The Trump administration is unlikely to force China, which has a more-powerful-than-ever authoritarian government, to give up control over its own future.