White House Opens New Front in China Trade War

November 12, 2018 Updated: November 13, 2018

WASHINGTON—The Trump administration is ramping up the pressure in its ongoing trade war with Beijing by adopting new strategies to curb China’s intellectual property (IP) theft.

A recent report by The Wall Street Journal, citing sources familiar with the matter, claims that Washington is gearing up to move beyond tariffs and “use export controls, indictments, and other tools” to take on China.

The U.S. government has recently taken “unprecedented actions” to defend the largest American memory-chip maker, Micron Technology. The Commerce and Justice departments cracked down on a Chinese state-owned company for stealing Micron’s trade secrets.

On Nov. 1, the Justice Department issued indictments against China’s Fujian Jinhua Integrated Circuit, its business partner Taiwan’s United Microelectronics Corp., and employees, including Jinhua’s president, for conspiracy to commit trade secret theft, economic espionage, and related crimes. The companies were accused of stealing Micron’s trade secrets related to the production of advanced dynamic random-access memory chips (DRAM).

Micron is the only U.S.-based company that manufactures DRAM, a technology not possessed by China until very recently. The Chinese regime has publicly identified the development of DRAM and other microelectronics technologies as a national economic priority.

The Justice Department also filed a civil lawsuit to prevent Jinhua and its partner from exporting to the United States any products made by using the trade secrets at issue.

Idaho-based Micron welcomed the Justice Department’s decision.

“Micron has invested billions of dollars over decades to develop its intellectual property,” said the company, in a press release. “The actions announced today reinforce that criminal misappropriation will be appropriately addressed.”

The move came after the Commerce Department announced in October that it had restricted exports to Jinhua by adding the company to its “entity list,” as it posed a national security threat to the United States.

The Commerce Department stated that the company threatened the “long-term economic viability of U.S. suppliers of these essential components of U.S. military systems.”

According to experts, this move by the Trump administration is an unprecedented effort to use a legal tool widely known for penalizing foreign entities that support terrorism, send goods to sanctioned countries, or violate export-control rules.

U.S. officials are now searching for additional cases where they could protect American firms against Chinese IP theft, the sources told the Journal, hoping that business leaders would cooperate with the U.S. government.

Costs of IP Theft

The annual cost of IP theft to the U.S. economy could be as high as $600 billion, according to the IP Commission 2017 report by the National Bureau of Asian Research. And China is the top IP infringer in the world.

“IP theft by thousands of Chinese actors continues to be rampant, and the United States constantly buys its own and other states’ inventions from Chinese infringers,” the report stated.

Beijing is deeply committed to economic policies that include aggressively acquiring foreign technology and information, policies that have contributed to greater IP theft.

In the last decade, through these aggressive and trade-distorting practices, China has managed to create its own national champions in key industries, helping them expand their market share and overtake foreign rivals.

Beijing’s tactics have weakened the competitiveness of American companies like Micron.

To end China’s “economic aggression,” the Trump administration has levied duties on roughly $250 billion worth of Chinese goods and imposed restrictions on Chinese investments. Beijing has retaliated with tariffs of its own against U.S. products.

The Trump administration’s unprecedented actions to defend Micron have opened a new front in the U.S.–China trade war.

The move came weeks before President Donald Trump’s planned meeting with Chinese leader Xi Jinping at the G-20 summit in Buenos Aires. Both sides are considering a formal, bilateral meeting at the summit that may include discussions on trade as well.

During the bilateral trade talks this year, the Trump administration presented Chinese officials with a long list of trade demands including ending IP theft.

Chinese officials, however, have given no indication that they’re ready to meet Washington’s demands. The last round of talks ended in August with no concrete steps toward a deal.

The list is very important to the administration, said Larry Kudlow, the White House’s top economic adviser, at a Washington Post event on Nov. 1.

“If they don’t make a satisfactory offer, then the president will continue to aggressively pursue his agenda. And I think he’s right to do so,” he said.

“Frankly, the principal culprit is China,” he added. “I think only they can break the logjam.”

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