Given the administration’s stance on trade with China, since the early days of the presidential campaign and the launch of this Section 301 investigation back in August, the proposed tariffs themselves are not a great surprise but their size and related investment restrictions are obviously very significant. President Trump, Secretary Ross and the USTR Lighthizer have had no hesitation wielding tariffs against what they deem to be unfair trading practices. As we have seen with the steel and aluminum tariffs on national security grounds, the exemptions for which were announced yesterday, the threat of tariffs have become somewhat of a negotiating tactic. We will therefore be watching closely for the draft list of goods that the USTR is preparing in the next 15 days as well as China’s response and subsequent dialogues.
The United States has long had grave concerns with China’s record on intellectual property. Just recently and touched on by the USTR, the tech sector has sounded the alarm on China’s new Cybersecurity Law, which has been adopted but is being rolled-out towards the end of this year. The law imposes certification requirements on the sale of computer equipment in that country, requiring security reviews to deem that equipment as being secure. Companies have argued this provision could require them to disclose intellectual property, such as source coding, which could then be copied by domestic companies.
Chinese counterfeit and pirated goods have also been in the headlines for many years and a report released this week by the USTR pointed to Chinese restrictions on market access of cloud computing as being a key barrier to digital trade worldwide. This action also follows stricter and potentially expanded Committee on Foreign Investment in the United States (CFIUS) reviews on the acquisition of US companies with potentially sensitive IP by Chinese conglomerates.
While these tariffs may be seen as a blunt instrument, they are addressing issues that have been on the table for some time and a real stumbling block in trade negotiations between the two countries.
That said, the Supreme People’s Court of China earlier this month vowed to strengthen its intellectual property rights and legal enforcement, so it begs the question on the timing of this announcement and whether these tariffs will have their intended consequences or whether it will actually drive China to backtrack on these moves forward.
Frank Samolis is co-chair of the International Trade Practice at Squire Patton Boggs.