WASHINGTON (Bloomberg) - The Trump administration is considering clamping down on Chinese investments in the US and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property, according to people familiar with the matter.
The US Trade Representative's office last year began investigating China's IP practices under a seldom-used trade law that gives President Donald Trump powers to impose trade restrictions to protect American commerce from unfair trading actions by foreign nations. An announcement about the investigation is anticipated in the coming weeks.
The move would escalate tensions already running hot over Trump's plan to impose stiff tariffs on steel and aluminum imports, risking retaliation from allies and major trading partners like China and rankling Republican lawmakers over the economic costs.
Trump struck a defiant tone this week, tweeting that he'd welcome a trade war.
In a blow to the free-trade wing of Trump's team, White House chief economic adviser Gary Cohn announced on Tuesday he is resigning.
The dollar fell and an exchange-traded fund linked to US stocks tumbled in after-hours trading.
Under the most severe scenario being weighed, the US could impose tariffs on a wide range of Chinese imports, from shoes and clothing to consumer electronics, according to two people familiar with the matter who spoke on condition of anonymity because the discussions aren't public.
The Trump administration could combine the tariffs with restrictions on Chinese investments in the US, which are reviewed for national-security risks by Treasury's Committee on Foreign Investment in the US, the people said.
The new measures being considered by the administration could go beyond even domestic security considerations.
The US has long been wary of China's push to develop its own semiconductor industry that could compete with American firms.
That concern was highlighted in a letter made public on Tuesday, in which the Treasury Department said Singapore-based Broadcom Ltd.'s hostile takeover attempt of Qualcomm Inc. could pose a national security risk.
The worry is Broadcom could harm Qualcomm's innovation, allowing China to expand its influence in key wireless technology, according to the letter dated March 5.
With the probe into China, known as a Section 301 action, US officials are also considering a more targeted approach that would seek to rein in Chinese investments, the people said. The administration is looking at ways to enforce reciprocity with China on foreign investment, meaning the US would only allow takeovers in sectors that US companies can access in China, according to the people.
Treasury Secretary Steven Mnuchin has already urged closer vetting of foreign takeovers, and Republican lawmakers are pushing legislation aimed at curbing China's influence.
US officials are still examining various options, and USTR could decide to do nothing, the people said, adding that an announcement is expected next month.
A White House spokesperson declined to comment on an ongoing process, adding that no final decisions have been made.
A senior Chinese official warned that potential tariffs could harm the global trading system, and the Chinese government has been studying curbs on U.S. products such as soybeans.
Trump has fanned the flames, declaring that "trade wars are good and easy to win".
Mnuchin, speaking before a congressional panel on Tuesday, said the administration's objective is to achieve a "fair and balanced" trading relationship with China. America's trade gap in goods with the Asian nation surged 8 per cent last year to a record US$375 billion.
Mnuchin said the US isn't trying to provoke a trade war with the tariffs, an action that he backed.
"The good news" is that Chinese President Xi Jinping and Trump have a "very good relationship and communicate regularly," said Mnuchin.
Wide-ranging tariffs on goods made in China may also provoke a backlash from US retailers such as Walmart Inc. and Target Corp.
The retail industry successfully pushed back last year against a proposal by Republican leaders in Congress to apply a border tax on imports.
USTR has argued in the past that Beijing uses a range of practices to force companies to transfer IP, and Chinese entities engage in widespread theft of US trade secrets. US businesses in China have long complained about being forced to hand over technology as the price of gaining access to the Asian market.
American officials are concerned China will piggyback off their nation's technology as part of its strategy to become a leader in artificial intelligence and other advanced industries.
US companies have been urging the Trump administration to negotiate with Beijing before imposing any penalties, according to industry lobbyists. That may be difficult, given that the main channel of economic dialogue between the two countries has broken down. However, Vice Foreign Minister Zhang Yesui said this week that China will host talks on trade issues with US officials.
Under the law, the US can impose duties or other barriers on the goods and services of the foreign country that undermined American commerce. It can also negotiate agreements under which the foreign nation would commit to end the offending tactic.
The government is supposed to come up with a solution that impacts foreign goods and services at a level equivalent to the damage done to American industry. Last year, an independent commission on US intellectual property estimated that the annual cost to the US economy in counterfeit goods, pirated software, and theft of trade secrets from all sources exceeds US$225 billion and could be as high as US$600 billion. China is the world's principal IP infringer, the commission said.