What we know so far about the US-China dispute over trade practices, intellectual property

US President Donald Trump displays a memorandum on addressing China’s laws, policies, practices, and actions related to intellectual property, innovation, and technology on Aug 14, 2017.
US President Donald Trump displays a memorandum on addressing China’s laws, policies, practices, and actions related to intellectual property, innovation, and technology on Aug 14, 2017. PHOTO: AFP

WASHINGTON/BEIJING - President Donald Trump on Monday (Aug 14) signed a memorandum that will likely trigger an investigation into China's alleged theft of US intellectual property, declaring it "one big move."

The order directs Trade Representative Robert Lighthizer to determine whether to investigate Chinese trade practices that force US companies operating in China to turn over intellectual property.

Here's what we know so far about the presidential order and the dispute:

What is the presidential order about?

The US Trade Representative (USTR) will have a year to look into whether to launch a formal investigation of China's policies on intellectual property, under Section 301 of the 1974 Trade Act. That law allows the president to impose tariffs on foreign products in response to unfair or discriminatory restrictions on American commerce.

The 301 provision has practically fallen into disuse since the mid-1990s after the creation of the World Trade Organisation.

Lighthizer said the USTR will do a thorough investigation and take action if needed "to preserve the future of US industry." But administration officials declined to say how long it will take before a decision is made whether to start a probe.

The new inquiry adds to numerous investigations launched by Washington into Chinese

trade practices, notably those concerning steel and aluminum and their national security consequences, which the Trump administration began earlier this year.

What are the US allegations against China?

In a USTR report released in July, the US administration accused China of engaging in "widespread infringing activity, including trade secret theft, rampant online piracy and counterfeiting, and high levels of physical pirated and counterfeit exports to markets around the globe."

Earlier this year, a 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 (S$306 billion) and could be as high as US$600 billion. The commission said China is the world's principal IP infringer.

Privately, many American business leaders have expressed frustration with a Chinese system that coerces them into transferring valuable US intellectual property to Chinese companies, or allows it to be stolen outright.

China has long required US firms in many industries to form joint ventures with Chinese partners and manufacture some goods inside the country. Although the system forces US companies to transfer some of their valuable know-how to Chinese partners that could become competitors in the future, US companies ranging from Microsoft to General Motors have made such deals to gain access to China's valuable market of nearly 1.4 billion people and a booming middle class.

Under a new Chinese cybersecurity law, technology firms including Amazon and Apple are required to store users' data within Chinese borders and turn over source code and encryption software to the government, potentially giving the Chinese government a backdoor into private data and proprietary technologies.

US companies complain that theft of trade secrets through malware and cyber mercenaries rampant. Roughly 70 per cent of software in use in China is pirated, though this figure is down from recent years, according to The Software Alliance, a trade group.

What does China say?

China repeatedly rebuffed attempts by previous US administrations to take action against its IP practices, and insisted it had rigorously protected intellectual property.

In response to the latest move by the Trump administration, the Ministry of Commerce said it will take action to defend its interests if the US damages trade ties. The US should respect objective facts, act prudently, abide by its World Trade Organisation pledges, and not destroy principles of multilateralism, the ministry said.

"If the US side ignores the facts, and disrespects multilateral trade principles in taking actions that harms both sides trade interests, China will absolutely not sit by and watch, will inevitably adopt all appropriate measures, and resolutely safeguard China's lawful rights," the ministry said.

It added that China was continuously strengthening its administrative and judicial protections for intellectual property.

China's state media Xinhua news agency also warned that while Chinese exporters could be the first to suffer from trade sanctions, the pain would soon spread to US industries and households. It said China was willing to resolve any disputes between the two sides through dialogue.

Beijing also insisted the issues of trade with the US should not be linked to the North Korea problem, as President Trump urged Beijing to put more pressure on North Korea to give up its nuclear programme.