China's economic policy 'threat to world economy'

Brussels

THE world economy lurched closer to an all-out trade war as the Trump administration accused China of threatening US economic interests and as the European Union made good on its threat to hit American goods with retaliatory tariffs.

A scathing report, posted late Tuesday by the White House, blamed Beijing for hijacking intellectual property and pursuing destructive industrial policies, saying the nation's spectacular economic growth "has been achieved in significant part through aggressive acts, policies and practices that fall outside of global norms and rules".

"Given the size of China's economy and the extent of its market-distorting policies, China's economic aggression now threatens not only the US economy, but also the global economy as a whole," according to the 35-page document.

The White House report came out just before the EU triggered the first phase of retaliation against the US over its metal-import tariffs, approving a 25 per cent duty on 2.8 billion euros (S$4.4 billion) of US products including Harley-Davidson motorcycles and Levi Strauss & Co jeans.

The duties are due to be published in the Official Journal on Thursday and will take take effect on Friday.

It opens up a second contentious trade front for US President Donald Trump, who on Monday ordered US officials to consider imposing tariffs on an additional US$200 billion in Chinese imports - with another US$200 billion to be added if Beijing retaliates.

The EU countermeasures will hit US consumer, agricultural and steel products in many key Republican constituencies, putting pressure on Mr Trump ahead of crucial midterm elections in November.

"We did not want to be in this position," European Trade Commissioner Cecilia Malmstrom said in a statement on Wednesday.

"But the unilateral and unjustified decision of the US to impose steel and aluminium tariffs on the EU means that we are left with no other choice."

The EU countermeasures cover a total of around 200 categories of US products also including various types of corn, rice, orange juice, cigarettes, cigars, T-shirts, cosmetics, boats and steel. The EU is reserving the right to target more US products with further duties no later than March 23, 2021.

Second-stage retaliation would involve levies ranging from 10 per cent to 50 per cent on an extra 3.6 billion euros of American goods imported into the EU.

On the other side of the Pacific, economists are starting to run the numbers on what kind of dent to growth such actions will have on China's economy.

Bloomberg Economics' Tom Orlik and Fielding Chen wrote that the impact of decreased exports and lower manufacturing investment could mean a 0.5 per cent blow to gross domestic product.

A pull back in Chinese investment in the US is already evident. Research from Rhodium Group showed Chinese companies completed acquisitions and greenfield investments worth US$1.8 billion in the first half, representing a drop of more than 90 per cent from the same period in 2017 and the lowest level in seven years.

The trade skirmishes are not holding back the US economy just yet, which is booming this quarter as tax cuts power consumers and businesses. Still, as risks to that outlook mount, economists are pointing to higher checkout prices on a range of tech, apparel and household goods for US consumers should Mr Trump follow through with his latest tariff threats.

Just last week, he unveiled plans to implement previously announced tariffs on US$50 billion in primarily industrial goods. China has said it would match those levies in kind, and has already responded to earlier duties on metals imports.

The US government has long complained that China obtains American intellectual property and technology through underhanded means, and the White House report restated many of those concerns, including about hacking, physical theft of trade secrets and evasion of export control laws.

The Chinese government said it was working to improve intellectual property protection. Companies surveyed by European Union Chamber of Commerce have seen some improvement, though a slim majority said protection of intellectual property in China was still inadequate.

"Physical theft through economic espionage by company insiders or others who have trusted access to trade secrets and confidential business information provides China with a significant means to acquire US technologies and intellectual property," the White House report charged.

The report, titled How China's Economic Aggression Threatens The Technologies And Intellectual Property Of The United States And The World, did not make any specific policy recommendations. Yet it codified some of the administration's arguments for a more aggressive stance towards China over trade.

Besides the volleys of tariffs on goods from China, the Trump administration is also considering measures that would restrict Chinese investment in sensitive American technology.

The report also accused China of openly protecting domestic industries from competition and imports through tariffs, regulation and restrictions on foreign ownership. It also said China offered financial support to bolster its exports to foreign markets.

It added that Chinese state-owned companies posed an additional threat to overseas firms, given their close ties to the Beijing government.

The government itself dominated many industries and played an enormous role in investment decisions and strategy. For instance, the report said, until 2014, state-supported foreign investment funds were directed towards acquiring natural resources. Now, that focus has shifted to technology.

The US imported US$505 billion of goods from China last year and exported about US$130 billion, leaving a 2017 trade deficit of US$376 billion, according to US government figures. BLOOMBERG